CHICAGO, IL – Workers compensation insurers are sitting on a $16 billion reserve surplus, according to October 2025 analysis from the National Council on Compensation Insurance (NCCI). This represents one of the most favorable market conditions for employers in the past two decades—and creates significant opportunities to reduce workers compensation costs.
The surplus occurred because insurers over-reserved for claims that never materialized or resolved for far less than expected. Claims frequency continues declining (fewer injuries per 100 employees), claim severity is growing slower than projected (medical costs and lost-time claims aren't increasing as fast as insurers expected), and return-to-work outcomes are improving faster than historical patterns suggested.
For employers, this translates into premium reductions averaging 11-15% at renewal—and much larger savings (20-30%) for businesses with strong safety programs and favorable loss experience.
But not all businesses are benefiting equally. The workers comp market is becoming increasingly segmented: excellent risks are getting excellent pricing, while poor risks face minimal savings or even continued increases. Understanding how insurers evaluate your workers comp risk—and how to position your business favorably—is critical.
Understanding the $16 Billion Surplus
How Insurance Reserving Works
When a workers comp claim occurs, insurers must establish a "reserve"—an estimate of how much the claim will ultimately cost. This reserve includes:
Medical costs: Emergency treatment, hospital stays, surgery, physical therapy, medications, ongoing medical monitoring
Indemnity payments: Wage replacement for temporary or permanent disability
Legal and administrative costs: Defense attorneys, claims adjusters, expert witnesses, court costs
Reserves are estimates based on historical claim data, injury type, jurisdiction, and claimant characteristics. For serious injuries (back injuries, amputations, traumatic brain injuries), claims can take 5-15 years to fully resolve.
Example: A construction worker suffers a serious back injury in 2020. Initial reserve: $250,000 based on typical back injury claim costs.
Actual outcome by 2025: Worker returned to light-duty work after 18 months, total medical costs were $87,000, indemnity payments totaled $52,000, legal/administrative costs $28,000. Total claim cost: $167,000.
Surplus released: $83,000 (the difference between $250,000 reserve and $167,000 actual cost)
Multiply this across millions of claims, and you get $16 billion in aggregate surplus.
Why Insurers Over-Reserved
The $16 billion surplus reflects insurers being overly cautious in their claim reserving:
1. COVID-19 Uncertainty (2020-2022)
Insurers didn't know how COVID-19 would impact workers comp:
- Would compensability presumptions (laws making COVID claims automatically compensable for certain workers) lead to millions of claims?
- Would long COVID create massive ongoing medical costs?
- Would pandemic stress lead to increased workplace injuries?
What actually happened: COVID workers comp claims were far lower than feared. Compensability presumptions applied narrowly. Long COVID claims proved rare. Workplace injury frequency actually declined during pandemic (fewer workers on-site = fewer injuries).
2. Medical Cost Inflation Fears
Insurers projected medical costs would increase 8-12% annually based on general healthcare inflation trends.
What actually happened: Workers comp medical costs increased only 3-5% annually due to:
- Fee schedules that cap provider payments
- Utilization review preventing unnecessary treatments
- Generic drug availability reducing pharmaceutical costs
- Outpatient treatment replacing inpatient care
- Telemedicine adoption reducing costs
3. Social Inflation Concerns
Insurers worried that "social inflation" (juries awarding larger verdicts, attorneys more aggressively litigating claims) would drive workers comp settlements higher.
What actually happened: Workers comp is a statutory system with defined benefits, limiting social inflation impact. Attorney representation in claims did increase, but this didn't dramatically raise claim costs as feared.
4. Opioid Crisis Impact
Insurers feared opioid addiction in injured workers would drive long-term claim costs dramatically higher.
What actually happened: Opioid prescribing guidelines, prescription drug monitoring programs, and increased focus on non-opioid pain management prevented the worst-case scenarios. While opioid-related claim complications did occur, the impact was far below projections.
Why This Surplus Matters to Employers
When insurers over-reserve, they charge higher premiums to cover anticipated losses that don't occur. When they release those excess reserves, they can reduce rates.
