Brink News gathers timely perspectives from experts on risk and resilience around the world to inform business and policy decisions on critical challenges. It is the digital news service of Marsh & McLennan Insights, managed by Atlantic 57, the digital consultancy of The Atlantic.

This month, Brink News published a story about how “Workers’ Compensation Is About to Be Transformed.“

Workers’ compensation is the largest premium segment in the U.S. commercial insurance market. While some progress has been made in addressing expenses, the costs of administering the system are stubbornly high. Take California as an example, where it costs the system $0.54 to deliver $1 worth of benefits. In Medicare, the overhead costs to deliver the same benefits are $0.02.

A number of factors are now converging that will enable the insurance industry to reduce risk and transfer it more effectively. These factors will enable insurers to lessen earnings volatility and build deeper and more meaningful relationships with customers. Businesses will have a clearer picture of risks facing workers and the tools and capabilities to proactively take mitigating actions.

Several developments are driving these changes, which will impact how workers’ compensation is bought, sold and delivered.

Investments in technology and operational efficiency improvements have largely focused on treatment and back-to-work programs after an injury has occurred. The industry has been stymied in its desire to prevent worker injuries by a lack of data and technology that would enable preemptive action.

The market for workplace wearable technology is undergoing rapid growth, and startups are targeting high-loss areas, such as the more than 30% of injuries that are due to musculoskeletal disorders.

Traditionally, workers’ compensation insurance premiums are determined based on historical loss data. Emerging data sources will provide much deeper insight into predictors of risk and enable companies to proactively reduce risks with pinpoint accuracy.

The result will be better alignment of risk and price, rewarding companies that leverage these technologies to sustain and improve safety culture. We expect policies that provide premium credits to emerge first, similar to personal auto, where telematics-based information on driving behavior is most developed.

Moving toward a data-rich future is not without peril. A proliferation of vendors and standards, a vast number of new data sources, new artificial intelligence techniques and connectivity options begin to describe the technical complexities.