Insights

Market Outlook for Workers' Compensation: What Is the Real Reality?


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The insurance world was moving forward with what appeared to be unimpeded growth, though showing some tension on the price points. Then COVID-19 hit, and the train ran off the rails. Carriers, sensing unknown loss potential, reduced premium collection and business closures, moved quickly to restrict coverages and push up pricing for renewals. However, even on the Titanic there were lifeboats — and we have workers’ compensation.

It’s rarely on anyone’s radar. It’s not “sexy.” There’s no litigation (or very little). It is highly regulated, often with rates set by the respective state where the individuals are employed. There is very little free market movement in pricing, and the price differential from one carrier to another is typically less than for other insurances. It is mandatory coverage, and there’s little opportunity to add or remove coverages since benefits are typically statutory.

Finally, and probably most important, it is affected by state legislative action. Therefore, in the COVID-19 onslaught, workers’ compensation became an immediate vehicle for various state governments to attempt solve the issue of high-cost medical claims, particularly for the uninsured. Some states responded with plans to push all COVID-19 claims into workers’ compensation, assuming (incorrectly) that most exposures would come from the workplace. We have since learned painfully that was not the case.

Add to this the once-in-a-lifetime convergence of two factors rarely seen in workers’ compensation – reduced or eliminated payrolls due to reduction in workforce and work-from-home reduced rates that states quickly put forth, and a “drop off the cliff” of claims volume and severity of anything not related to COVID-19 due to the work stoppages – and we have a perfect storm. That storm will have lasting effects on the workers’ compensation market, because states base rates and loss costs for future years on past data. When the 2020 data skews into the ratemaking in 2022 and after, it will be much different than past claims and payroll data, and with work-from-home structures likely to continue, it may go on for years. Data science loves change. Workers’ Compensation hates it.

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