Let’s talk about the workers’ compensation industry. Right now, it’s not just doing well—it’s thriving in ways that are catching everyone’s attention– with record profits and major investments pouring in. Imagine the industry “swimming in a lake of profits”—sounds dramatic, right? But that’s exactly how one leader described it, and he’s not wrong based on the data (more below).

Big Money Moves: Altas Partners Invests in Sedgwick
Here’s some news that’s making waves: Altas Partners just announced a massive investment in Sedgwick, one of the top claims management companies. This deal values Sedgwick at a staggering $13.2 billion. Yes, billion with a B! When I was working at Sedgwick in 2018, they were valued at 6.7 billion. Holy growth, Batman.

Altas is joining existing investors Carlyle and Stone Point Capital, and their commitment of $1 billion in equity shows how much confidence they have in Sedgwick and the wider workers’ compensation space.

But here’s the thing: Sedgwick’s reach extends far beyond workers’ compensation. As a global company operating in more than 80 countries, Sedgwick handles everything from property loss adjusting and liability claims to warranty solutions and absence management. Business Insurance reported Sedwick managed 8M+ claims last year. So, this investment isn’t just about confidence in workers’ comp; it’s about faith in the entire insurance and claims management industry on a global scale. When a company that broad in scope gets an influx of cash like this, it speaks volumes about where the industry is headed.

The Numbers Don’t Lie
Beyond the Sedgwick deal, the financials of the workers’ comp industry are impressive on their own. According to the latest State of the Line report from NCCI, here’s what’s going on:

The net combined ratio for workers’ compensation is a remarkable 86%, signaling serious profitability.
The industry is sitting on $18 billion in excess reserves (yes, billion).
When you factor in investment income, private carriers’ pre-tax operating profits hit an astonishing 23%.
While NCCI provides valuable insights, other sources corroborate the industry’s strong financial performance. The Workers’ Compensation Insurance Rating Bureau of California (WCIRB) reported similar trends in their state, where the projected accident year combined ratio increased by 2 points to 111% in 2023, the fourth consecutive year of a combined ratio above 100%. Additionally, AM Best’s Market Segment Report on U.S. Workers’ Compensation highlighted the sector’s resilience, noting that despite economic challenges, the line remains profitable with stable outlooks. These multiple data points from various organizations paint a consistent picture of a thriving workers’ compensation insurance market.

These numbers are hard to ignore. The industry is riding a wave of profits even as premium rates continue to drop across the board.

So, what does all of this mean for employers? A sunny disposition would say with such profitability, employers should be expecting:

Much lower rates—not just a small dip, but significantly lower premiums.
Substantial dividends if your carrier is a mutual insurance company.
That $18 billion in excess reserves? It’s essentially money that should be going back to policyholders, right? This says to me premiums are currently too high, and employers are paying more than they need to for workers’ comp insurance. I’m not an economist, but I can put the pieces together. And to cover myself here, it’s important to note that insurance pricing and reserving are complex topics, and there might be other factors influencing the industry’s decision-making regarding premiums and reserves.

Medical Costs: A Mixed Bag
On the healthcare side of things, medical inflation in workers’ comp is lower than the national average, hovering at around 2%. On the surface, you’d think that’s great news overall, but there are areas where costs are climbing. For example, Ambulatory Surgical Centers (ASCs) and outpatient services are taking up a bigger share of the medical spend. On the flip side, drug spending continues to drop and now accounts for just 7% of total workers’ comp medical expenses, down from 12% in 2012. So, it’s a bit of a mixed bag, and something to keep an eye on.

Read the full post on our blog.

#WorkersCompensation #InsuranceIndustry #BusinessNews #FinancialAnalysis #RiskManagement #ClaimsManagement #EmployerTips #InsuranceTrends #WorkplaceSafety #BusinessStrategy #EconomicTrends #InvestmentInsights #CorporateFinance #LaborLaw #InsuranceTech