The Uphill Battle for Small Business Workers’ Comp
For small businesses, securing affordable workers’ compensation coverage has long been a challenge, especially in high-risk industries. Katherine Antonello, president and CEO of EMPLOYERS, acknowledges the difficulties but highlights that options do exist.
“I do believe market availability exists,” Antonello said. “Carriers that write high-risk industries often have highly experienced and dedicated resources and tools that are very specific to those types of risks.”
Rising Costs: A Growing Concern
However, even with available coverage, cost remains a significant obstacle. Inflationary pressures, increasing claim expenses, and higher operational costs are putting a strain on small businesses. While medical price inflation in workers’ compensation has remained comparatively stable, the financial impact is still substantial.
“Claim costs—it’s a topic that the industry cannot ignore,” Antonello stated. “Frequency has been dropping for decades, but we have to keep an eye on severity and appropriately price for it.”
The Impact of Fraud and Abuse
One critical factor driving up claim costs is fraud and abuse within the workers’ compensation system. The industry is vulnerable to various fraudulent activities, including provider, payroll, and claimant fraud.
“The Coalition Against Insurance Fraud estimates insurance fraud costs the US about $310 billion a year,” Antonello explained. “And unfortunately, the number continues to rise.”
The digital age has further complicated fraud detection. To combat this, insurers must adopt a proactive approach. Predictive analytics can identify suspicious patterns across numerous claims, an undertaking beyond a single adjuster’s capabilities.
“Anyone can essentially sit at their computer and create false bills and file false claims,” Antonello said. “The industry can always do more. If we can reduce the drain on the system caused by fraudulent claims, that frees up time to provide timely care to legitimately injured workers and lowers the cost of workers compensation.”
Regulatory Uncertainty and Economic Pressures
Regulatory uncertainty presents another challenge. One particularly pressing issue is artificial intelligence (AI), which is rapidly changing underwriting, pricing models, and risk selection.
“The speed of AI’s evolution requires regulators to stay ahead of the changes,” Antonello said. “There is uncertainty about how AI-driven decision making might impact market competitiveness between carriers and/or lead to inappropriate risk selection disparities.”
Economic pressures, such as inflation and uncertainty regarding future medical costs, also weigh heavily on the industry.
“It’s crucial for regulators to find a balance in their approach—ensuring rate adjustments reflect economic realities while avoiding unintended outcomes, such as losing carriers or undermining market stability,” she added.
California’s experience with insurer withdrawals due to wildfire risks serves as a prime example of regulatory misalignment. While not directly tied to workers’ comp, it underlines the risks of regulatory inertia.
“We’ve seen what happens when a lot of carriers exit a state,” Antonello explained. “The regulators and legislators need to balance the price sensitivity of the consumer with the solvency pressures the insurance industry can face when rates are suppressed.”
Is Workers’ Comp Becoming More Complex?
Despite the perceived complexity, Antonello doesn’t necessarily believe that workers’ comp is becoming more difficult to navigate, at least in a relative sense.
“Workers’ compensation was already, in my opinion, one of the most complex lines of business to write,” she said. “Because the line is inextricably linked to the economy, drivers of profitability are not easily controlled or mitigated. In addition, its long-tailed nature brings uncertainty around the cost of goods sold, and the statutory benefits provided are a combination of disability insurance and health insurance. For these reasons, it takes significant expertise to successfully compete in workers compensation.”
A key distinction of workers’ comp, according to Antonello, is its statutory nature.
“The benefits are statutorily mandated, so there’s not a lot of flexibility around policy terms and conditions when you’re underwriting,” she said. “The key to success in small business workers compensation is deep expertise, appropriate risk selection, and determining an adequate rate for the risks underwritten.”
Katherine Antonello, president and CEO of EMPLOYERS, discusses the challenges surrounding workers’ compensation.
