As the U.S. economy tumbled in March 2020 at the onset of the coronavirus pandemic millions of people were forced to leave their jobs. A year later, U.S. unemployment is at 6% in March 2021, down from 6.2% in February. That is a substantial improvement after reaching an all-time high unemployment rate of 14.8% in April 2020.
Workers’ compensation premium is sensitive to changes in employment and payroll, and pandemic-related business closures have affected WC losses, says the NCCI.
While the full extent of the actual 2020 premium decline is not yet known because premium audits on policies effective in 2020 have not been completed, the NCCI estimates that the WC calendar year 2020 private carrier net written premium to be $38.6 billion. This represents an 8.1% decline from 2019.
Despite the economic challenges from the coronavirus pandemic, the workers’ compensation insurance market will post strong profits for 2020 generated from savings from fewer claims. According to the NCCI, the workers’ comp private carrier combined ratio for 2020 is estimated to be 86%, compared with an 85% combined ratio for the prior year.
That continues a good trend for the line. Workers’ comp has been the most consistently profitable segment in U.S. commercial lines over the last five years, yielding a 91% average statutory combined ratio from 2015-2019, according to Fitch.
But while the WC market remains a certain bright light, there is uncertainty over how COVID will continue to affect U.S. employers in 2021 and beyond.
Tony Lee, principal at EPIC, cautions that COVID’s impact on the workers’ comp market isn’t over. “The reason why I say that is because when COVID first hit, I think a lot of people thought it’s just COVID and COVID claims, and it’ll come, and it’ll go away,” he said. “Not like magic or anything like that, but it’s just COVID, and it’s a COVID claim. Pretty black and white.”
But in Lee’s opinion, COVID is far from a black-and-white claim. Claims scenarios will extend far greater than the “basic COVID” claims.
“There are reactions to the vaccinations, and I stress that one because in healthcare or in a healthcare setting there are requirements by certain healthcare employers for vaccinations,” he said. “There are adverse reactions to those vaccinations, which are claims, workers’ compensation claims.”
Lee also sees continued economic challenges for many U.S. employers due to COVID. “COVID is not going to just leave, unfortunately,” he said. “It will change and develop into something else.”
While the industry continues to watch the outcome of COVID, the claims have not been as prevalent over the past year as some in the industry worried they would be.
“I’ve actually seen a lower frequency of claims during COVID, and not necessarily associated with any downsizing of businesses,” Lee said. With downsizing of businesses, history shows there can be upticks in claims. “But I have not seen an influx of claims because of the COVID situation.”
Michael Ballew, founding partner of Atlanta-based Tanner, Ballew and Maloof, a member of Baldwin Risk Partners, agreed. “Honestly the claims were a lot lower than we ever expected,” he said. “Everyone was afraid that we were going to get COVID claims really baked into workers’ comp but that hasn’t happened as much as everyone thought.”
Ballew says there is still uncertainty, but overall he believes carriers remain bullish on the workers’ comp line. “I think it’s going to remain, at least for the next year, a leading line of coverage.”
Competition in the workers’ compensation marketplace is still hard and fast, according to Todd Pollock, senior vice president, workers’ compensation, at AmWins. “I don’t see any major changes happening in the next six months,” Pollock adds. “It’s steady as it goes right now.”
One trend affecting workers’ compensation today is the changing workforce and, in particular, the rise of gig workers.
For example, nearly 2.5 million women who lost their jobs in the past year because of the coronavirus pandemic are now turning to rideshare and delivery companies to support their families. The number of women delivery partners on UberEats more than doubled between April 2020 and January 2021, according to Uber’s data reported by CBS News in February 2021. Female drivers currently make up nearly half of all delivery partners on Uber’s food delivery platform, the report said.
The issue of gig employment raises a lot of questions for workers’ comp, according to Matthew Zender, senior vice president at AmTrust North America, a large workers’ compensation insurer.
While benefits for gig workers are minimal, employers may be able to develop programs that provide a limited workers’ comp offering, Zender believes. Also, workers’ comp needs will vary by the nature of the gig work that they’re doing.
“The most traditional gig work that we see, [and] that females tend to gravitate towards, include professional freelance, direct selling, ride sharing and food delivery, all of which are areas that don’t necessarily rise to the level of any state’s view of what would be covered under workers’ compensation,” Zender said. “However, there’s also a number of females and males who have gravitated toward service platforms, and some of those service platforms may in fact, rise to the level of being considered an employee under that state’s view.”
That might include technology service platforms for home healthcare workers, Zender says. “They’re using that service platform to help associate the job that they’re going to, and the individual who’s going to define that job. So those are some of the areas that we’ve seen that have given rise to this.”