The $16 billion surplus is flowing back to employers through:
- Rate reductions: Average 11-15% premium decreases at renewal
- Competitive market: Insurers competing aggressively for well-performing accounts
- Broader coverage: Insurers willing to accept risks they previously declined
- Better terms: Lower deductibles, better dividend programs, enhanced services
The Workers Comp Market in 2025: Not All Employers Benefit Equally
While the overall market is favorable, employers are experiencing vastly different outcomes based on their risk profiles:
Excellent Risks: 20-30% Premium Reductions
Characteristics of excellent workers comp risks:
- Experience modification rate (EMR/MOD) below 0.85
- No lost-time claims in past 3 years
- Documented safety program with regular training
- Return-to-work program with modified duty options
- Strong safety culture (leadership engagement, employee buy-in)
- Proactive claims management (early reporting, medical provider relationships)
What these employers are seeing:
- Premium reductions of 20-30% at renewal
- Multiple carrier quotes (6-8 competitive offers)
- Dividend programs offering additional premium refunds (10-15% if loss experience remains favorable)
- Enhanced services (safety consultations, claims advocacy, return-to-work support)
- Multi-year rate guarantees available
Example: A 150-employee manufacturing company with a 0.72 MOD and zero lost-time claims in four years renewed workers comp in September 2025:
- 2024 premium: $220,000
- 2025 renewal quotes: $154,000 to $178,000 (range of 19-30% reduction)
- Selected carrier at $156,000 (29% reduction) with dividend program
- If loss experience remains favorable, expect additional 12% dividend = effective cost $137,280 (38% total savings)
Average Risks: 8-15% Premium Reductions
Characteristics of average workers comp risks:
- Experience modification rate (EMR/MOD) 0.90 to 1.10
- Occasional claims but nothing catastrophic
- Basic safety program (may lack documentation)
- Claims are managed but not proactively
- Industry-typical loss patterns
What these employers are seeing:
- Premium reductions of 8-15% at renewal
- 2-4 competitive carrier quotes
- Standard terms and conditions
- Some safety/claims services available
Example: A 75-employee distribution center with a 0.97 MOD and three minor claims in past three years renewed in August 2025:
- 2024 premium: $128,000
- 2025 renewal quotes: $109,000 to $118,000 (range of 8-15% reduction)
- Selected carrier at $112,000 (12.5% reduction)
Poor Risks: Flat to +5% Premium Increases
Characteristics of poor workers comp risks:
- Experience modification rate (EMR/MOD) above 1.25
- Multiple lost-time claims or one catastrophic claim
- No documented safety program
- Poor claims management (late reporting, attorney involvement, claim duration)
- High employee turnover
- OSHA violations or citations
What these employers are seeing:
- Flat renewals to modest increases (0-5%)
- Limited market interest (1-2 quotes, possibly only assigned risk pool)
- High deductibles required ($25K-$100K per claim)
- Mandatory risk improvement requirements
- Premium audits and penalty premium calculations
Example: A 50-employee construction company with a 1.48 MOD and two serious claims in past two years renewed in July 2025:
- 2024 premium: $285,000
- 2025 renewal: $291,000 (2.1% increase)
- Only two carriers willing to quote, both requiring $50,000 per-claim deductible
- Carrier requiring documented safety program implementation within 90 days as policy condition
The Growing Risk Segmentation
Historical workers comp pricing (pre-2015): Rates varied primarily by industry classification and payroll. A restaurant paid approximately the same rate as every other similar-sized restaurant in the same state, regardless of loss history (aside from experience modification).
Current workers comp pricing (2025): Rates vary dramatically based on individual risk characteristics. Two identical restaurants can pay premiums differing by 40-60% based on safety programs, claims management, and loss history.
This trend is accelerating because:
- Insurers have better data and analytics to differentiate risks
- Competition is fierce for excellent risks
- Insurers are avoiding or charging much more for poor risks
- Safety technology makes it easier to identify which employers are truly committed to injury prevention
Five Strategies to Maximize Workers Comp Savings
The favorable market creates opportunities, but only for employers who actively manage their workers comp risk:
Strategy 1: Understand and Improve Your Experience Modification Rate (MOD)
Your experience modification rate (EMR or MOD) is the single most important factor affecting your workers comp premium.
How MOD works:
- 1.0 = Average loss experience for your industry
- Below 1.0 = Better than average (0.85 = 15% credit on premium)
- Above 1.0 = Worse than average (1.25 = 25% penalty on premium)
MOD calculation compares your actual losses to expected losses for businesses of your size and industry over the past 3 years (excluding the most recent year).
Why MOD matters more than ever: In favorable markets, insurers compete aggressively for low-MOD accounts while avoiding high-MOD accounts.
How to improve your MOD:
1. Aggressively manage medical-only claims
Medical-only claims (no lost work time) impact your MOD far less than lost-time claims. Investing in on-site first aid, nurse triage, and immediate care relationships keeps minor injuries from becoming lost-time claims.
Example: A warehouse worker strains their back lifting a box.
Poor management: Worker goes home, sees doctor next day, doctor gives 3-day work restriction, becomes lost-time claim. Cost to MOD: $8,000-15,000 impact depending on state.
Excellent management: On-site first aid, ice/heat application, worker offered modified duty (no lifting over 20 lbs), remains working. Medical-only claim. Cost to MOD: $500-1,500 impact.
