By Justin K. Dorman, National Product Manager, Workers Compensation, Burns & Wilcox
The Workers Compensation market has seen little volatility over the last few years. Insurance premiums have dropped since roughly 2015 as workplace safety measures and automation has increased in many industries. Some policies have experienced 50 percent premium decreases, an anomaly for the insurance industry that generally experiences modest premium increases in line with inflation. Yet, industry data indicates that Workers Compensation premiums accounted for 51.2 percent of industry revenue this past year.
Economic prosperity following the Great Recession translated to small business growth over the last decade, with 30.7 million small businesses operating by 2019 according to the U.S. Small Business Association (SBA). Those businesses employed 59.9 million individuals.
The U.S. unemployment rate in December 2019 had fallen to a near historic low of 3.5 percent, meaning jobs were plentiful and Workers Compensation policies were growing. Many experts believed one of the biggest challenges for businesses in 2020 would be dealing with tight labor markets.
Obviously much has changed since mid-March. The arrival of the COVID-19 pandemic will impact how claims are handled in the months and years ahead. While common illnesses such as a cold or seasonal flu are explicitly not covered by policies, few business owners had ever considered the effects of a pandemic on their Workers Compensation policies.
States have taken an array of action with updates occurring daily. Recent highlights include:
- California’s largest Workers Compensation insurer removed a requirement that essential workers afflicted by COVID-19 prove they have the virus
- A judge in Illinois on April 24 blocked a new Illinois Workers Compensation rule granting benefits to any employee deemed essential who contracts COVID-19, even if working from home.
- The New York State Workers Compensation Board has encouraged state workers to file COVID-19 related claims even though it was not defined whether contracting the virus is considered an insurable occupational hazard.
- Additional state communications and activities can be found in the resource section here
At the heart of many state debates is whether a claimant would need to prove that he/she has tested positive for COVID-19, or if displaying typical symptoms without a positive test would be sufficient. Further complicating the issue is that it is virtually impossible to determine how and where an individual contracted the virus.
California alone is projecting more than $30 billion in Workers Compensation claims for COVID-19 and many other states are projecting claims in the billions of dollars that otherwise would not be filed. Litigation is expected to be held up in courts for months or years before rulings are made. Occupational disease claims may increase from “essential” workers such as healthcare professionals, first responders, grocery workers and more.
The impact will further extend to Workers Compensation claims made before the virus arrived. Government-mandated shutdowns have led to a cancellation of physical therapy sessions, non-emergency procedures and other medical appointments. These claims would remain open until those employees are able to complete their care plan. Delays in getting treatment could increase claim amounts. These increases could come from medical because of a gradual worsening of the injury, and from indemnity because the insurer is continuing to pay for loss of wages until the employee can return to work.
Fraudulent claims are also expected to increase, with definitions unclear. Some of these fraudulent claims may be happening as people discover an employer’s Workers Compensation coverage would provide higher payouts than healthcare insurance. Mental health claims such as depression and anxiety are also expected to rise. At least one study has already shown that antidepressant medicine usage is increasing. Meanwhile the move to working at home can also lead to eye fatigue, back and wrist pain, poor leg circulation and more ergonomic health issues for employees since those environments are less likely to be ergonomically friendly.
Despite these challenges, it is likely that the total number of claims may actually decrease in the short-term as unemployment rises, especially in such areas as manual labor that are unable to operate in the short-term, or other companies where most employees are able to work from a safer home environment.
Steps are being taken to further support business owners financially. In addition to the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) made available by the federal government, businesses that closed, but continue to pay non-working employees, will not have to include the payroll paid to these employees in the calculation of their Workers’ Compensation premium. The National Council on Compensation Insurance (NCCI) is preparing a reporting code and will file it in many states.
It is uncertain how all of these factors will impact Workers Compensation premiums. While prices likely won’t fall as drastically as they have over the past few years, there is no guarantee they will rise either. The reduction of payroll most businesses are experiencing will lead to insurers returning premiums once annual audits have been completed.
So what are the longer-term outcomes? While great strides had been made before COVID-19, additional workplace safety initiatives and safeguards will likely be added by OSHA, especially for healthcare, food, manufacturing and other industries where the virus is more likely to spread. I would also expect that new underwriting guidelines and questions will result from the pandemic, particularly for any industry, which is now broadly labeled as “essential.”
This is a good time for businesses to reevaluate and review their risk mitigation plans, update their employee handbooks, and develop a checklist of other steps to further enhance employee safety.
While the road may be bumpy in the short-term, Workers Compensation insurance will remain a critical and necessary asset in protecting business financially, while funding the medical costs of employees injured on the job.
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.