Workers comp continues strong profits despite pricing cuts: Report

The chance of a recession, the impact of tariffs and immigration policy changes and other challenges, including legislative changes, are “possible headwinds” for the workers compensation industry, A.M. Best said Tuesday.

Workers compensation remains a “key driver” of the profitability for property and casualty insurers, analysts for the credit rating agency said in a market segment report. They noted that the line remained profitable in 2024, with a combined ratio of 88.8, the lowest among the major property and casualty lines, even as net premiums written for the comp industry fell nearly 7% because of rate decreases and pricing cuts.

Midyear 2025 results indicate another profitable year in the making for workers comp and another decrease in premiums in line with more rate decreases, A.M. Best said.

“Persistent downward pressure on rates and pricing due to ongoing competition may narrow profit margins and dampen profitability over the long term,” A.M. Best said.

Analysts said the line has benefited from “long-term workplace safety improvements and improved fraud detection coupled with favorable loss development on older accident years.”

And although workers comp has remained relatively unaffected by many of the factors leading to stress in other lines of coverage, which have produced more volatile year-to-year results, its payroll exposure base is susceptible to macroeconomic shocks, according to analysts.

Recent increases in medical inflation in the economy will likely have less effect on the workers comp system, as statutory payment schedules and different uses of physician services and pharmaceuticals limit the impact of unexpected inflation for workers compensation claims, according to A.M. Best.

“A key question for the workers compensation line is how much longer will rate and pricing declines continue and cause dissipating profit margins before insurers begin to hold the line on pricing, since, for many companies, workers compensation profits help offset more uncertain underwriting results for other lines of coverage,” David Blades, associate director, industry research and analytics for A.M. Best, said in a statement.