2. Implement return-to-work programs
Every day an injured worker stays off work increases claim costs and impacts your MOD. Modified duty programs get workers back to productive activity quickly.
Effective return-to-work programs:
- Identify modified duty tasks in advance (before injuries occur)
- Communicate with medical providers about modified duty availability
- Maintain contact with injured workers (stay engaged, show you want them back)
- Make modified duty genuinely useful (not punitive make-work)
Impact: Reduces lost-time claim duration by 30-50%, directly improving MOD.
3. Challenge claim denials and fraud
Not all claims are legitimate. If you have evidence a claim is fraudulent or non-work-related, present it to your carrier.
Example: Employee claims back injury from lifting at work. Investigation reveals employee played in recreational sports league the night before injury and posted on social media about "throwing out back" during game. This evidence helped carrier deny claim or settle for medical-only.
4. Review MOD for errors
MOD calculations sometimes contain errors: claims attributed to wrong policy period, claims double-counted, reserves overstated. Request your MOD worksheet annually and review carefully.
Many employers discover errors that, when corrected, reduce MOD by 0.05-0.15 points (saving thousands annually).
Strategy 2: Market Your Workers Comp Aggressively
The favorable market means insurers are competing for business. Take advantage by soliciting multiple quotes.
How to market effectively:
Start early: Begin 90-120 days before renewal Provide complete information: Don't make carriers dig for information Highlight improvements: Document safety program enhancements, claim management improvements, facility upgrades Be selective: Target carriers known to write your industry favorably
Prepare a compelling submission:
- 5 years of loss runs (claims history)
- Current experience modification worksheet
- Safety program documentation (written program, training records, meeting minutes)
- Return-to-work program description
- OSHA 300 logs
- Payroll breakdown by class code
- Description of any risk improvements since last renewal
Consider specialized programs: Many industries have specialized workers comp programs that price more favorably than standard market:
- Manufacturing programs
- Construction programs
- Healthcare programs
- Hospitality programs
Example: A printing company had renewed with the same carrier for 8 years, receiving average 3-5% rate reductions each year. At the urging of their agent, they marketed to 6 carriers in 2025.
Result: Quotes ranged from 8% reduction to 26% reduction. By moving to a new carrier with a printing industry-focused program, they saved an additional $18,000 annually beyond what their incumbent offered.
Strategy 3: Invest in Safety Technology and Documentation
The difference between excellent risks and average risks often comes down to documentation. Two companies may have similar safety practices, but the one with comprehensive documentation gets dramatically better pricing.
Safety investments that improve pricing:
Documented safety program:
- Written safety policies and procedures
- Job hazard analyses for high-risk tasks
- Regular safety meetings with documented attendance
- Safety orientation for new employees
- Incident investigation procedures
Cost: $5,000-15,000 to develop comprehensive program Premium impact: 8-15% reduction for well-documented programs
Wearable technology and ergonomics:
- Wearable sensors that alert workers to risky movements
- Ergonomic assessments and equipment modifications
- Lift-assist equipment for manual material handling
Cost: $10,000-50,000 depending on workforce size Premium impact: 10-20% reduction plus actual injury reduction
Telematics and monitoring (for fleet-based operations):
- Driver behavior monitoring (speeding, harsh braking, distraction)
- Vehicle maintenance monitoring
- Route optimization reducing exposure
Cost: $20-40 per vehicle per month Premium impact: 12-25% reduction for fleets with strong telematics programs
Safety incentive programs:
- Recognition for employees with no injuries
- Team-based safety goals and rewards
- Near-miss reporting with positive reinforcement
Cost: $50-150 per employee annually Impact: Measurably reduces injury frequency, improving MOD over time
Strategy 4: Optimize Your Deductible Structure
In favorable markets, consider whether a higher deductible program makes sense for your business.
How workers comp deductibles work:
Standard guaranteed cost policy: Insurer pays all claims, you pay fixed premium Deductible policy: You pay first $X of each claim, insurer pays excess, premium reduced
Common deductible levels:
- Small deductible: $1,000-$5,000 per claim (5-10% premium reduction)
- Medium deductible: $10,000-$25,000 per claim (15-25% premium reduction)
- Large deductible: $50,000-$250,000 per claim (30-50% premium reduction)
When deductibles make sense:
- You have cash reserves to pay deductible claims
- Your claim frequency is low (deductible risk is manageable)
- You have strong claims management (can influence claim costs)
- Premium savings justify the risk transfer
When to avoid deductibles:
- Cash flow is tight (unexpected claims could create financial stress)
- Claim frequency is high (you'll pay many deductibles)
- You lack claims management expertise
- Savings don't justify the risk
Example: A logistics company with 200 employees analyzed their workers comp:
- Current guaranteed cost premium: $240,000
- Claim frequency: Average 8 claims per year, mostly minor (medical-only or short-duration)
- Average annual claims in $10,000 deductible layer: $45,000
Quote with $10,000 per-claim deductible:
- Premium: $180,000 (25% reduction)
- Expected deductible payments: $45,000
- Net cost: $225,000
- Savings: $15,000 annually
Additional benefit: Having "skin in the game" via deductibles incentivized better claims management, reducing their claim frequency 15% over two years.
