3 Accident & Health Insurers Navigating High Medical Costs, Inflation

The Zacks Accident and Health Insurance industry is expected to benefit from an increase in underwriting exposure. Globe Life. GL, Trupanion TRUP and Employers Holdings, Inc. EIG are expected to be driven by increasing demand for group insurance and prudent underwriting standards. However, higher inflation, as well as rising medical costs, could offset the positives. The industry has been witnessing soft pricing over the past several quarters, and this is not expected to change anytime soon. Nonetheless, a rise in claims of lower severity is likely to favor pricing. Also, the increasing adoption of technology in operations will help the industry function smoothly. The industry is witnessing a rise in demand for embedded insurance and supplemental health products.

About the Industry

The Zacks Accident and Health (A&H) Insurance industry comprises companies providing workers’ compensation insurance, mainly to employers operating in hazardous industries. They offer group, individual or voluntary supplemental insurance products. Workers' compensation is a form of accident insurance paid by employers without affecting employees’ pay. Claims are generally met by insurers or state-run workers’ compensation funds, benefiting both employers and employees. While it boosts employees’ morale and, in turn, productivity, employers stand to benefit from lower claim costs. As awareness about the benefits of having such coverage rises, the future of these insurers seems bright. Per Business Research Insight, the A&H Insurance market, worth about $300 billion in 2024, is projected to expand to about $420 billion by 2033.

3 Trends Shaping the Future of the Accident & Health Insurance Industry

Pricing Pressure to Continue: The workers' compensation industry has been witnessing pricing pressure over the past several quarters. Inflation, coupled with rising medical costs and demographic changes, will likely continue to put pressure on pricing. While recent Fed reports state that inflation is expected to stay at 2.4% this year, the Centers for Medicare and Medicaid predicts healthcare spending to increase by 5.4% each year through 2028. Given rising medical costs, the need for supplemental health plans is on the rise.  Per a report in Commercial Risks, AM Best expects sustained favorable loss development and beneficial loss frequency to put downward pressure on pricing. Efforts to retain market share will further increase pricing pressure, which might curb top-line growth. With commercial and industrial activities back on track, demand for insurance coverage is likely to rise. SpendEdge estimates that workers’ compensation insurance pricing will increase at a five-year (2022-2026) CAGR of 5.3%. Also, per a CBIZ report, workers’ compensation pricing is expected to rise 2%. 

Improvement in Claims Frequency: The adoption of safety measures and improvement in working conditions are lowering claims. The accident and health insurance space has witnessed growth over the years, primarily driven by an increase in benefits offered by employers. The right kind of workers’ compensation policy translates into personal care for injured workers, increased productivity, higher employee morale, lower turnover, reduced claims costs and less financial worry amid rising medical costs. Increasing underwriting exposure and a consistent decrease in claims frequency rates, attributable to a better working environment and conservative reserve levels, have been boosting the industry’s performance.  Per the Bureau of Labor Statistics, in the next 10 years, the number of workers aged 75 and more is expected to increase by 96.5%.  Thus, claims could rise, given an increase in work-life span and the degree of severity, the report states.

Increasing Adoption of Technology: The industry is witnessing accelerated adoption of technology in operations, including the use of artificial intelligence. AI, data analytics, automation, cloud computing and blockchain should help insurers gain a competitive edge. Telemedicine is also gaining traction, in turn saving costs. Machine learning and predictive analytics enable real-time risk profiling. Policies are increasingly bundling telehealth services. Per a CBIZ report, industry data reveals that artificial intelligence could reduce workers’ compensation claim expense by about 45%. Nonetheless, higher spending on technological advancements will result in escalated expense ratios.

Zacks Industry Rank Indicates Weak Prospects

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates bleak near-term prospects. The Zacks Accident and Health Insurance industry, housed within the broader Zacks Finance sector, currently carries a Zacks Industry Rank #162, which places it in the bottom 33% of the 243 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually losing confidence in this group’s earnings growth potential.  

Before we present a few stocks one can have in their portfolio, given their business advancement endeavors, it’s worth taking a look at the industry’s performance and current valuation.

Industry Underperforms Sector and S&P 500

The Accident and Health Insurance industry has underperformed its sector and the Zacks S&P 500 composite year to date. The stocks in this industry have collectively gained 5% in a year compared with the Finance sector’s increase of 13.8% and the Zacks S&P 500 composite’s increase of 18.9% over the same period.

One Year Price Performance

Current Valuation

On the basis of a trailing 12-month price-to-book (P/B), commonly used for valuing insurance stocks, the industry is currently trading at 1.78X compared with the Zacks S&P 500 composite’s 7.87X and the sector’s 4.33X.

Over the past five years, the industry has traded as high as 2.14X, as low as 0.97X and at the median of 1.76X.

Price-to-Book (P/B) Ratio (TTM)

Price-to-Book (P/B) Ratio (TTM)

3 Accident & Health Insurance Stocks in Focus

We are presenting one Zacks Rank #2 (Buy) stock and two Zacks Rank #3 (Hold) stocks from the Zacks Accident and Health Insurance industry. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Globe Life: Based in McKinney, TX, Globe Life is an insurance holding company providing individual life and supplemental health insurance to lower-middle to middle-income households throughout the United States. This Zacks Rank #2 insurer has been witnessing a positive trend in revenues, driven by premium growth in its Life Insurance and Health Insurance segments and net investment income.  

The strong performance of the American Income and Liberty National divisions should drive the top line in the future. Liberty National is likely to continue to benefit from improved productivity and agent count. GL’s expansion initiatives to capture heavily populated and less penetrated areas should drive growth in the future. Net life sales, as well as net health sales, are expected to grow in the mid-teens for Liberty National.

The Zacks Consensus Estimate for 2026 and 2027 earnings indicates a 4.1% and 8.9% year-over-year increase, respectively. The consensus estimate for 2026 and 2027 earnings has moved up 0.5% and 1.4%, respectively, in the past 30 days.

Price and Consensus: GL

Trupanion: Headquartered in Seattle, WA, Trupanion is a provider of insurance for cats and dogs in the United States, Canada, Continental Europe and Australia. It operates in a total addressable market worth $34.1 billion, which is a large but underpenetrated market. This pet insurer is well-poised to grow, courtesy of its heightened focus on pets’ health and well-being in an underpenetrated pet insurance market, product launches, extended operating boundaries and a solid capital position. This Zacks Rank #3 pet insurer continues to invest in areas where it believes it can achieve high internal rates of return. Improving pricing should add to its upside.

The Zacks Consensus Estimate for 2026 and 2027 suggests an 8.9% and 47.8% increase, respectively, on a year-over-year basis. TRUP delivered a trailing four-quarter earnings surprise of 0.8%, on average. It has a Growth Score of A.  The consensus estimate for 2026 earnings has moved 1 cent north in the past seven days.

Price and Consensus: TRUP

Employers Holdings: Based in Henderson, NV, Employers Holdings is the 19th largest provider of workers' compensation insurance to small businesses in the low-to-medium hazard industries and carries a Zacks Rank #3. EIG should continue to benefit from a solid presence in attractive markets and prudent underwriting. Its multiple distribution channels provide competitive advantages. 

The consensus estimate for 2026 and 2027 earnings suggests a 107.5% and 19.4% increase, respectively, on a year-over-year basis. The consensus estimate for 2026 earnings has moved nearly 14% north in the past seven days. 

Price and Consensus: EIG

 

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This article originally published on Zacks Investment Research (zacks.com).

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