The insurance industry relies heavily on actuarial models and benchmarks to analyze performance and predict future exposures. One of the core assumptions of analytics and benchmarking is that most components of the analysis mirror conditions similar to the past. However, the pandemic introduced several variables into the analysis that question the validity of those models in the future.1
The latest Out Front Ideas with Kimberly and Mark webinar brought together a panel of industry experts discussing how models have been impacted and how risk managers need to adjust their future expectations to account for the pandemic's impact. Our guests included the following.
Ron Schuler—head actuary of property and casualty broking North America and head of collateral solution at Willis Towers Watson
Tamika Burgos Puckett—risk manager corporate security at Zoom
Richard Frese—principal and consulting actuary at Milliman
David Stills—senior vice president of carrier and risk practice at Sedgwick
Benchmarking is essential for any risk management program. Utilizing threat and opportunity assessments and identifying key risk indicators help an organization assess any new risks. Organizations that have incorporated enterprise risk management programs use these identifiers in a holistic approach to establish business objectives.
Months before the first claim of the year, risk managers working with actuaries will need to make predictions about ultimate costs for the entire year. Significant business and financial decisions are made based on these predictions, including budgeting, service pricing, and how much risk to take in other areas of the company. Predictability is critical for year-over-year improvement in these metrics.
While there are many vital aspects of benchmarking in casualty claims management, it is crucial to recognize the direct correlation between employees' care and financial management metrics. With regards to workplace injuries, ensuring the delivery of timely and appropriate care and returning your employees to a preinjury condition should remain at the top of the list. Staying focused on advocacy and timely care results in better outcomes for everyone.
The amount of data currently available seems endless, but is everyone interpreting it correctly? Are the risk managers' goals aligned with executive goals or even the legal team's metrics? Does everyone know what they are trying to achieve with their data collection? While collaboration is key to understanding benchmarks, making sure that everyone has similar goals is critical to exposing areas of opportunity.
Additionally, finding a good data source can be a primary challenge. Comparing similar risk profiles based on claims performance, including reporting, case reserves, severity, and frequency, is critical to data accuracy. Other benchmarks—such as deductibles, premiums, and collateral amounts—can provide increasingly specific data to an organization.
Regardless of how much and what type of data is gathered, be sure to make an action plan. If the effort is put into gathering all of this data, get interpretations from other experts, and plan for making improvements.
COVID-19 has made a considerable impact on analytics, but one of the most significant impacts has been caused by presumption laws. These laws shifted the burden of proof, which completely changed the perspective in workers compensation. Employers, both insured and self-funded, anticipated more of a financial burden, resulting in duplication of benefits for some employees.
The pandemic also forced employers to focus on leading risk indicators like safety and preparedness, creating a more positive impact on benchmarks. As far as major disruptors, remote work had not been considered by many employers before COVID-19. New considerations like hardware, Internet access, productivity expectations, and, of course, cyber risk had to be made a priority to minimize business interruption.
While there are some similarities in overall impact, the overall effect of COVID-19 on benchmarks depends on the nature of the business and the physical location of its employees. For example, retail will not be affected the same way that health care has been affected. Some states also had a greater impact than others because of differences in government shutdown orders. With claims consideration, pay close attention to the types of claims since exposures have shifted. While retail has seen a shift to online shopping, creating less foot traffic and reducing in-store exposures, increased distribution center activity could result in claims associated with overexertion or driver activity. Considerations also need to be made for the following.
Unemployment rates causing difficulties with the return to work and potential for fraudulent claims due to financial strain
Potential surge in cases due to businesses reopening and restrictions being lifted
Comorbidities with COVID-19 long-haulers
Changes made to presumption laws
Backlog of litigation cases
Prolonged hard market due to uncertainty in underwriting new policies
While many risk profiles have changed because of workers compensation resources being reallocated and exposures moving to other jurisdictions, recognizing the difference in those jurisdictions and their influence on those risk profiles is critical in terms of cost and performance.
Advice for Risk Managers
First and foremost, define your narrative. Be aware that every business is unique and has been impacted differently by the pandemic. Risk managers should focus on claims frequency and how it has been affected by COVID-19 but understand that it could be starkly different from historical workers compensation claims. If possible, isolate the variable of COVID-19 claims, increase the frequency of analysis on metrics, and test scenarios and assumptions. The finer the data can be stratified, the better.
Uncertainty is a risk manager's worst nightmare, but properly using critical resources can lessen the fear. Lean on peers and colleagues for different perspectives, and utilize subject matter experts like brokers, insurers, and actuaries to plan and prepare. Also, get senior-level management and the executive team involved to understand the full scope of the risks. Make sure financial leadership understands the uncertainty around the range of estimates on policy costs, and read full policies and understand potential gaps in coverage. Remember to stay focused on the people—advocate for the injured workers and focus on getting them back to work.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.
1 To listen to the archive of our complete "COVID Analytics & Benchmarks" webinar, please visit https://www.outfrontideas.com/. Follow @outfrontideas on Twitter and Out Front Ideas with Kimberly and Mark on LinkedIn for more information about upcoming events and webinars.