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Workers Compensation Issues

NCCI Annual Issues Symposium—2020

Christine Fuge | May 15, 2020

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Due to the COVID-19 pandemic, the 2020 National Council on Compensation Insurance (NCCI) Annual Issues Symposium (AIS) was presented virtually and in an abbreviated format. Even in its shortened version, AIS delivered pertinent and insightful information about workers compensation and offered a view of the road forward in these unprecedented times.

The presentations are discussed below and can also be found on the AIS website.

"A New Decade in Sight"

As this year's theme, the program offered insights into how the industry will face changes to come. NCCI President and CEO Bill Donnell, Chartered Property Casualty Underwriter (CPCU), kicked off the meeting by offering his opening remarks. In discussing the future, Mr. Donnell began by looking at the perspective now, zeroing in on COVID-19 and its impact. He said, "We watched the world change overnight" and that "2020 will be a pivotal year" for the decade ahead.

He went on to note that workers compensation will be particularly influenced by the shock to the economy due to the huge loss of jobs and the resulting loss of payroll and the movement in a large number of states to expand the presumption of compensability for workers affected by COVID-19. He then stated that the system is strong and resilient and up to the unprecedented challenges it faces. Mr. Donnell went on to introduce the "word" for AIS 2020—vigilance. He said that it is critical for system stakeholders to be vigilant during this watershed moment in workers compensation by providing help to both employers and employees. It is an opportunity to change the workers compensation narrative.

State of the Line

The State of the Line was delivered by NCCI Chief Actuary Donna Glenn, Fellow of the Casualty Actuarial Society (FCAS), Fellow of the Society of Actuaries, Member of American Academy of Actuaries (MAAA). Ms. Glenn began her presentation by noting that COVID-19 has shocked the workers compensation system and then detailed NCCI's response. She discussed the COVID-19 resource center that the organization has set up to gather legislative, legal, and regulatory information related to the pandemic. The site also provides access to NCCI research on the subject. Ms. Glenn highlighted the recently completed study, COVID-19 and Workers Compensation: Modeling Potential Impacts, which offers insight into how the COVID-19 outbreak will impact the 2020 accident-year loss scenario. There is also an interactive tool that may be used to calculate various loss scenarios in all of the NCCI states or an individual state based on the research presented in the study.  

Ms. Glenn then moved on to review the state of the workers compensation line. She began by advising that the 2019 results showed that the line was sitting in a position of "unprecedented financial strength." The calendar-year net combined ratio for 2019 increased approximately 2 points to 85 from 83.2 in 2018. Even with this increase, the 2018 and 2019 results represent the lowest calendar-year net combined ratios since at least the 1930s and continue a string of ratios below 100 dating back to 2014. Other line statistics to note are that net written premiums ticked down a bit from $48.6 billion to $47 billion and that NCCI residual market premiums for 2019 were down slightly from 2018, as was market share. This continues a 7-year trend of stable premiums and market participation.

In reviewing loss line drivers, Ms. Glenn stated that the decline in lost-time claim frequency continues with the 2019 number down 4 percent from 2018. Average indemnity claim severity along with lost-time claim medical severity saw increases in 2019. The average indemnity portion of a claim rose about 4 percent from $24,300 in 2018 to $25,300 in 2019. NCCI estimates that the average medical portion of a lost-time claim also increased 3 percent from 2018 to 2019. The 2018 claim amount is $28,600, and the 2019 figure is $29,500.

In coming full circle at the end of her presentation, Ms. Glenn revisited the impact of COVID-19 on workers compensation, noting that it will be system altering. Premium volume will be down due to a reduced exposure base, and claim frequency will increase due to the expansion of compensability in a significant number of jurisdictions. She also offered a snapshot of the possible outcomes of a COVID-19 claim, highlighting that there are so many unknowns at this juncture.

Additional information related to the presentation is available in the 2020 State of the Line Guide. This document does a deeper dive into slides in the talk, highlighting the significant aspects of each.

Coronavirus and the Recession of 2020—Impact on Workers Compensation

In "Coronavirus and the Recession of 2020—What It Means for Workers Compensation," Robert P. Hartwig, doctor of philosophy, CPCU, clinical associate professor of finance at the Darla Moore School of Business at the University of South Carolina, examined the impact of the COVID-19 pandemic on the economy, insurance industry, and, specifically, workers compensation. He began his presentation by noting that the property and casualty (P&C) insurance industry had ended 2019 with a policyholder surplus of $858 billion and, as a result, entered the pandemic period in a strong financial position.

In looking at implications for the P&C industry, Dr. Hartwig indicated that he believes that, although the pandemic-driven recession will be severe, its duration will be brief with a rapid V-shaped recovery. Premium growth will be slowed by the pandemic through 2020 and possibly into 2021, depending on how long it takes the pandemic to play out. On the economic front, he observed that the most recent economic expansion was the longest in US history and ended in February 2020. His expectation is that the recession will likely last 5–7 months with it taking up to 2 years for the economy to recover the ground it lost due to the pandemic.

Dr. Hartwig then moved on to review the impact of the pandemic on the various lines of insurance, spending the most time on the two that are likely to be the most affected: property (business interruption) and workers compensation. Regarding business interruption, he discussed the attempt to find coverage under the property policy when there is clearly none, in most cases, and reviewed the policy elements that preclude any coverage for COVID-19 business interruption losses. He also noted that if insurers were made to pay just the business interruption claims for small and medium-sized businesses (fewer than 500 employees), insurers would blow through the 2019 year-end $858 billion in policyholder surplus in 2 months. These losses are just impossible for the insurance industry to absorb.

Workers compensation insurance faces different challenges. Payroll exposures are contracting rapidly and could be the largest in history. It is estimated that the annualized drop in annual premiums due to reduced payrolls will be 11.7 percent ($7.3 billion of total premiums) should the March/April 2020 job losses continue. Another issue highlighted here as in earlier presentations is that workers compensation is facing the expansion of the presumption of compensability resulting from COVID-19 exposure and infection. Quite a few jurisdictions have affirmed workers compensation coverage for frontline workers (i.e., first responders and healthcare professionals), and it is expected that this will create an increase in frequency and severity. Several jurisdictions have also extended workers compensation coverage for COVID-19 to essential workers (e.g., grocery and pharmacy workers). The outcome of this expansion of compensability is unknown at this time.

Workers Compensation Research

NCCI has also released reports prepared by two of its research experts. The first, "Latest Trends in Worker Demographics," was presented by Barry Lipton, FCAS, MAAA, practice leader and senior actuary at NCCI. The study reviews shifts in the workforce demographics, highlighting the aging population, gender, and education, and short-term employees and the potential impacts these employment factors could have on the workers compensation system.

In the second research report, Raji Chadarevian, director of Medical Regulation and Informatics for NCCI, offered "Gen rX—The Next Generation of Medicine." The presentation examines medical transformations in four areas: delivery of services, treatment, payment mechanisms, and medical technology.

More information on the symposium can be found on the AIS website.

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