The Rise of the Machines: Assessing the Workers Compensation Solutions Market

Introduction

Don’t be alarmed – your Workers’ Compensation solution isn’t about to take over the world. But the appeal of next-generation Workers’ Compensation platforms is on the rise, due to their operational efficiency and customer experience workflows that are helping to drive their success. The sector overall has also been experiencing positive financials while the rest of the P&C market has suffered.[1] Like any other business, Workers’ Compensation cycles through hard and soft markets. Although we’re currently in an upswing, significant challenges loom large for insurers and solution providers, most notably an aging workforce, climate change, a tighter labor market, and a consumer base that continues to demand high-quality digital experiences from all the companies they patronize, up to and including their – or their employer’s – Workers’ Compensation insurance carrier.[2]

In this blog, we’ll examine today’s Workers’ Comp software market, review the current macroeconomic forces that are affecting it, and assess what today’s insurers need in a core solution to gain and maintain a competitive edge.

The Good

Unlike most of the insurance industry which has seen significant financial challenges, the Workers’ Compensation sector has been strong, substantially better than the rest of P&C. Loss ratios have fallen 25% during the last decade while the rest of P&C has risen 10%[3]. The sector has also developed favorable loss reserves. Overall, the Workers’ Compensation business has remained profitable. Continuing this trend of success, Workers’ Compensation technology companies need to continue to innovate.  Workers’ Comp software features streamlined operations and favorable customer workflows, whose efficiencies have even attracted customers from other P&C lines and can assist them in their technology needs.

The Bad

Unfortunately, a perfect storm of macroeconomic forces has combined to potentially increase claim frequency which could very quickly erode the industry’s loss ratio and reserves. In particular:

• An aging workforce. Older workers who are remaining in the workforce longer may be more susceptible to job-related injuries.
• Climate change. Higher temperatures mean more potential for dangerous work environments that can include burns, heatstroke, and diminished decision-making capabilities.[4] In addition, increased migration to the Sun Belt region of the U.S. means that construction and industry are moving into areas that are experiencing consistently higher temperatures.
• A tighter labor market. Although more new businesses are good for the economy, it means growing pains for new establishments resulting in less-than-ideal conditions or skill among hires at these new firms.[5] Insurtechs in particular are entering the market to take advantage of current profitable opportunities and may succeed due to their often-superior digital user experience and engagement.
• A subset of a tight labor market is staff attrition. Carriers who lag in digital transformation will struggle to keep their employees. While some of the attrition will result from employee retirement, carriers will continue to struggle to fill positions and lose existing talent when more modern competitors with higher compensation are available.
• Social inflation. Social inflation, the tendency for claims costs to increase faster than general inflation, is on the rise as cost pressures incentivize claimants to seek more recompense from their insurance companies when making a claim.[6]

The Takeaways

For Workers’ Compensation insurers, the very real macroeconomic conditions mean that they need to prepare for these and other unanticipated cost pressures. A pivotal step for them is to invest in a modern, purpose-built, and intuitive solution that will enable them to succeed in a tough market. Namely, one that incorporates such modern technologies as AI, machine learning, decision management, works out of the box, and enables users to be in control. This sense of control empowers users as well as agents and claimants and will help them work more effectively. In addition, a platform that provides access to comprehensive classification databases, including state-specific classifications and industry loss codes, allows for more precise risk classification, leading to fairer premiums and better management of loss reserves. Other critical features include a dedicated system that stays current with regulatory changes and integrates seamlessly with state reporting systems, automated mandatory reporting, audit control tools, and integrated experience modification (EMod) calculations that simplify compliance tasks and ensure adherence to regulatory requirements.

The Final Word

The Workers’ Compensation sector is in an enviable position among insurance lines given its profitability, but the industry’s greater macroeconomic trends remain problematic and point to pending higher costs. Carriers can allay these potential future costs by investing in a purpose-built Workers’ Comp software, designed to streamline underwriting, optimize claims management, and deliver exceptional customer service. Ultimately, this translates to an improved financial performance, quicker quoting, and a long-term and strategic competitive advantage despite greater, unforeseen macroeconomic challenges.

To learn more about how Sapiens’ AI-based, purpose-built Workers’ Compensation solutions provide the enhanced functionality to meet the needs of private insurers, state and provincial funds and more, click here.

[1]  “Workers’ Compensation: Financial Strength for Digital Gains,” Daniel Erickson, Nathan Golia, Celent/Conning Insurance Research, November 2023

[2] Ibid

[3] Ibid

[4] https://www.pinnacol.com/press-release/pinnacol-issues-guidance-about-how-to-keep-workers-safe-in-the-blazing-summer-heat

[5] Op. Cit., “Workers’ Compensation: Financial Strength for Digital Gains,” Daniel Erickson, Nathan Golia, Celent/Conning Insurance Research, November 2023

[6] Ibid.