The share of “mega” workers’ compensation claims — those expected to cost $3 million or more — climbed steadily since 2013 after dropping as construction employment declined sharply during the Great Recession, according to a report by the National Council on Compensation Insurance and nine state rating bureaus.
The report says insurers are recognizing mega claims more quickly. That may be because many are now using analytical models to identify and triage claims with high cost potential early in the process. Significant increases in the number of reported mega claims in 2016 and 2017 may be attributable to insurers recognizing those claims earlier, according to the report.
“Many insurers are now using analytical models to identify and triage claims with high cost potential early in the process,” the report says.
The study uses data from unit statistical reports submitted to rating bureaus for 44 states. The Massachusetts and Wisconsin rating bureaus and the state-monopoly systems for North Dakota, Ohio, Washington, and Wyoming did not participate.
4,500 Mega Claims
The report identified 4,500 claims from 2001 to 2018 with projected costs of more than $3 million, when converted to 2018 values. The number of mega claims did not exceed 400 in any year and made up about 0.04 percent of the approximately 12 million indemnity claims reported during that period. However, mega claims costs insurers from $1 billion to $2 billion annually.
The construction industry continues to be a major driver of mega claims, the report shows.
While the construction sector makes up less than 20 percent of all workers’ compensation claims, it accounts for 46 percent of claims with costs of more than $10 million in projected ultimate costs, 42 percent of claims with costs of $5 million to $10 million and 37 percent of claims costing $3 million to $5 million.
The study segregated mega claims into four body part categories: Head/brain, neck/spine, multiple body parts and all other. The all other category had the largest share of claims with expected costs of $3 million to $5 million, but the largest share of claims in excess of $10 million involved head/brain and neck/spine injuries. Head/brain injuries accounted for 30 percent of claims in excess of $10 million, although they made up less than 5 percent fall workers’ compensation claims in most states.
Slips and falls were the most common cause of mega claims, making up 35 percent of the total. Motor vehicle accidents caused 20 percent of mega claims, but 30 percent of claims with more than $10 million in incurred losses, while making up less than 5 percent of all indemnity claims.
The report shows that mega claims are usually not recognized as such when the first unit statistical report is made 18 months after injury. Less than one half of all claims with $3 million in projected total incurred loss reach that threshold in the first report. But claims with losses between $5 million and $10 million are recognized more quickly.
“While we do not have the definitive explanation for this phenomenon, it is possible that claims in excess of $5 million are generally severe enough initially that they are reserved at these high levels quickly as compared to smaller mega claims for which high cost levels are more frequently driven by medical or other developments that occur later in the life of a claim,” the report says.
The report also shows that insurers are recognizing mega claims more quickly.
“In the early part of the 2000s, the typical growth in claims in excess of $3 million from first to second report level was about 30 percent or more,” the report says. “For the latest five years, the average growth rate for this same period was less than 20 percent.”
Claims from the construction industry were generally recognized more quickly than claims from other sectors. Head and brain injuries were also recognized more quickly as mega claims than claims involving other body parts or multiple body parts.
NCCI will host a webinar to discuss the findings on Sept. 11.
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