SPECIALTY LINES MARKETS
FOCUS ON WORKERS COMPENSATION
Wearable technology and machine intelligence contribute to safer workplaces and fewer claims
By Lori Widmer
The news was good heading into the fourth quarter of 2018: Workers compensation claims were declining. The National Council on Compensation Insurance (NCCI) reported claims for individual states declining at a rate of 3.5% to 19.1%. Nationally, NCCI reports a five-year decrease of 91% in claim frequency.
What’s driving claim reductions? Anything from wearable technology and machine intelligence to safer workplaces and more emphasis on early intervention could be contributing to the decline.
Whatever the catalyst, 2018 was a good year for carriers. Thanks in part to strong underwriting performance, according to Fitch Ratings, the industry statutory combined ratio for 2017 came in at 92%.
Yet something else is happening in workers compensation that has underwriters concerned: Such successes are driving rate decreases. The Fitch Ratings U.S. Workers’ Compensation Market Update cautions that a “steady decline in rates from increased competition will ultimately lead to weaker underwriting results.”
Just how competitive is the market? “Today the workers compensation market is highly competitive,” says Andrea Gardner, head of enterprise workers compensation at The Hartford.
Rates have been declining for several years, which Gardner says reflects the increased use of technology and data analytics. “This has contributed to the long-term decrease in claim frequency and it helps to control claim costs,” she adds.
In fact, 2018 finished strong—with a calendar year combined ratio of 83%, according to Tod Austin, president of the Atlantic region of MEMIC Group (Maine Employers Mutual Insurance Company). “This is the lowest combined ratio in the last 30 years,” says Austin. “2018 was the fifth consecutive year that the workers compensation line posted an underwriting profit. In fact, comp was the most profitable line of business in the P-C industry.”
Surprising news considering the traditional view of workers comp as a cost center. Austin says several factors are keeping workers compensation strong, including improved premium/loss experience, a decrease in loss development factors, and lower frequency and severity. “With these positive results, the policyholder is enjoying back-to-back years of double-digit rate reductions in most jurisdictions,” says Austin. “The Atlantic region of MEMIC is seeing average rate decreases of 10% across the board with Pennsylvania having the highest reduction in 2019 with multiple reductions totaling 28%. We are also seeing increased use of sliding scale dividends as well as flat dividends. This had been absent from the market for many years.”
Carol Sipe sees a similar picture of the workers comp line. Sipe, who is president of Summit, a member of Great American Insurance Group, says the market is in a healthy position. Besides decreasing losses and pricing, she says, “Employment is strong. Low frequency is strongly contributing to the favorable trends. Competition is strong but not irresponsible. The favorable results in workers compensation have attracted several carriers back to the market, which is good for employers. As a result, there is not a lot of pain in workers comp for employers.”
That said, Austin notes that the soft market will be no friend to accounts with a poor loss history. He advocates for improved loss prevention. “There has never been a better time for companies to embrace loss prevention because of the potential payback,” he says.
Coverage and claims
Because workers compensation is so tightly regulated, Gardner says changes in coverage are not likely. However, she sees service delivery changing, and that’s where companies are differentiating them-selves. “For instance, we see increased customer interest in a seamless total absence solution, including administration and reporting from workers compensation through disability.”
No change has been seen in the factors that drive claims. “The top claim drivers we see include slips and falls, materials handling, overexertion, struck by an object, repetitive motion and auto accidents,” says Austin. “Both frequency and severity of the causes of loss can be significantly reduced with the implementation of loss prevention as well as a robust return to work program.”
Sipe points to additional claim drivers: comorbidities (medical complications), delays in initial treatment, lack of access to care in rural areas, litigation, and “psychosocial impacts, such as language barriers and family dynamics.”
Sipe says poor communication is one claim driver that is very much within an employer’s control. “The importance of communication between the employer and employee cannot be overstated. Many injured workers feel isolated.”
That isolation could cause an injured worker to feel stigmatized. Sipe says there’s an easy fix: “Employers who simply stay in touch and let employees know they care can significantly affect outcomes.”
Substantial reductions in workers compensation claims can be achieved through the use of technology, experts say. Ben Taylor, co-founder of Zenjuries, says tech can help mitigate the adversarial nature of workers comp.
Taylor and Jess Dantice, Zenjuries’ chief executive officer and cofounder, believe that technology can help agents in two ways: first as a tool to write the business, and second as part of ongoing service. “From an agent’s vantage point, it’s part of the service obligation,” says Dantice. “Technology can help your clients become more profitable. And the more profitable your book of business, the more contingency income you’ll earn.”
Technology also can help speed the process of utilization review. Brent MacLean, general manager of the medical claims management business line at Conduent, says utilization review costs have been increasing, but with technology those costs can be kept in check. Technology, he says, can reduce the utilization review process from days to hours. Also, speeding nurse triage can reduce an injured worker’s wait time to see a physician from three to four days to a quick decision “with multiple days to spare,” MacLean says.
“With technology, because we can spend more time focusing on managing the claim and getting the appropriate care, it’s a 30% to 40% decrease in cost on the low end,” MacLean adds.
For agents and brokers, technology can be a significant competitive advantage. Paul Areida, chief executive officer of NetRate, says technology can help agents identify prospects and niches, flesh out the profitable niches, and differentiate themselves from competitors. Using tech to talk with prospects about reducing claims frequency and severity and showing them how that translates into lower premiums can bring real value at the outset of the relationship. “As an agent, you are demonstrating to the prospect that you understand their world and showing them how to reduce their premiums and costs with better claims management,” says Areida.
MacLean believes that the less time employers, agents and brokers need to spend on paperwork, the better the outcome for all. “The goal of a program should be to provide the highest cost savings and the most effective care and also to get to the root causes of claim drivers so fewer claims will come in six months down the road.”
Taylor agrees. “We work in an extremely complex world. As hard as we try to improve our processes, we’re only human. Technology brings discipline to the process that you can plug into a three-person shop or a 300-person shop. That discipline will ultimately drive positive results.”
Beyond technology, Gardner says agents and brokers can be the critical support piece that can drive more positive workers comp results. By serving as liaison with the insured, she says agents can help drive prompt reporting that can improve outcomes for injured worker.
Agents and brokers also can help to direct care for the injured employee, Gardner adds. “Another way to improve loss outcomes is to ensure that the injured worker can successfully return to work, which benefits both the employer and the recovering employee,” she says. “Returning to work allows the injured worker to feel valued while also enabling the insured to minimize gaps in productivity and reduce lost time payments.”
“The most important thing to remember is that workers compensation is all about the injured worker,” says Sipe. “When agents, employers and carriers stay focused on a good outcome for the worker, it results in a good outcome for everyone.”
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Lori Widmer is a Philadelphia-based writer and editor who specializes in insurance and risk management.