Workers’ compensation non-cumulative indemnity claim frequency declined at an annual rate of 6 percent in the 1990’s, according to a study released by the Workers’ Compensation Insurance Rating Bureau of California (WCIRB). The study seeks to identify the factors contributing to the decline, and the WCIRB updated a previous model to reflect new changes in the past decade.
The update model analyzed indemnity claim frequency by studying injuries attributable to cumulative exposures versus injuries attributable to non-cumulative exposures. Additionally, it added a new variable reflecting the effect of Cal/OSHA enforcement to the model.
Jack Hannan, director of Marketing & Communications at the WCIRB, said the reason that cumulative and non-cumulative injuries were analyzed separately was because the two types are very different from one another. According to the report, cumulative injuries result from the accumulation of injurious exposures over time while non-cumulative injuries result from specific or traumatic events. He offered this example: “The factors leading to a claim, say, repetitive motion, are very different than the factors that may lead to a slip and fall or a cut or laceration. One is more driven by the type of activity that you’re doing… [The other] happens over a longer period of time. So it’s a long-term injury versus someone who slipped and fell. So that’s why they were split, and the factors leading to the two types of injuries are very different.”
If in fact, the two had been analyzed together, Hannan predicted the results would have been distorted. He explained that cumulative injuries are a small percentage of the total number of claims filed—only 5.5 percent of indemnity claims studied during the period of 1977-1998 are non-cumulative.
Among the most significant findings of the study were the major factors resulting in the decline of non-cumulative indemnity claim frequency. According to the study, the principle factor that contributed to the decline was the enforcement of Cal/OSHA regulations, which attributed 27 percent. “Really during the 90’s, what was happening was that Cal/OSHA was in a ramp-up period. They were adding new programs and really focusing on workplace safety, anti-fraud and [things] like that. There was quite a big impact in the 90’s due to Cal/OSHA enforcement; there was more awareness on safety,” said Hannan.
Hannan noted the change in the industrial mix in California as attributing to an additional 18 percent of the decline. “California moved towards a service-based economy and out of a manufacturing. So, you would expect that service industries probably have less exposure to accidents.” Other factors contributing to the decline included the erosion of benefits, on both a real or inflation-adjusted basis, attributed 10 percent, and slow economic growth explained 11 percent of the decrease.
In regards to cumulative claim frequency, the study said that the levels of anti-fraud efforts as well as the volume of civil lawsuit filings in state courts were found to be substantially correlated with changes in the cumulative indemnity frequency. The study further stressed that changes in cumulative injuries are not related to variables in the non-cumulative indemnity frequency model.
Additionally, the study described cumulative injuries as “highly discretionary,” and thus more closely related to the worker’s discretion to file a claim. “There’s no specific tie to file a claim, it’s more at the discretion of the employee,” said Hannan. This includes a worker’s motivation and willingness to file a claim for their injury, based on current societal attitudes that tend to change over time.
Hannan warned that the study was conducted specifically to analyze claim frequency in the 1990’s, and does not necessarily reflect any statements for the future. “Really the focus of the study [was] to try to figure out what are some of the factors driving frequency, and if we could identify what some of those factors were, maybe we could make some forecast if we saw those factors continue on in the future. Some of those factors may still impact frequency in the future, and some of them may not. It may have been a phenomenon specifically related to the 90’s that may not be true in this decade,” he said.
The WCIRB estimated that indemnity claim frequency would decline by 5.3 percent in 2002, 3.7 percent in 2003, and 1.7 percent in 2004. Additionally, the study further noted the expected impact Assembly Bill 749 will have on indemnity benefits. The bill, recently signed into law by California Governor Gray Davis, will raise workers’ comp benefits in California into the billions.
“If workers’ comp benefits increase, utilization of the system [will] increase, meaning that if benefits are getting better, it may slow return to work, or it may prompt people to stay out of work a little bit longer than they would if the benefits weren’t as high,” said Hannan, in relation to the effect AB 749 will have on claim frequency. “So there’s this relationship that if the benefits are higher, the system could be used more. This is really saying that the decline in frequency may be a little smaller in 2003 and 2004 because the benefits are going to be going up, so we may see that the rate of decline and frequency may slow down a little bit, or benefits may be used a bit more. One of the results of the study was that the erosion of benefits on an inflation basis sort of contributed to the decline in frequency and now we’re saying that, because of AB 749 those benefits are going to get bumped up. So that’s definitely going to impact frequency.”
For an in-depth analysis of the WCIRB’s claim frequency study, visit www.wcirb.com.
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