The Zacks Accident and Health Insurance industry is expected to benefit from an increase in underwriting exposure. Aflac Incorporated AFL, Unum Group UNM, Trupanion TRUP, Employers Holdings, Inc. EIG and AMERISAFE, Inc. AMSF are expected to be driven by prudent underwriting standards. However, higher inflation, as well as rising medical costs, could offset the positives.
The industry has been witnessing soft pricing over the past several quarters, and this is not expected to change any time soon. Nonetheless, a rise in claims of lower severity, with business activities returning to normal levels, is likely to favor pricing. Also, the increasing adoption of technology in operations will help the industry function smoothly.
Per a CBIZ report, the industry maintained its profitability streak, reflecting solid reserves, prudent claims management, stable loss trends and fewer claims, though Fitch Ratings predicts a softer performance in 2025.
About the Industry
The Zacks Accident and Health Insurance industry comprises companies providing workers’ compensation insurance, mainly to employers operating in hazardous industries. These companies offer group, individual or voluntary supplemental insurance products. Workers’ compensation is a form of accident insurance paid by employers without affecting employees’ pay. Claims are generally met by insurers or state-run workers’ compensation fund, benefiting both employers and employees. While it boosts employees’ morale and, in turn, productivity, employers stand to benefit from lower claim costs. As awareness about the benefits of having such coverage rises, the future of these insurers seems bright. Per Precision Reports, the global worker’s compensation insurance market is expected to grow considerably between 2024 and 2032.
3 Trends Shaping the Future of the Accident & Health Insurance Industry
Pricing Pressure to Continue: The worker compensation industry has been witnessing pricing pressure over the past several quarters. Inflation, coupled with rising medical costs as well as demographic change, will likely continue to put pressure on pricing. While recent Fed reports state inflation is expected to stay at 2.7% this year, per a Leavitt Group report, Centers for Medicare and Medicaid predicts healthcare spending to increase by 5.4% each year through 2028. Per a report in Commercial Risks, AM Best expects sustained favorable loss development and beneficial loss frequency to put downward pressure on pricing. Efforts to retain market share will further increase pricing pressure, which might curb top-line growth. With commercial and industrial activities back on track, demand for insurance coverage is likely to rise. SpendEdge estimates that workers’ compensation insurance pricing will increase at a five-year (2022-2026) CAGR of 5.3%. Also, per a CBIZ report, workers’ compensation pricing is expected to rise 2%.
Claims Frequency to Improve: The adoption of safety measures and improving working conditions are lowering claims. The accident and health insurance space has witnessed growth over the years, primarily driven by an increase in benefits offered by employers. The right kind of workers’ compensation policy translates into personal care for injured workers, increased productivity, higher employee morale, lower turnover, reduced claims costs and less financial worry amid rising medical costs. Increasing underwriting exposure, sustained decrease in claims frequency rates attributable to a better working environment and conservative reserve levels have been boosting the industry’s performance. Per the Bureau of Labor Statistics, in the next 10 years, the number of workers aged 75 and more is expected to increase by 96.5%. Thus, claims could rise given an increase in work-life span and the degree of severity , the report states.
Increasing Adoption of Technology: The industry is witnessing accelerated adoption of technology in operations, including artificial intelligence. Electronic applications, e-signatures, electronic policy delivery, cloud computing and blockchain should help insurers gain a competitive edge. Per a CBIZ report, industry data reveals that artificial intelligence could reduce workers’ compensation claim expense by about 45%. Nonetheless, higher spending on technological advancements will result in escalated expense ratios.
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