The Workers’ Compensation market has been significantly impacted by COVID-19 and several other factors over the last year. What has not changed is that we are in the eighth consecutive year of a soft market within Workers’ Compensation that offers plenty of opportunity for capacity and competitive prices for clients.
Current headwinds indicate that trend could change, however. While capacity and low premiums should continue near-term, a variety of macroeconomic and individual factors will impact every Workers’ Compensation policy. The continued retiring of Baby Boomers, the work-at-home trend and new technology are among the trends outlined below.
Payroll has been the most surprising outcome of COVID-19
Premiums are based off payroll in the Workers’ Compensation field. Job losses, particularly in hospitality sectors, followed by the “great resignation” where many employees have chosen to leave the workforce have characterized this pandemic. Other members of the workforce have decided to work for themselves or freelance to support a preferred work/life balance.
As a result of these and other trends, payroll for many businesses has been drastically reduced over the past two years. However, payrolls have started to slowly rise the last few months as more workers returned, possibly because of rising inflation and a reduction in unemployment benefits.
There are bright spots for the Workers’ Compensation space despite the pandemic. New businesses have opened and entrepreneurs see opportunities for starting their dream business. Professional contractors have remained busy as homeowners and businesses have continued to engage in renovation and remodeling projects. The expectation is that the contractor book of business will mirror the current state of the economy the rest of this year.
Claims have been lower than expected from COVID-19
The best news for the industry is that the number of Workers’ Compensation claims filed has been lower than we would have guessed at the start of the pandemic. Initial fears about skyrocketing claims have gone unrealized as many employees have been treating mild cases of COVID-19 as they would the flu or the common cold, electing to stay home, thereby reducing the potential for the number of COVID-related claims in the workplace. Plus 2020 experienced an influx of endorsements on top of rate decreases. Because of this COVID-19 has been categorized more as a premium event than a claimed dollar event.
The biggest reason that claims are down is that more workers are staying home. What started as a mandate has emerged into a consistent trend for non-retail businesses. More jobs require automation as well, reducing liabilities in manufacturing and other blue-collar industries.
There was a higher exposure to first responders, law enforcement, nursing homes and other healthcare entities and certain hospitality entities like restaurants earlier in the pandemic. As time has passed that exposure has fallen, meaning COVID is categorized as a small earning event but not a capital event. To support that theory, there were roughly 80,000 Workers’ Compensation claims in 2020. That represented 11 percent of all U.S. claims but only 3.5 percent of total incurred dollars.
Other market conditions are evolving how we see Workers’ Compensation in 2022
As previously mentioned, Workers’ Compensation is stuck in a multi-year soft market. Costs are decreasing which has helped it to become a profitable line of business. Meanwhile there is a wealth of competition throughout the sector from brokers to wholesalers. The larger the premium size, the more competition there is for that business.
As premiums and renewals continue to fall, carrier appetites have broadened, which has led to more credits for many clients. Unlike other sectors in the insurance market, carriers are fighting over desirable accounts. Cancellations have also normalized after the initial COVID wave.
Certain industry verticals are particularly profitable and desirable clients in those industries have the ability to price shop. New businesses not only offer new clients but often higher levels of profitability. Renewal retention remains high because prices are affordable and have been dropping year-over-year.
Megaclaims still occur but they are not as costly or prevalent in Workers’ Compensation as in other Property and Casualty areas. The statutory nature of the sector and the fact that a carrier’s duty in a Workers’ Compensation claim is to get the claimant back to where they were before the accident helps to moderate the frequency of these cases.
Plenty of capacity and competitive rates will continue while technology further evolves
The general belief is that this soft market will continue well into 2023. Renewal retention therefore will remain high. Medical inflation and long-COVID could also lead to higher claims.
The role of technology continues to change the market in many ways. New digital providers have made it easier for carriers, brokers, and agents to transact business even if conversion rates are lower. Some of these online applications may offer lower conversion rates and a lack of information that can make the ability to provide instantaneous quotes difficult.
Brokers can often upload an app developed by a carrier to pull the data and provide a quick quote. That could lead to a better loss system down the line. Becoming comfortable with this technology and online quoting will be a necessity for brokers and agents as more applications will be submitted using online tools.
Key takeaways for brokers and agents
Whether the Workers’ Compensation market is hard or soft, providing detailed information on a submission remains critical. A submission should include a full summary of the business, type of work, length of time in industry and reveal any recent claims. Losses do not prevent coverage in the market but not disclosing those losses can.
Some verticals are requiring their most dedicated employees to work overtime because of understaffing challenges. Employers need a strong work safety plan in place to help mitigate potential claims that may arise from employees working too many hours, losing sleep, and increased stress.
Having great relationships between the wholesaler and the underwriter still matters because it makes the ability to match a client with the right policy easier. While Burns & Wilcox specializes in hard to place businesses, we also have a specialty in the Workers’ Compensation arena with access to more than a dozen markets. This helps us to place specialty clients from restaurants to mining.
Burns & Wilcox also has a Workers’ Compensation program for cannabis businesses. From CBD retail stores to farming operations to manufacturing and processing, Burns & Wilcox offers coverage for a multitude of classes. Learn more here.
Contributor: Justin Dorman, National Product Manager, Workers’ Compensation, Burns & Wilcox, Charleston, South Carolina
This commentary is intended to provide a general overview of the issues contained herein and is not intended, nor should it be construed, to provide legal or regulatory advice or guidance. If you have questions or issues of a specific nature, you should consult with your own risk, legal, and compliance teams.