Concerns around tariffs and their impact on supply chains are rising. But volatile trade policy doesn’t just impact material resources, it influences how companies manage their workforce.
For many large US businesses, tariffs can have cascading effects on labor, operations, and ultimately, the safety and insurability of their employees.
Higher tariffs on imported medical equipment and pharmaceuticals can directly increase the cost of treating workplace injuries, impacting workers' compensation claims.
At the same time, tariffs could drive up operational costs and put businesses in a hiring crunch. As a result, employers may ask workers to work longer hours, operate under tighter deadlines, or perform unfamiliar tasks, all of which increase the likelihood of workplace accidents.
According to Jeff Cole, AVP of national accounts at Sentry Insurance, these economic pressures stem from a tangled web of interrelated concerns. In a recent survey by Sentry, nearly 45% of US C-suite executives cited supply chain issues as their top concern, followed closely by economic uncertainty (just under 40%) and inflation (34%).
“These three major areas of concern are all connected,” Cole said. “It’s ironic, considering we just got through supply chain issues from COVID, and now we’re facing new disruptions driven by tariffs.”
With fewer employees doing more, the risk of injury increases. At the same time, replacing injured workers is harder in a tight labor market, pushing employers to invest more heavily in safety measures and rethink how they structure their insurance coverage.
This labor scarcity creates a paradox: while businesses contract or remain stagnant, their exposure to labor risk may not decrease. In fact, it may increase due to overworked employees, limited onboarding, and safety gaps.
Additionally, labor strategy shifts, such as bringing logistics in-house, expand risk exposure to new job roles with higher injury rates, Cole noted.
Sentry found a few bright spots in its C-Suite survey: Faced with economic headwinds and labor shortages, companies are not scaling back on insurance.
“Just over half, 51%, are planning to increase their insurance purchases,” Cole told Insurance Business. “A lot of them are doing this through greater risk sharing like higher deductibles. Others are looking for broader coverage. So, insurance buying isn’t slowing down.”
More importantly, businesses are doubling down on workplace safety, recognizing the high cost of worker injuries in a tight labor market.
“In fact, 99% of the companies said they plan to increase their safety spending this year,” Cole said. “That’s a very strong signal that safety will have a major financial impact on businesses, especially given the labor shortage.”
Despite fewer workers’ compensation claims nationally, the cost per claim is rising. While the number of claims has actually been steadily declining for the past 10 to 12 years, severity – the cost per claim – is increasing.
Cole said a big driver of that is medical inflation, driven by healthcare staffing shortages and rising drug prices. “There's a shortage of nurses in this country. Hospitals can’t find enough staff,” he said. “Healthcare salaries have increased in recent years, and that’s pushing up medical costs.”
Dr. Mitch Freeman, chief medical officer at Enlyte, a technology, clinical and network solutions firm serving the insurance industry, has been tracking prescription drug utilization trends that directly affect workers’ compensation. He said that while overall drug use per claim is down 4.8% and the cost per claim is down 1.7%, the cost per individual prescription, known as cost per script, has risen by 3.3%.
At the same time, newer and more complex medications are also emerging. Specialty medications, for instance, represent just 2% of prescription volume but 17% of total spend in workers’ comp, up from about 6% six years ago, according to recent data from Enlyte.
“These are high-touch drugs that often require special handling or monitoring,” said Freeman. “Even though it’s a smaller slice of usage, it has a major impact on cost.”
Both Cole and Freeman stress proactive risk management, recommending employers:
While the full impact of tariff-related disruptions on workers’ comp has yet to be fully quantified, the early signs are clear: more pressure on fewer workers, new categories of job-related risk, and higher medical costs per claim.
For Cole, it’s no surprise that business executives are bracing for the far-reaching effects of economic uncertainty.
“About 60% of companies we surveyed said they plan to stay flat or even shrink this year,” he said. “That’s not what you usually see from businesses, but it’s happening due to economic uncertainty. And again, they’re struggling to find workers.”
