The COVID-19 pandemic has been with us for over 9 months now, with no end in
sight. As more time passes, the impact on workers compensation is becoming more
evident. However, we are still in the early stages of developing claims, and it
will be some time before we have clarity on the full impact.
What has changed? Frankly, everything—how the industry handles claims, the
types of claims submitted, how medical treatment is provided, staffing models,
and the list goes on. Today's workers compensation is different from what
it was before the pandemic started, and it is not likely to revert to the exact
model we had before March 2020.
Defining Workers Compensation
First and foremost, the definition of a workers compensation claim has been
fundamentally redefined. When workers compensation started over 100 years ago,
it was to cover traumatic workplace accidents, things that happened at a
specific date, time, and place.
Over time, workers compensation expanded to cover occupational diseases.
These diseases could be traced to exposures that were particular to the
workplace and associated risks—a chronic disorder caused by work activities or
environmental conditions in the workplace. In many states, workers compensation
expanded to cover injuries occurring gradually over time. As a result,
repetitive trauma/continuous trauma claims are now a significant cause of
injuries and workers compensation claims in some states.
Front and center today are infectious diseases; workers compensation was not
designed to cover a global pandemic. Claims for an infectious disease could be
covered under workers compensation if there was an increased risk due to
employment and there was documentation of exposure and a diagnosis. Tens of
thousands of workers compensation claims for COVID-19 have been covered
nationally under this standard. But now we have states enacting presumptions
that COVID-19 is work-related for specific occupations. These presumptions
fundamentally change one of the basic tenants of workers compensation: the
burden of proof. Typically, the affected employee would be responsible for
proving exposure happened in the workplace and that they are at a higher risk
for exposure than the public. With presumptions, it leaves employers
responsible for proving exposure did not occur in the workplace, which can be
extremely difficult.
With these changes, one of the more frequently asked questions in the
industry is, does this open the door for future infectious disease coverage
under workers compensation? I participated in a Southern Association of
Workers' Compensation Association regulatory roundtable discussion earlier
this year, and the consensus from the panel was yes, that door is now open.
Reinsurance
Workers compensation is a statutory coverage. Insurers cannot exclude
specific causes of loss like other insurance coverages can. After the 9/11
terrorist attacks, the reinsurance market responded by excluding terrorism from
workers compensation treaties. Now we see reinsurers exclude infectious disease
and pandemic from coverage. Since the insurers writing the coverage cannot
exclude that risk, this leaves them exposed to unlimited liabilities. There has
been talk of a federal pandemic reinsurance program, similar to the Terrorism
Risk Insurance Act with terrorism. But those talks are very preliminary.
Payroll
Tied closely to the workers compensation industry is employer payroll. Fewer
people working means fewer premiums, and the payroll in certain sectors is
significantly down. The question is, when will this bounce back? Recently, the
CEO of one of the largest hotel chains in the world said that it would be at
least 2023 before they returned to 2019 occupancy levels. Major airlines are
predicting decreased demand through at least 2022.
But the impact is going beyond the travel industry. As many office buildings
around the nation remain mostly unoccupied, this impacts all of the ancillary
businesses around those buildings—restaurants, retailers, dry cleaners, parking
garages, etc. Brick and mortar retailers that were already struggling are
facing an increasing challenge. Thousands of businesses will ultimately close
forever.
When will the economy bounce back? When will we see 2019 employment levels
again? Those are two huge unknowns facing the workers compensation
industry.
Claims Volume
Because fewer people are working in some industries, that leads to fewer
claims. In April 2020, third-party administrators (TPAs) reported that their
claims volume was down close to 50 percent. While that volume is bouncing back,
it remains below 2019 levels.
This decrease in claims adversely impacts all workers compensation industry
vendors that are volume-dependent. TPAs, medical networks, medical providers,
case managers, and even defense attorneys are seeing decreased volume. This
reduced revenue may eventually lead to more industry consolidation.
Not all claim volume is down. First-responder claims are increasing more
than ever before, with both the pandemic and civil unrest resulting in
thousands of new injuries. Healthcare industry claims are up as well. Some
retailers, including supermarkets and big-box stores, have expanded their
payroll to keep up with demand. Trucking, shipping, and delivery businesses
have also expanded payrolls.
Catastrophic injury claims have not decreased during the pandemic because
the types of industries where there are higher incidences of such claims have
kept working, such as construction, trucking, and public entities. Violent
attacks against first responders have also increased with the civil unrest
around the nation.
Data Accuracy
The foundation of the insurance industry is the law of large numbers and
predictability. Years of accumulated data is analyzed by actuaries to determine
the expected claims for the future. How has COVID-19 changed this?
Unquestionably, there has been delayed medical treatment and extended
disability on existing claims. The big question is, to what degree? It will
take years for this to flow through actuarial development triangles.
The pandemic has likely impacted the benchmarks that you used to measure
your workers compensation programs. Employers need to reset their starting
point when evaluating the effectiveness of their loss prevention and claims
handling programs.
COVID-19 Claims
As time passes, we are starting to understand better the types of claims the
industry is seeing from COVID-19.
Safety National's data shows their most impacted industry group, as
expected, is health care. However, closely behind health care is first
responders with police officers, firefighters, and paramedics. According to the
National Fraternal Order of Police, 247 law enforcement officers have died from
COVID-19 through the end of October 2020. The public entity piece is missing
from the bureaus' analysis because most of these entities are
self-insured.
At this time, Safety National's data also shows the total number of
death claims reported for employees below age 55 is almost the same as for
employees over age 65. However, there are 48 times as many claims in the under
55 age group.
Sedgwick has handled over 45,000 COVID-19 workers compensation claims for
their clients, with 78 percent of those closed with an average paid of $1,050
and 54 percent of the claims had no payments made.
Health care accounted for 57 percent of Sedgwick's COVID-19 claims, with
public entity, retail, services, and food/beverage rounding out their top
industry groups.
Sedgwick claims show almost an equal distribution of claims by age group
between 30–40 years old up to over 60 years old. However, the average incurred
in the over 60 age group is close to double any other age group. Over 71
percent of the death claims that they have seen were for employees 51 or
older.
Overall, most of the COVID-19 claims by the workers compensation industry
are relatively minor. However, death claims and claims with extended intensive
care unit hospital stays can have total incurred values over $1 million.
One big question going forward is, how will these claims develop? Will we
see continued medical complications develop? Will we see permanent partial and
permanent total disability claims?
The Path Forward
One way in which the workers compensation industry has adapted to the
pandemic environment is with the increased use of telemedicine. Sedgwick still
sees telemedicine on over 10 percent of their claims. Before COVID-19,
telemedicine utilization was on less than 1 percent of claims.
Return to work has been a more significant challenge with business
restrictions, which could increase costs on existing claims. Sedgwick data
showed a 21 percent increase in temporary total disability paid on active
claims from March 2020 to September 2020 compared to 2019.
Finally, insurers have to develop new models to estimate their potential
exposure to future pandemics. Without question, COVID-19 will continue to
impact the workers compensation industry significantly into 2021 and
beyond.
Kimberly George with Sedgwick and Mark Walls with Safety National host
the Out Front Ideas with Kimberly and Mark
educational series webinar. You can view their archived
sessions.