The workers’ comp market is also affected by the shortage of workers, according to Zender. “It’s been a really interesting process watching what’s going on with employment right now,” he said. “Frankly, we are seeing a scarcity of employees. It appears that as businesses are opening, they’re struggling to find enough employees to help meet the demand.”
From February 2020 to February 2021, 2.4 million women and 1.8 million men left the labor force — neither working nor actively looking for work — representing drops of 3.1% and 2.1%, respectively. Women accounted for a majority of the decrease in the labor force in the first year of the downturn even though they make up less than half of the U.S. workforce.
For women, the labor force participation rate in February 2021 was 55.9%, compared with 57.9% a year earlier. For men, the rate fell from 69.0% to 67.1% over this period. The decrease in the labor force participation rate for workers overall — from 63.3% to 61.3% — exceeds that seen in the Great Recession and ranks among the largest 12-month declines in the post-World War II era, according to Bureau of Labor Statistics data.
According to Pew Research, the key difference between the 2008 Great Recession and today is that job losses in the pandemic have been concentrated in service sectors in which women account for the majority of employment, such as leisure and hospitality, and education and health services.
Another recent labor trend is the increased number of employees who continue to work from home. But working remotely can expose a company to additional workers’ compensation risks, including the most common workers’ comp claim issue involving the lack of ergonomic workstations leading to musculoskeletal disorders. While a concern, AmWins’ Polluck says he hasn’t seen a large increase in claims for at-home workers. The biggest area of workers’ comp claims hasn’t changed, he said.
“The higher hazard classes, the people that do physical work, such as construction services, manufacturing, healthcare related, and transportation related jobs, those employees are still working.”
Even so, Zender is optimistic for the workers’ comp market for 2021. “I think that the industry has shown a resilience and as the economy improves, I think the workers’ compensation line of business should be in lock step with that.”
COVID has brought about a renewed focus on risk management, with businesses and public entities increasing their reliance on risk management technologies.
A survey conducted by risk-technology consultant Redhand Advisors of 1,100 risk professionals found that 38% of the respondents increased their use of risk technology during the pandemic, while 56% saw no change in their utilization and 6% used risk technology less.
“I’ve seen a renewed interest in risk management, or focus in general, but also specific to work comp,” said Steve Paulin, Orion Risk Management, an Alera Group company in California. “I’m seeing companies now, because of their forced adoption of technology, specifically Zoom, they’re now a little more willing to look at other technology and outside resources with different groups.”
Paulin said even larger clients with large deductible programs that were “doing all the right things” in their workers’ comp risk control, are more wiling to look at additional technology tools. They had previously shied away from technology tools such as telemedicine.
“Two years before the pandemic … they said, ‘Okay, that’s interesting. I’ll pass this information on to the HR.’ But, never heard anything after that,” he said. “And then all of a sudden, we’re on Zoom, people are saying, ‘Wow, this really works.’ Then it was, ‘Hey, can you tell us about that telehealth thing again?'”
The “forced adoption” of certain technologies and efficiencies has worked, he said. “Of course, it wasn’t seamless. Everybody in one way, shape or form had some issues. But it worked.”
Lee, agreed. “Telehealth, in my opinion, did not gain traction until people started staying at home due to COVID,” he said. Lee says claims administrators are planning to continue using telehealth in a post-COVID world where it makes sense. “I think the barrier to using telehealth still comes down to the individuals and whether or not they feel comfortable seeing a doctor by video or by phone.”
Now Paulin says businesses are more willing to tweak their business models, systems and procedures, to improve efficiencies in claims and risk control.
“Everything’s on the table,” he said, including captives.
“The idea of stepping away from the status quo and the traditional insurance transaction, especially during this time of increasing rates, and looking at some type of risk retention program — large deductibles, captives, retrospective rating, things like that,” he said. “For whatever reason they weren’t interested before.” But the pandemic in combination with hard market conditions for most of the P/C lines of insurance are driving interest in non-traditional insurance options, he added.
He said more business now see captives as a long-term strategic plan, as a profit center, to reduce costs and put more profit on the bottom line. “They’re looking at it as a long-term strategic part of their business plan,” he said.
Paulin sees businesses putting COVID risk management thinking into other areas of risk control as well. “It’s been an eye-opening experience for them.”
Zender said the insurance industry, too, has learned lessons through COVID. “In many ways COVID acted as a force multiplier on change,” he said. “There are things that we needed to be thinking about such as adoption of telehealth, for example. We’ve now realized by force that it can work.”
The past year has been one of the worst years many have ever gone through. “But I think on one level, there will be some positives we can take from the pandemic, and learn from it.”
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