Filed Under:Markets, Workers Compensation

Where Would We Be Without Workers’ Compensation?

Consider for a moment where we would be—as a society, an economy and an insurance industry—without workers’ compensation.

With workers’ compensation celebrating its centennial this year, it is worthwhile to examine just how big an impact this critical line of coverage has had on our lives.

(The New York Court of Appeals rejected New York’s first workers’ compensation law as unconstitutional the day before the tragic Triangle fire, citing a violation of employer’s due process rights. The state went on to change its constitution after the Triangle fire and activated its own workers’ compensation system in 1914.)

Once Wisconsin took the plunge and put workers’ compensation on the map, however, the system expanded nationwide fairly quickly. By 1920, only eight states lacked workers’ compensation laws; by 1949, each state had a system in place.

In any case, the impact of workers’ compensation has indeed been immense and overwhelmingly positive. Consider that it:

  • Created a humane risk-transfer system that has spread the burden of paying and treating injured employees.
  • Largely removed the need for injured workers to sue their employers (although some would say there is still far too much litigation in the system).
  • Freed injured and sick workers from having to pay doctors out of their own pockets if their job was responsible for their medical condition.
  • Integrated a loss control mentality into the social compact that greatly reduced the frequency of workplace injuries and fatalities. (Fears of workers’ compensation creating a “moral hazard” because third parties—insurers—were paying claims instead of employers were eased by the experience-based rating system, which offered a powerful financial incentive to provide a safe workplace.)

The insurance industry is certainly grateful for the business. Workers’ compensation ranks fourth in premiums generated among property & casualty lines, trailing only private passenger auto, homeowners’ multi-peril, and “other liability,” according to the Insurance Information Institute. Even with a recession-dampened $32 billion in net written premiums in 2009 (the total was nearly $42 billion in 2006), the line accounted for about 7.5 percent of total P&C premium volume that year. 

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