The Real Impact of COVID-19 on Combined Ratios and Workers’ Comp
By: Bill Nagel, SVP/Executive Director StaffPRO3
After delivering a 15 minute “Speed Talk” at the 2021 ASA Staffing World I have updated a portion of that presentation’s content within this blog. While a few insurance professionals’ prognostications have been revised and some data added, many major points made in the original presentation hold fundamentally true for December 2021 and beyond.
The 2020 Carrier Conundrum
When COVID-19 hit, there was speculation that the pandemic could be devastating to loss ratios. Questions such as: What level of rate filings will be necessary? What will the losses ultimately look like? and What will be the impact on Workers’ Comp payroll/premium? were on many insurance professionals’ minds.
After experiencing a few large loss claims and with predictions abound, subsequent underwriting limits were dramatically reduced in 2020. Many carriers left the Healthcare Staffing Space in 2020 and put conditions on other Staffing Sectors. Carriers were non-renewing accounts or significantly increasing rates on accounts (regardless of individual claim experience), and underwriters became hyper-diligent, scrutinizing current account expansion, even among non-staffing accounts.
Many were waiting to see what was to unfold in 2021 and beyond, and of course, they were very concerned about the presumption of compensability rules or laws being passed in some states.
2020/2021 Covid Loss Experience Indicators – What Analytics and Professionals Tell Us
Though premium dropped by 10% in 2020, combined loss ratios decreased by more than 4 points amongst carriers. There was a total of $260 million in losses cases incurred from 45,000 COVID-19 claims in 38 states where data was captured, with an average per claim cost of $6,000. These claims were related to an estimated 56 million employees – 8 claims per 10K workers compared to 250 claims per 10K in non-Covid claims. The $260 million Covid incurred losses compared to $30 billion of total incurred losses translated to a .08% impact at worst.
2021 Stats are indicating that Covid Claims at this stage of their development will continue to have little impact on Workers’ Compensation rates. While a high percentage of Covid claims have an indemnity component, 95% fall below $10K total incurred, and most cost less than $1,500. NCCI and other ratemaking bureaus will not change their formulas regarding rate calculations and Experience Modifiers.
Carrier rates have not increased but rather decreased in some states and amongst many classes. And the states’ presumption of compensability laws issue has not been a major factor.
Best Practices are Still Effective to Reduce Workers’ Compensation Costs and Increase Profits
A common theme of many articles related to the impact of Covid usually closes with an acknowledgment that industry best practices will continue to mitigate the exposure and expense of COVID-19. Below are some of the risk management best practices the Staffing industry is encouraged to implement:
- Corporate Risk Management Philosophies, Practices, Compliance, and Oversight of
Risk Management adaptation to the Covid risks (e.g. address home office or remote work issues) - Hiring Policies and Procedures that screen, qualify and train qualified workers
- Client On-Boarding Process – Client On-Site Risk Assessments and Safety Practices
- Accident & Injury Protocols and Corrective Measures including medical provider networks, Return to Work, etc.
- Claims Management Processes and Mitigation Processes, internal and carrier
- Insurance Procurement Process or Evaluating and Buying Insurance
2021 and Beyond…
StaffPRO3/PMC recently followed up with researched carriers who service the Staffing industry, and they generally agree with the major points below. In other words, while COVID-19 obviously presented challenges, 2020 and 2021 are looking like the Covid impact may not have been as bad for Workers’ Compensation insurers and insureds after all.
2021 analytics and forecasts are encouraging:
- COVID-19 claims continue to decline nationwide 2021, below 2020 levels per 10,000 employees
- Catastrophic claims are rarer than initially expected
- Loss ratios and Combined loss ratios on earned premium continue to stay at profitable levels
- Rate increases due to COVID-19 claims are not expected in the near future
- Insurers took in less premium but paid fewer claims, managing to one of the lowest combined ratios in history
- Related to Covid-claimants:
- An increasing number were able to be treated via telemedicine, meaning they did not have to travel
- Appeared to have received medical care without much delay
- Needed only limited treatment
There are, however, uncertainties that may impact whether COVID-19 will affect Workers’ Compensation rates/premiums nationally or in states.
The understanding of COVID-19 continues to develop which may impact the ultimate losses for these claims. There are a variety of factors yet to be determined, including:
- The standard-of-care treatment
- Length of time to recovery
- Durability of immunity (and by extension, durability as a predictor of a safe return to work)
- Latent effects
- Impact on other organ systems
Two additional concerns include potential losses associated with preexisting conditions and the possibility that a claimant could become a “long-hauler” (someone who continues to suffer the effects of COVID-19 long after a typical recovery has run its course).
If insurance professionals are certain of one thing about COVID-19, it is that uncertainty abounds. While understanding of COVID-19 has come a long way in the past year, the pandemic’s ultimate impact on the Workers’ Compensation industry may not be known for years. However, navigating the ongoing challenges through proper adherence to Best-in-Class risk management and solid claims management can help maximize claimant results and manage costs, despite enduring uncertainty.
Any data or analysis is provided solely as a reference tool to be used for informational purposes only. The information in this blog shall not be construed or interpreted as providing legal or any other advice. The information is subject to change by its sources.
For additional information contact the team at StaffPRO3 or read any of the articles listed below:
