A critical line of coverage sustains positive results in challenging conditions
By Joseph S. Harrington, CPCU
Workers compensation insurance was in generally good shape for both buyers and providers going into the COVID-19 pandemic and is still that way as we come out of it. Rates for coverage are falling, yet capacity remains strong. That’s gratifying and perhaps surprising, given that the pandemic induced big changes in employment patterns and occupational health and safety.
Employment in office-type functions was transformed by a sudden shift to working from home, which prompted a fear that workers would not adhere to sound ergonomic practices that could be enforced in an office setting. But no great surge in ergonomic injuries occurred.
“Essential” workers—including first responders, medical professionals, and food and transit workers—still had to report to a workplace, thus exposing them to the coronavirus along with all the usual workplace hazards. Employment-related COVID infections were a substantial new source of claims for workers comp carriers, especially after several states acted to put the burden on employers to demonstrate that COVID did not result from workplace exposure.
Nonetheless, the line weathered the storm and remained an island of relative calm compared to other lines, particularly property insurance (buffeted by natural catastrophes and supply chain disruptions) and commercial auto (under prolonged distress from soaring claim severity).
Smooth sailing continues for workers comp, at least for now.
“Workers compensation continues to be the most profitable major line for the industry,” says Mort Large, director of workers’ compensation strategy for Nationwide. According to Large, claim frequency continues to fall, as it has for decades, and increases in claim severity, although showing the effects of medical inflation, are limited by medical fee schedules and other safeguards.
“There is plenty of capacity for most classes of business, and carriers continue to compete for accounts,” Large says. “Flat to negative rates for most accounts are shrinking industry margins, but the line continues its eight- or nine-year run of profitability.”
If commercial insurance were a neighborhood, workers comp would be “one of the nicest houses on the block,” says Pat Edwards, area senior vice president and workers compensation practice leader for RPS.
“Market capacity appears to be at a high level in many states, with new entrants and coverage options showing themselves,” he adds. “In the statutory primary workers comp market, we see carriers pushing for rate reductions to position themselves to expand market share. We are seeing traditional standard markets expanding into specialty comp market space. Even competitive state funds are implementing significant rate decreases.”
As the nation’s economy has recovered from the COVID-19 pandemic, unemployment is at near-record lows and employers in most sectors are dealing with labor shortages. That’s generally good news for workers comp insurers, as competition for workers means rising wages, which in turn means an increase in payrolls, the principal rating base for workers comp coverage.
“Certain industries, such as healthcare and food processing, felt
some of the initial brunt of direct COVID claims. In totality though,
from a workers’ compensation perspective, the pandemic did not
have a material impact on results.”
Director, Workers’ Compensation Strategy
“Tightness and turnover in the labor market, along with inflation, have fueled increases in wages and payrolls,” says Edwards. “This helps maintain and, in some cases, increase premium thresholds despite a continuing trend of workers comp rate reductions. There’s a concern about the potential future impact of labor market tightness on claims frequency, however.”
Large explains that “for decades, shorter tenure in job positions has been associated with increased propensity of on-the-job injuries. The tightness of the current labor market has accentuated this dynamic, particularly in certain industries, such as restaurants, manufacturing, and construction.”
“Worker scarcity sometimes results in more inexperienced workers employed in skilled trades,” says Erin Stober, assistant vice president of casualty underwriting for EMC Insurance Companies. “We know that inexperienced workers in some sectors such as construction are more prone to being injured on the job than experienced workers. For us, equipping our policyholders with safety program materials and risk improvement services remain a key focus.”
In response to the labor shortage, some states have enacted laws expanding the hours minors can work and the type of tasks they can undertake. According to Large, the impact of these measures on occupational health and safety will vary depending on what each state allows or restricts, but he believes teenagers will still compose only a small part of the workforce, and that young workers are less prone to severe injuries than their older counterparts.
That said, he adds that “lowering the working age in higher hazard occupations could have unintended consequences for injury severity, particularly if there are language barriers.”
“The shift to working from home and corresponding
adjustments to exposure in a home setting also had a
major impact. You can implement loss control measures
in an office, but you can’t go to everyone’s house and
check their workspace.”
Area Senior Vice President and Workers Compensation Practice Leader
As for the COVID-19 virus itself, Large says that “certain industries, such as healthcare and food processing, felt some of the initial brunt of direct COVID claims. In totality though, from a workers compensation perspective, the pandemic did not have a material impact on results.”
Nonetheless, Edwards finds that the pandemic brought about myriad lasting changes in the market for workers compensation insurance, most notably regarding legal standards for establishing COVID infection as an occupational illness.
“The shift to working from home and corresponding adjustments to exposure in a home setting also had a major impact,” he says. “You can implement loss control measures in an office, but you can’t go to everyone’s house and check their workspace.”
Pandemic-imposed home isolation spawned rapid growth in both the volume and frequency of home deliveries, notes Dale Hoppe, Nationwide’s vice president of workers’ compensation underwriting for E&S and specialty markets.
“The COVID boom in e-commerce led to an increase in transport of goods to at-home consumers which continue to increase due to demand,” Hoppe says. “There is now a thriving industry in parcel delivery that was not at this scale five years ago.”
Musculoskeletal disorders are one of the leading causes of loss in workers compensation, Hoppe says. To address the problem, Nationwide works with its partner Kinetic Insurance to provide wearable technology to its workers comp clients. “Alerting workers of unsafe movements through wearable tech helps reduce these types of losses,” he adds.
“Worker scarcity sometimes results in more inexperienced
workers employed in skilled trades. … For us, equipping
our policyholders with safety program materials and risk
improvement services remain a key focus.”
Assistant Vice President, Casualty Underwriting
EMC Insurance Companies
Large believes that “with economic challenges on the rise, more and more clients are likely to be attracted to doing business with carriers that have financial strength and the ability to fulfill promises.”
He explains that a carrier that can manage the total cost and outcome of claims will save a business money in direct dollars and will reduce costs associated with lost productivity over time. “Capabilities like that are likely to increasingly resonate with buyers,” Large says.
“Agents are looking to partner with carriers who bring responsiveness and competitive advantages such as consistency in underwriting and claims handling, safety resources, and stability,” says Ed Pulkstenis, senior vice president and chief underwriting officer for EMC Insurance Companies.
“We see a significant opportunity for agents and brokers to partner with carriers who can help control policyholder risk and cost through safety programs. Carrier safety programs can be impactful in reducing frequency and to a lesser extent severity, which can drive down insurance costs.”
For more information:
EMC Insurance Companies
Joseph S. Harrington, CPCU, is an independent business writer specializing in property and casualty insurance coverages and operations. For 21 years, Joe was the communications director for the American Association of Insurance Services (AAIS), a P-C advisory organization. Prior to that, Joe worked in journalism and as a reporter and editor in financial services.