It’s no secret that generative AI is becoming a strategic lever for workers’ compensation carriers seeking to enhance performance as costs rise, expertise retires, and regulatory complexity deepens. But the shift is happening faster than many may realize because the pressures behind it aren’t static—they’re accelerating.

In this three-part series, I’ll build on findings from our new Guidewire-PwC report, Reimagining Workers’ Compensation in the Age of Generative AI.

Part One will explain why workers’ compensation has become unusually well-suited for leveraging GenAI in the face of rapidly evolving trends impacting the sector. Part Two will highlight areas where this technology is already delivering significant value. And Part Three will focus on five GenAI shifts that are set to reshape the sector through 2030. For the full analysis, be sure to read the complete report at genaiwc.com.

A Healthy Line Faces Growing Strain

Today, workers’ compensation hardly looks distressed. The sector has posted combined ratios of under 90% for 10 straight years, thanks to improved risk management, lower loss frequency, and technology that better connects claims management with clinical care and sustained support for injured workers. On paper, this is a line of business with enviable performance. In practice, however, it’s a line where existing operating cushions are getting thinner due to a number of converging trends, including:

Climbing Medical Inflation 

As captured in our report, medical cost inflation in the US and other developed nations has outpaced baseline rates of inflation since 1982, resulting in costlier claims for workers’ compensation carriers in private-market healthcare systems. But, in recent years, inflation rates have spiked significantly. Medical costs around the world are projected to rise as much as 10.3% in 2026 (compared to 4.2% global CPI), after rising an estimated 10% in 2025 and 9.5% in 2024, according to Willis Towers Watson. While Europe and North America will face medical inflation in the 8-9% range, the Middle East, Africa, and Asia Pacific will see costs rise 11-14%. In the US, a 2025 NCII report finds that lost-time claim severity was up 6% in 2024, the latest full year of verified data.

Expertise Heading for the Exits

In workers’ compensation, talent is a proxy for judgment. With the P&C industry expected to lose as much as half its workforce to retirement over the next decade, a shortage of seasoned underwriting and claims professionals could erode decision quality, with dire implications for complex lines like workers’ compensation. When experienced professionals leave faster than they can be replaced, institutional knowledge walks out the door with them. This includes tacit expertise in pattern recognition, local regulatory instinct, and the practical sense for when an otherwise ordinary claim file is about to become very expensive.

Surging Mental Health Claims 

In 2026, the exposure base is rapidly shifting, too. Short-tenure workers, especially those in their first year on the job, continue to account for up to 43% of physical injury claims. Yet while the hiring slowdown of 2026 may reduce these claims, a corresponding increase in the tenure of existing workers, along with new and proposed laws that make workplace trauma and stress-related conditions compensable under workers’ compensation, could prove to be a combustible mix for carriers. In California, claims for anxiety, PTSD, and depression surged 25% between 2022 and 2025, propelled in part by laws enacted since 2020. That matters when claims with mental health diagnoses are six times more expensive than those without. In markets like Australia, mental health claims climbed 161% over the past decade. And, in British Columbia, psychological-injury-only claims nearly doubled between 2020 and 2024.

Litigation Exposure Is Expanding Fast

The costs related to litigation exposure are growing at unprecedented rates, fueled by social inflation, plaintiff tactics, and third-party litigation funding that pushed the total verdict value of “nuclear verdicts” (jury awards over $10 million) up 116% in 2024, the most recent full year of verified data available. The past year has seen these trends increasingly play out in workers’ compensation. Just the involvement of an attorney in a workers’ compensation claim can lead to a 60% increase in indemnity and medical costs, and push claim duration from 300 days to 900 days. And that’s before defense-related expenses and plaintiff’s attorney’s fees. As I pointed out in a recent post, they’re also beginning to proliferate worldwide.

The Regulatory Rulebook Keeps Changing

Factor in rapidly evolving regulations set to add new mandates in 2026 around mental injuries, presumptions, independent-contractor classification, plus hot-button issues like heat-related injuries and workplace violence, and one thing becomes clear: Regardless of the region, workers’ compensation is no longer a monolithic market. It’s a constantly shifting federation of micro-markets with unique regulatory environments that carriers must navigate.

The Shift to GenAI Gains Traction

Against this backdrop, it’s easy to see why the shift toward generative AI in workers’ compensation has started pushing the accelerator. This is a line shaped by dense documentation, fast-changing regulation, and expertise that’s trapped in the heads of individuals nearing retirement. It also faces a widening litigation battlefield. And it depends on workflows where faster understanding can materially improve outcomes and help injured employees return to work faster. GenAI can improve performance across all of these dimensions. As these pressures intensify, they’re shifting interest in GenAI into action.

Indeed, it’s a shift reflected in a Guidewire survey of workers’ compensation carriers conducted as part of our study. Nearly 90% of carriers surveyed report they’re actively building, or plan to build, their AI platforms. More than 60% have a defined AI strategy, while 56% already have one or more AI models in pilot or production. The vast majority expect GenAI to help enhance efficiency and return-to-work outcomes. As my co-authors and I learned in writing the Guidewire-PwC report, the opportunities are far more expansive than this. But they also come with challenges. That’s where this series goes next.

In Part Two (coming soon), I’ll move from the case for change to the evidence of value—including a look at where GenAI is already starting to deliver significant results in workers’ compensation.

Read the Report, Join the Conversation

Be sure to read the full report, which I co-authored with Imran Ilyas, Partner, PwC; Oliver Winkenbach, GM, Data Applications, Guidewire; and Matthew Wolff, Former Partner, PwC. You can also listen to a recent episode of my InsurTalk podcast, where my collaborators and I discuss key findings from the report, below: