FOCUS ON WORKERS COMPENSATION
Market remains strong and stable despite impact from coronavirus pandemic
By Lori Widmer
It was a year of waiting for the other shoe to drop. As 2020 stretched on, the insurance world braced for the onslaught of claims arising from COVID-19. In many ways, the industry is still waiting.
That’s because claims, for the most part, have been somewhat mild relative to COVID-19. According to the National Council on Compensation Insurance (NCCI), while workers affect-ed by the virus made over 45,000 claims in 2020, 95% of those claims totals were under $10,000. Of those, 75% came from workers in nursing homes, hospitals, clinics, and other healthcare settings, along with first responders. Total losses reported by carriers in 2020 came in at around $260 million.
That’s a fraction of the overall claims picture, says Jeff Eddinger, senior division executive for the NCCI. The costliest claims, he says, came from 1% of the total claims, and amounted to 60% of the total losses. COVID, he says, is not adding a significant amount of dollars of claims into the system.
The workers comp market overall, says Eddinger, is strong. From a profitability perspective, “results in recent years have been extremely good,” he notes. “Coverage is widely available. One indicator of the state of the marketplace is the size of the residual market, where players can find coverage; that remains very small and manageable, and has continued to get smaller in recent years, which means insurance companies are more and more willing to write coverage voluntarily.”
The state of workers comp
Jeff Benintendi, executive vice president, workers compensation and strategic accounts for Encova Insurance, says several years of profitable results are causing rates to decline year over year. “This is being amplified by the fact that, during 2020, the entire market lost 10% of premium from business closures and layoffs caused by pandemic restrictions and lockdowns.
“The loss of premium, which was driven almost entirely by payroll declines, has created pressure on carrier expense ratios,” he adds. “Carriers that sustained the largest premium declines are now pricing business aggressively, attempting to shore up top-line deficiencies with new business.”
However, such pricing strategies may be challenged by state-level changes, says Steve Love, president of Mid Atlantic Insurance. “The primary factor that could impact coverage is that various states are changing the requirements regarding who must carry workers compensation insurance. This could mean number of employees or could be in regard to counting subcontractors or part-time employees as full-time employees, where they didn’t in the past.”
Love says that states like Virginia are lowering the number of employees needed to require workers compensation. “Now, Virginia law requires an employer who regularly employs more than two part-time or full-time employees to carry workers comp coverage,” he explains.
That’s challenging some small businesses, says Jeff Valentine, vice president of sales and partnerships for SolePro. Smaller entities, he says, are having difficulty finding workers comp coverage. “Oftentimes, they are having to resort to the assigned risk pool. This is a long, drawn out process. There is little carrier stability.”
While there is stability within the overall market, Benintendi says that COVID-19 did leave its mark, but it was not a large enough mark for the market to sustain long-term damage. “COVID-19 drove a 10% reduction in revenue, and work-related COVID-19claims drove a 2% to 3% increase in the loss-ratio results for the line,” he says. “Even with the increase to combined ratio, the line continues to generate an underwriting profit.”
Carriers covering industries that were hit the hardest by COVID-19 claims, such as healthcare, Benintendi says, are mitigating their exposure to these industries. “State-mandated presumptions mandating claim payments that would otherwise have not been covered by a workers compensation policy further drove this movement out of healthcare and exposure to first responders,” says Benintendi.
Some, says Love, have stopped writing certain classes of business entirely. Plus, he notes, a shift in how business is conducted has pushed more changes. “Now that so many people are working from home, carriers have actually developed new class codes to accommodate these types of workers.”
That, he says, may bring up some interesting claim challenges. “In the event of a claim, there’s always the question of how did the injury occur: Was it a workplace injury? That certainly affects claims handling issues.”
Despite pandemic-related claims activity, the overall market is still being driven by familiar claims.
“Things like sprains and strains continue to be the top type of injuries,” says Eddinger. He says lifting injuries are common as well, though employers are getting better at safety measures and equipment. “Most of the time, injuries are traumatic injuries versus repetitive ones.”
“The dollar value of a workers compensation settlement is largely driven by future expected lost wage and medical benefit exposure,” says Cindy Howard, senior vice president of claims for Normandy Insurance Company. “One of the financially influential factors in assessing future settlement value is an injured worker’s employment status.
“By understanding the significant financial weight given to return-to-work, whether full-time, modified duty or some form of temporary alternative duty, agents can educate clients and create opportunities to positively influence a reduction in settlement value,” she adds.
Love says that claims are “hugely driven by industry, but also by the safety procedures, training, and awareness set into place. Injuries occur, regardless, in all types of industries.” The biggest claims deterrent, he says, is “probably company ownership and management regarding safety.”
“Prevention of 100% of claims is unlikely; however, agents can have a role in creating substantial, hard-dollar value for employers while also helping to improve clinical outcomes for injured workers.”
Senior Vice President of Claims
Normandy Insurance Company
“Most claims are truly accidental and can be greatly reduced by the employer implementing and really supporting safety programs, training and the use of proper safety equipment,” says Valentine. He points out that companies need to buy in “at all levels” for safety programs to be effective.
There are also new claim areas that could increase claim frequency. One of the more overlooked drivers, says Benintendi, is “new employee lack of familiarity with the position and environment. Our data reflects that 33% of all large claims occur with employees who have been on the job for less than one year, and close to 50% of all large claims occur with employees who have been on the job less than two years.”
“Given the length of time people were either out of work or working from home, pre-employment and pre-return to work physicals should be considered.”
Executive Vice President, Workers Compensation and Strategic Accounts
Thanks to the pandemic, Benintendi says, we are now in an environment that could increase claims frequency in a market that’s enjoyed years of declines. He cites employees returning to the work environment, a surge of new employees hired to meet increased demand, and the relaxing of hiring standards (hiring less-trained or unskilled workers) all increase the number of workers in a new environment.
Advice for agents and brokers
“That’s where the agent or broker can make an impact,” says Benintendi. He recommends agents and brokers discuss these new risks with clients. “Given the length of time people were either out of work or working from home, pre-employment and pre-return to work physicals should be considered,” he says. “Training and re-training workers as they come back to work will be essential in avoiding injuries.”
Then there are the unseen risks of employees returning to work, he adds. “After a year of being forced to stay connected through technology, it is critical to remind employees to stay off their phones while at work or driving to avoid injuries due to lack of awareness of their surroundings.”
Howard says that workers compensation claims costs are influenced by an intricate web. “Fundamentally, workers compensation claims costs are driven by employer behaviors, medical determinations made by physicians, and the carrier’s ability to make appropriate decisions,” she explains. “Prevention of 100% of claims is unlikely; however, agents can have a role in creating substantial, hard-dollar value for employers while also helping to improve clinical outcomes for injured workers.”
She suggests agents and brokers can help by “identifying and intervening in claim reporting delays and the absence of modified or temporary alternative work philosophy.”
Likewise, agents and brokers can help connect their clients with the right resources to help reduce claims, Love says. “Have the loss control folks at the carriers get involved. Assist in implementing safety policies and procedures,” he suggests.
“Now that so many people are working from home, carriers have actually developed new class codes to accommodate these types of workers.”
Mid Atlantic Insurance
Finally, agents and brokers should be making sure their clients have a complete grasp on safety risks. They need to ensure that clients “understand that doing anything outside of job descriptions per class code is not allowed,” says Valentine. “It’s my feeling that employers and their managers don’t always understand the long-term impact, both on the employee and their premiums, for a person who gets injured because they are doing something that they shouldn’t.”
Keeping employees healthy means the workers comp industry itself will remain healthy, says Eddinger. “We’re in a situation where rates are adequate, so carriers feel comfortable.” When both safety and the insurance environment are aligned, he says, the market will remain strong.
For more information:
Mid Atlantic Insurance
Normandy Insurance Company
Lori Widmer is a Philadelphia-based writer and editor who specializes in insurance and risk management.