Strategy 5: Consider Alternative Market Options
Beyond traditional guaranteed cost insurance, several alternative structures can reduce costs:
Dividend plans: Return premium if loss experience is favorable
- Typical dividend: 10-20% of premium if losses are below target
- Best for: Businesses with strong loss control but occasional unexpected claims
Retrospective rating plans: Final premium adjusts based on actual losses
- Premium can increase or decrease (within min/max limits) based on actual claim costs
- Best for: Businesses with predictable loss patterns and confidence in claims management
Group self-insurance: Pool with similar businesses to self-insure workers comp
- Members share losses and administrative costs
- Best for: Industry associations, franchise systems, or related companies
Captive insurance: Form your own insurance company
- Retain underwriting profit and investment income
- Best for: Larger employers ($500K+ annual premium) with strong risk management
Example: A 15-location restaurant chain with $680,000 annual workers comp premium joined an industry-specific group self-insurance fund:
- Year 1: Reduced costs 18% ($122,000 savings)
- Year 2-3: Continued favorable experience, additional savings plus dividend distribution
- 3-year average savings: 22% ($150,000 annually)
Industry-Specific Opportunities
Different industries are experiencing different market conditions:
Manufacturing: Strongest Market
Premium trend: Down 13-18% for well-managed risks Why: Favorable loss experience, automation reducing injury frequency, strong safety programs Opportunities: Specialized manufacturing programs, safety technology integration, ergonomics investments
Construction: Improving Market
Premium trend: Down 8-14% for contractors with good MODs Why: Less favorable than other industries but improving due to workforce safety focus Opportunities: Trade-specific programs, subcontractor management, telematics for fleet safety
Healthcare: Mixed Market
Premium trend: Down 5-10% for most healthcare providers Why: Nursing home claims remain challenging; other healthcare relatively favorable Opportunities: Lift-assist equipment, violence prevention programs, needlestick prevention technology
Retail/Hospitality: Favorable Market
Premium trend: Down 12-16% for well-managed operations Why: Slip-and-fall prevention, safety training reducing claim frequency Opportunities: Safety flooring, employee training, incident response protocols
Office/Professional: Extremely Favorable
Premium trend: Down 15-20% Why: Very low claim frequency, work-from-home reducing exposure Opportunities: Ergonomic assessments for remote workers, minimal coverage options
The Long-Term Outlook: Will Favorable Conditions Last?
Most analysts expect favorable workers comp market conditions to continue through 2027-2028:
Supporting factors:
- Claim frequency continues declining (automation, safety technology, ergonomics)
- Medical cost trends remain moderate (fee schedules, utilization review)
- Reserve releases ongoing (not just a one-time $16B event)
- Investment income strong (5-6% bond yields support underwriting)
Potential disruptors:
- Legislative changes expanding compensability (making more injuries/conditions compensable)
- Medical cost inflation acceleration
- Economic recession increasing claim duration
- Pandemic or other mass-casualty event
Most likely scenario: Favorable market continues 2-3 years, then transitions to neutral market (flat rates) rather than hard market.
Take Action Now
The workers comp market is as favorable as it's been in 20 years—but only for employers who actively manage their risk and market their coverage aggressively.
Five actions for the next 30 days:
- Request your experience modification worksheet: Review for accuracy, understand what's driving your MOD
- Document your safety program: If you have safety practices but no documentation, create it now
- Evaluate your claims management: Are you doing everything possible to minimize claim duration and costs?
- Market your coverage: Even if renewal is 6 months away, start the process now
- Consider alternative programs: Explore dividend plans, deductible options, or group programs
The favorable market won't last forever. Employers who act now can lock in savings that will benefit them for years—and build risk management capabilities that will protect them when the inevitable next hard market arrives.
Need help reducing your workers compensation costs? Understanding your experience modification, implementing effective safety programs, and positioning your business competitively in the current favorable market requires both risk management expertise and market knowledge. The right approach combines loss prevention with strategic insurance placement to minimize both claims and premiums.
Sources: National Council on Compensation Insurance (NCCI), Workers Compensation Insurance Rating Bureau, AM Best, Insurance Information Institute