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.
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.
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