Author: Peter Rousmaniere
One of the great successes in the American economy in the past 50 years has been a huge reduction in the risk of worksite injury. Frequency of injuries, as well as of lost-time compensable claims, have been declining at greater than 3 percent a year since approximately 1990 when these rates began being recorded and matched. This is a victory for everyone. But premiums have not dropped.
The workers' compensation system arrived in 1911 (Wisconsin being the first state to institute a work comp law that withstood court challenges), several decades after goods-producing industries eclipsed farming as a share of national economic output. The workers' comp system was initially designed for a male industrial workforce engaged in full-time, lifelong work with a high risk of serious and potentially career-ending, if not fatal, injuries.
But the service sector (such as retail, transportation, and business services) began started to edge higher as a share of employment since as early as the 1920s. From the 1960s onward, service industry employment began an unrelenting climb, growing to 85 percent of total employment from 55 percent.
Manufacturing employment, 70 percent of which was male, dropped precipitously. Any revival of manufacturing today uses a fraction of the number of workers employed in the past. And the manufacturing sector's workers and working conditions are much safer now. The risk of a lost-time injury in manufacturing today is about the same as in the service sector.
In 1994, for every 10 manufacturing worker injuries involving at least one day's lost time, there were eight such service sector injuries. By 2012, for every 10 service sector lost-time injuries, there were two manufacturing injuries.
These trends are easy to see at the "trees" level of individual employers but hard to see at the "forest" level of the entire economy and insurance market. Premiums over the long term failed to decline. In fact, except for short periods of extreme insurance cycles, they remained fairly stable. The average premium per $100 of payroll was $1.47 in 1976. In 2014, work comp rates in a "median cost" state was $1.87 per $100 of payroll.
According to the National Council on Compensation Insurance (NCCI), total premiums paid to private insurers grew to $45.5 billion in 2016 up from just $3.01 billion in 1995. And during this same period the average lost-time compensable claim increased to $53,000 in 2016 from $18,600 in 1995 (which equates to approximately $29,300 in 2016 dollars). Even considering the time value of money, the average lost-time claims cost has increased 81 percent during this period.
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Peter Rousmaniere is a journalist and consultant in the field of risk management, with a special focus on work injury risk. He has authored 200 articles on many aspects of prevention, injury management and insurance. As a consultant, he has advised claims payers, managed care firms, and medical providers on improving workers' compensation outcomes. He is a MBA graduate of Harvard. He lives in Woodstock, Vermont and can be reached at email@example.com.
Last Updated: October 12, 2018