There is much discussion right now on the impact that COVID-19 (coronavirus)
will have on workers compensation. Most of this discussion has focused on the
potential for claims activity arising from the virus. The determination of
whether a communicable disease is "work-related" is a case-by-case
evaluation.
The large employers that I work with tend to retain risk on both their
workers compensation and employee benefits programs. Thus, they are not
concerned about which financial bucket the money comes from but are
prioritizing caring for their workforce instead. Potential claims arising from
COVID-19 are not the focus of this column. Instead, I'm looking at how the
challenges arising from this virus will impact the workers compensation
industry.
Individual Claims Costs
In the short-term, expect the overall costs per workers compensation claim
to rise due to the increased duration of claims caused by many factors.
- Expect delays in treatment as the healthcare industry focuses on fighting
COVID-19. That means physicians, hospitals, and testing facilities are tied
up and that elective surgeries are on hold until this crisis passes. This
challenge is not unique to workers compensation, as the group health and
Medicare settings will be experiencing similar delays.
- Modified work will likely be unavailable for many employers due to the
significant downsizing of workforces in many industries, including retail,
restaurant, hospitality, airlines, etc.
- Return to work in any capacity may be a challenge for these same
industries. In wage loss states, indemnity benefits often cannot be stopped
without a return to work.
- Courts are mostly closed in many states, halting the workers compensation
adjudication process.
- Outside job placement efforts through vocational rehabilitation will be
almost impossible with so many employers idled and a significant percentage
of the workforce looking for work.
Total Claims Costs
Due to the significant decline in people working in most industries, there
will be fewer new claims over the near term. With so many businesses closed or
functioning with reduced operations, there are simply fewer opportunities for
workplace injuries to occur.
On the flip side, it is too early to tell what the ultimate impact of
compensable virus claims will have on the industry. No one can rule out that
the costs from these claims will be as high, or even higher, than what we would
experience typically. Specific industries, such as health care, some retailers,
and occupations such as first responders, could see an increase in claims and
costs due to the combination of virus-related exposures and the significant
overtime hours worked by their workforce.
Nationally, there is a significant increase in the number of people working
from home in response to the outbreak. There is very little case law out there
regarding what constitutes a compensable claim when working at home. It will be
interesting to see what claims arise from these situations and how courts
around the country interpret these situations.
A decrease in total claims may mean less revenue for industry vendors with
fee-for-service and per-claim business models such as medical management
providers, including utilization review, bill review, and case management.
Third-party administrators are also often on per-claim contracts, and fewer
claims could mean less revenue for them.
Later this year, there could be a spike in claims as things start to return
to normal. There will be a massive influx of workers who are both deconditioned
and may have forgotten procedures and loss prevention policies. It will be
challenging for employers to ensure their returning workforce is fit for duty
and retrained appropriately.
Other Claim Considerations
As many restaurants shift to a delivery-only model, employees who are not
usually commercial drivers find themselves adapting to this new role. Could
that lead to a spike in work-related auto accidents in that industry? Possibly,
but a more significant concern may be that many businesses may not have
adequate commercial auto coverage because they did not have drivers until
now.
Also, as nonessential businesses close and many companies shift to a
work-from-home model, there should be fewer auto accidents overall.
Industry Financial Implications
The dramatic drop in payroll for many employers may also mean a reduction in
the corresponding workers compensation premiums they pay. It's relatively
simple; fewer workers equals lower premiums. Look for overall industry premiums
to drop sharply for 2020 compared to prior years. Lower premiums also mean
lower revenue for state regulatory agencies that are often funded by premium
taxes and assessments.
The insurance industry, in general, and workers compensation insurers, in
particular, depend on investment income as an element in their overall pricing
model. With the fed interest rate at zero and the massive drop in the stock
market, those investments will be down across the board. Insurers may have to
charge higher rates to make up for the significant decline in investment
income.
Conclusion
Like all industries, the workers compensation industry is dealing with
significant business disruption because of COVID-19. Many offices have closed,
and where possible, companies are implementing work-from-home models. Companies
that focused on business continuity planning for such situations have an
advantage over competitors that may not have been as diligent in these areas.
It is imperative that insurance companies be included as "essential
businesses" in any state or local shutdown orders because of the important
financial backstop the industry provides to the economy and the workforce in
general.
Finally, almost all in-person industry conferences are canceled right now
until mid-May and possibly longer, including two of the largest industry events
of the year, RIMS and the National Council on Compensation Insurance Annual
Issues Symposium. The conference business is a challenging one because it
requires you to invest up-front to secure facilities and resources with the
hope you will be able to recoup that investment with sponsorships and attendee
fees. Conferences have incurred costs preparing for now-canceled events, and
they may not be able to recover those costs. Those unrecouped costs could put a
significant financial strain on some event budgets, especially the smaller
events that tend to operate with no surplus to tap into year-to-year.
On a positive note, most workers compensation insurers have strong balance
sheets that will enable them to come through these challenges. The current
crisis is an example of a time when the financial strength rating of your
insurers matters most. Injured workers will continue to receive their benefits,
and insurers are being very responsive to policyholders, including timely
payment of claims. Many claims administrators utilize electronic banking where
allowed, which means even injured workers under confinement receive their
benefits in a timely matter.
COVID-19 will impact the workers compensation industry well beyond claims
related to the virus. However, our industry is strong and resilient, and we
will persevere and adapt to these challenges.
Mark Walls is vice president of Communications
& Strategic Analysis for Safety National. See his full bio.