Demand for Workers' Compensation coverage is intrinsically tied to the size and growth of the US labor market, and thereby the overall economy. By that measure, it's been a robust few years for this segment of the insurance market. According to the US Bureau of Economic Analysis, personal income increased by $92.0 billion, or 0.4% in December, while the monthly unemployment rate dipped to 4% in January.
Taken together, these wage increases and job growth figures have spurred a spike in premiums across Workers' Compensation, with overall net premiums now above pre-pandemic levels.
"In a strong job market like we're seeing, companies face pressure to pay more when hiring," says Patrick Edwards, RPS area senior vice president, Workers' Compensation practice leader. "If you're going to attract talent, you have to pay more for that talent, and that creates a tighter job market than might otherwise be anticipated. It is impacting premiums in Workers Comp in industry areas like Hospitality and Healthcare."
Edwards' observation mirrors recent findings from the National Council on Compensation Insurance (NCCI). In its 2024 State of the Line report, the association found that premiums across Workers' Compensation increased 1% in 2023, with a combined ratio of 86% for the year, signaling ongoing profitability for the segment. This private carrier combined ratio marked the seventh consecutive year under 90% and capped a decade of underwriting gains in Workers Comp. Nearly 40% of carriers saw a net combined ratio below 86%, and two-thirds saw an underwriting gain in the last year.
"We see wage growth continuing," says Joshua Gloyd, senior actuarial analyst at Atlas General Insurance Services, an RPS company. "It's a part of a healthy economy as people are competing for resources and unemployment remains relatively low. Wage growth in general is also good for putting more money into the medical system which can make a meaningful difference in treatments and outcomes, so we also see that as a benefit."
Economic Forces at Work
Many of these market improvements in Workers' Compensation, of course, can be traced back to the overall state of the US and global economy.
High inflation, which was the story of the economy in 2022 and 2023, has cooled in recent months, with the Consumer Price Index (CPI) posting a monthly increase of just 0.5% in January, according to the US Bureau of Labor Statistics. On an annual basis, prices have increased 3%, before seasonal adjustments, well below the CPI's recent high of 9.1% in June 2022. US Gross Domestic Product (GDP) — a comprehensive measure of US economic activity, including the value of the final goods and services produced domestically — increased at an annual rate of 2.3% in the fourth quarter of 2024, according to the US Bureau of Economic Analysis, and 2.8% for 2024 as a whole. The agency credited this growth in real GDP to increases in consumer spending, investment, government spending, and exports.
Citing this growing economic strength and reduced inflation findings, the Federal Reserve Board in January 2025 maintained the target range for the federal funds rate at 4-1/4% to 4-1/2% after cutting interest rates to that level in December 2024. In a statement, the central bank said: "Recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated. The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance."
An Evolving Workers' Compensation Market
In expanding economic times, when companies are flush and growing, payrolls expand and more Workers' Compensation coverage is needed, typically leading to an increase in claims activity. On the flipside, during an economic downturn premiums fall but so too do claims. But that's not the only reason for insurance brokers, carriers and others in the industry to pay attention to Fed moves. Investment returns, particularly bond yields, can play a role in overall profitability as well, although they don't respond immediately to changing interest rates.
RPS Area President L.J. Battagliese says that, aside from the quick spike in unemployment during and after the pandemic, unemployment is still at historically low levels and expected to hold fairly steady.
"Wages have continued to increase in this environment," Battagliese says, "and wage increases are probably the more responsible driving factor for the increases in net-written premiums because rates continue to trend down."
He adds, "There was a little bit of a bump the last few years, because a lot of municipalities had increased their minimum wage, which has been a factor — especially for lower wage workers which make up a big share of the employee population. But those minimum wage increases have definitely had a domino effect on all wages with a measurable impact on Workers' Compensation."
Learn more about what's next for the Workers' Compensation market in the RPS 2025 Workers' Compensation Market Outlook.
