Workers' Compensation insurers are benefitting from thecontinued growth in private-sector hiring and payroll over the pastfew years, but there is concern about a few dark clouds of economicuncertainty looming on the horizon.

Many attendees at the recent Workers' Compensation EducationalConference in Orlando were of two minds when it came to theprospects for growth in premiums and profits in 2013, both in termsof the P&C insurance market in general and the Workers' Compmarket in particular.

I found general agreement that while the economic recoveryappears to be losing steam, millions have returned to work sincethe financial crisis at the end of 2008 decimated the job market.That means many more insurable exposures for comp carriers, as wellas more premiums written.

In particular, there was a lot of buzz about how manymanufacturing jobs have returned to theUnited States(thanks in partto costs rising in foreign locales) and how overall activity is upin the construction industry. Both of these job categories posebigger hazards, pay higher salaries and produce larger premiumtargets for Workers' Comp insurers.

On the downside, manufacturing employment hasn't rebounded asmuch as Workers' Comp insurers might have hoped thanks to increasedproductivity and increased automation, along with employers who arereluctant to commit to hiring more people until they see whetherthe sputtering economic recovery will regain momentum.

Indeed, there was some concern expressed by Workers' Compinsurers at the conference that until employers are sure theeconomy is coming back strong, many are calling on their currentpersonnel to put in additional overtime before they commit tohiring more workers. Longer hours might mean more workers growingfatigued on the job, perhaps prompting an increase in the number ofinjuries. This isn't an idle fear, as many speakers pointed outthat claims frequency in Workers' Comp was actually up for thefirst time in about two decades.

And while the private-sector construction market is growing,insurers fear employment gains may be offset by cuts inpublic-sector spending as state and local governments postpone workon roads, bridges and other infrastructure projects to close budgetgaps.

On the positive side, filings for business bankruptcies arefalling while business launches are on the rise, meaning Workers'Comp carriers are keeping more business on the books while havingadditional exposures to insure.

On the negative side, however, a number of attendees andspeakers are worried about the growing number of people who havebeen out of work for six months or longer. When (if?) theyeventually get a new job, will the skills of these long-dormantworkers be atrophied? Will the frequency and severity of claimsrise as a result?

There were also red flags raised about whethercompanies under pressure in the slow economy might be reducingcosts by cutting back on loss-control, safety and risk-managementbudgets, which could result in a rise in claims frequency.

A big concern expressed at the conference focused on the rise inobesity and the impact that trend could have on Workers' Compclaims among employees who suffer from diabetes, high bloodpressure, heart issues and other physical problems as a result.Some of these health claims are likely to spill over into Workers'Comp, carriers fear.

The aging of the work force was also frequently raised as amajor concern. Older workers tend to be more experienced and savvyabout safety, so frequency is usually less of an issue. But itoften takes older claimants longer to return to work and requiresmore medical care for them to recover, driving up severity costsfor Workers' Comp carriers.

Of course, one of the hottest topics at the conference was howthe health-insurance-reform law would impact Workers' Comp costs,now that the U.S. Supreme Court has given the green light for mostof the program to proceed as planned.

On the one hand, with millions more having health insurance,there might be less temptation to file fraudulent Workers' Compclaims to get needed medical care, while providers may be lesslikely to shift costs for the uninsured onto comp bills. And in thelong run, if newly insured people are better able to afford to seea doctor, we may see earlier diagnoses and treatments, resulting ina healthier work force as well as lower medical costs down theroad.

However, on the other hand, with millions of newly insuredpeople lining up for medical care, such heightened demand could puta supply strain on the medical community, driving up providercharges and making the availability of doctors and diagnosticservices problematic. This could be particularly challenging forWorkers' Comp insurers, which usually seek aggressive treatment andrehabilitation regimens to get claimants back to work morequickly.

Last but certainly not least, the threat of seeing the countrygo off the so-called “fiscal cliff” on Jan. 1, 2013 was much on theminds of Workers' Comp insurers at the conference. If income-taxcuts are allowed to expire while payroll taxes are restored totheir full level and the federal budget is automatically cut acrossthe board, the economy could be pushed back into recession in ahurry, leading to layoffs and exposure contraction for Workers'Comp and other P&C carriers. Indeed, many were concernedthat uncertainties surrounding the political and economicenvironment may have already held back private-sector (and insurer)growth.

For the moment, however, Workers' Comp insurers speaking with meinOrlandosounded cautiously optimistic about continued growth—bothfor the economy and their own lines of business—into 2013 andbeyond.

Time will tell.