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Medical cost containment and legal fees escalate while litigation remains largely unchanged.
Report objectives
The objective of this report is to provide an overview of our current metrics for our liability program and the current environment surrounding auto liability, general liability (GL), and workers’ compensation claims and litigation. This report aims to be comparable to what is periodically released by research organizations and rating bureaus.
data parameters
For industry comparisons, the data is based on new claims for a rolling 12 months, Jan. 1, 2022, through Dec. 31, 2022, for insured and self-insured claims in all states at five valuation points from 2018 to 2022. The impact of the COVID-19 pandemic and the economic recovery on workers’ compensation continues to be reflected in Sedgwick’s claims data. New claims are defined as those occurring within calendar year 2022.
The market at a glance
The 2022 Workers’ Compensation Financial Results Update published by National Council on Compensation Insurers (NCCI) on Nov. 7, 2022, stated:
Annual underwriting profit in the U.S. workers’ compensation line of business has averaged $4.8 billion in the last five years and totaled almost $24 billion during the period — a level of profitability unmatched by any other major property/casualty lines of business, according to the “A.M. Best Market Segment Report: Workers’ Compensation Generates Solid Profits, but the Future Remains Uncertain.”
PROJECTED RATE INCREASES
Similarly, general liability rate growth has been slowing over the past two years, and when adjusted for inflation, is showing signs of the first decline in some lines since 2019. For 2022, the overall combined ratio for the insurance industry is estimated to have been just over 100%. Consequently, while investment income is still allowing some profit, modest interest rates have been limiting it and most carriers are seeking rate increases across many lines.
On the other hand, auto rates increased by 9% in 2022 and are projected to increase another 7% this year, according to Berkshire Hathaway.
According to Business Insurance, rate increases are expected across most other lines, as well. General liability rate increases are projected to be between 0-10%. Property increases are predicted between 0-10% and 15-25% for CAT-exposed risks. Cyber increases between 0-25% generally, with some exposures up to 100% anticipated.
Inflation finished at 8% for 2022 in the U.S. Social inflation, economic inflation and continued supply chain disruptions impacted claim costs in 2022. The overall combined ratio for the property and casualty insurance industry in 2022 is estimated to be 105.8%, according to the latest underwriting projections by actuaries at the Insurance Information Institute and Milliman.
ADDITIONAL FACTORS
Businesses seeking renewals or new property and casualty insurance (P&C) coverage over the coming year will continue to encounter rate increases and greater underwriter scrutiny as insurers remain guarded due to ongoing economic uncertainty and the major impact of catastrophic weather events on property coverage. Inflation and court-related claims are also contributing to reduced market capacity, leading to increased emphasis on layered insurance coverage and clients assuming more risks going forward, Alera Group’s 2023 Property and Casualty Market Outlook reports. Rate increases can continue to be expected.
In 2022, COVID-19 claims comprised approximately 9.4% of Sedgwick’s total workers’ compensation claims volume, primarily due to the wave in January 2022. 94% of the COVID claims that occurred in 2022 were closed by year-end. Fewer COVID-19 claims are expected in 2023.
Another lingering effect of the pandemic has been a change in the mix of indemnity and medical-only claims. The share of indemnity claims decreased slightly in 2022 but remains higher than before the pandemic.