How will current economic conditions affect workers’ compensation – and the property and casualty insurance industry – in 2023?
Earlier this month, insurance veteran Robert Hartwig predicted the answers.
Hartwig, a clinical associate professor of finance and insurance at the University of South Carolina’s Darla Moore School of Business, outlined his predictions at the NCCI Annual Insights Symposium in Orlando.
Despite the banking and national budget debacles, financial market volatility and a mild recession likely looming, Hartwig’s prognostication is largely optimistic.
“The P&C insurance industry is strong, stable, sound and safe,” he said.
General Economics
At last year’s AIS conference, Hartwig told attendees that the US was not and will not enter a recession in 2022. That proved to be true. At the same time, however, consumer sentiment is still relatively low today.
“It’s almost a 20-year low,” Hartwig explained, “although it was a little bit lower last year, in part because inflationary pressures are starting to ease. And it’s inflationary pressures that makes people depressed about the economy.”
Although a recession is inevitable, the consensus view, Hartwig said, is that the economy will enter a shallow recession in the second half of 2023. The expectation, Hartwig said, is that when the Annual Insights Symposium returns next spring, the economy will begin to recover.
Effect on Property and Casualty Insurance
In years in which the US economy experienced a recession for at least three months, the average workers’ compensation index was 105. In years without a recession, it was 104.6. And all those years, it’s 104.7
“So there is no statistically significant difference in terms of underwriting performance on the workers’ line in recessionary years versus non-recessionary years,” Hartwig shared. “At least for the last half century.”
That’s right: According to Hartwig, the recession had no discernible effect on workers comp — or general property and casualty underwriting performance — based on data from the past 50 years.
The recession, however, had an adverse effect on commercial lines premium growth rates, although the magnitude varied with the state of the underwriting cycle. Equity returns have also been affected by the recession – and could rise if there is a recession this year due to rising interest and investment income.
Hartwig believes a recession in 2023 is likely:
- Leads to reduced commercial lines net premiums written growth
- Take the pressure off today’s tough market as demand for P&C insurance slows
- Not a repeat of the 2008 financial crisis
Hard Insurance Market

“We’re still in the midst of a tough market,” Hartwig said, “so this tough market continues. The question is: Can it continue in the midst of a recession? In the midst of a weakening economy ?”
It was done until the end of last year. And Hartwig expects it to continue until 2023 — “but not in such a drastic way,” he said.
However, labor comp rates have generally been flat or slightly lower over the years due to strong underwriting results – while all other commercial lines experienced an increase in Q4 2022.
“Despite the extraordinary economic and political uncertainty in the United States today, workers’ compensation remains the strongest performer of all P&C lines,” Hartwig wrote in a follow-up email.
The “X-Date”
During his presentation, Hartwig talked about the future “X-Date” that affects the possibility of recession, the trajectory of interest rates and the general volatility of the financial market.
The US national debt hit the ceiling in January, and the treasury has taken what Hartwig described as extraordinary measures in recent months to meet its obligations. If these measures are exhausted, Hartwig explained, the US could default on its debt and lead to payment delays for some government activities.
According to Treasury Secretary Janet Yellen, this “X-Date” can be reached as soon as June 1. The last major debt impasse in 2011 led to an increase in interest rates, as well as a drop in prices. commodity and consumer confidence.
Banks are in Crisis. Are Insurers Next?
Last year was a bad year for P&C insurers. The industry had $35.6 billion in underwriting losses and insurers carried $111 billion in unrealized investment losses. Overall, the industry experienced a $95.5 billion reduction in excess policyholders.
Despite all that, Hartwig believes the insurance industry will remain strong. He said there are no runs on insurers, insurers tend to invest conservatively and insurance markets are operating normally.
“I have the confidence to believe that property-casualty insurers are doing well,” Hartwig said.
He later added that higher interest rates have pushed investment income upward for P&C insurers. The industry sees about $62.2 billion in investment income in 2022. That number is expected to rise to $68.8 billion in 2023.
Deeper
To view the entire presentation, visit the NCCI website.
Topics
Property Casualty Market