Comp set to withstand COVID claims

The outlook for the workers compensation sector amid the COVID-19 pandemic will be shaped by changes in presumption laws related to virus claims and lower premium due to falling payroll as unemployment skyrockets, according to experts.

Yet, years of accumulated profitable underwriting and healthy reserves will help the industry weather coronavirus-related claims and lower premium in the coming months, according to the latest data from the National Council on Compensation Insurance, which last month revealed its annual state of the industry report.

“The good news is that starting into this crisis the industry is coming at it from a position of strength,” said Bill Donnell, president and CEO of the Boca Raton, Florida-based organization. 

The industry as of 2019 showed “unprecedented financial strength and consistent performance,” said Donna Glenn, NCCI’s chief actuary, during a virtual presentation that addressed where the industry stands as it faces unanswered questions regarding the pandemic’s effect on financial results. 

“The system is well-positioned to face COVID-19 stress,” she said. 

It remains unclear what level of claims workers comp insurers should expect from the COVID-19 outbreak or how hard higher unemployment numbers will hit payroll-related premium payments, according to Mr. Donnell. 

The workers comp sector has reported profitable results in recent years. In 2019, the industry reported a combined ratio for private insurers of 85%, making it the sixth consecutive year that the workers comp line of business has posted an underwriting profit. Last year also marked the third consecutive year of a combined ratio under 90%. The two most recent years, including the 83% combined ratio in 2018, showed the lowest workers comp combined ratio since the 1930s, according to the presentation.

The industry will likely see COVID-19 claims, but they will likely not show up in widespread reporting until the fourth quarter of 2020, said Mr. Donnell.

“Every aspect of workers compensation will be affected” by the pandemic, including claim activity stemming from infections, the extent of which is still unknown, and claims in states adopting changes to workers comp laws that would provide presumption coverage for front-line workers outside of health care who are usually not covered for viral infections. 

Several sectors, such as hospitality and tourism, will also see steep drops in premium as they are hit with record unemployment levels, NCCI officials said. 

Ms. Glenn highlighted that as of year-end 2019, the overall reserve position for private insurers stood at a $10 billion redundancy, doubled from $5 billion at year-end 2018, meaning premium rates continue to outpace loss costs.

Meanwhile, average lost-time claim frequency across the 38 states that work with NCCI declined by 4% in 2019, on a preliminary basis, and preliminary 2019 accident year data showed average indemnity claim severity increased by 4% relative to the corresponding 2018 value. Medical lost-time claim severity increased by 3%. 

Ms. Glenn said one of the “biggest unknowns” will be the length of total or partial shutdowns. In addition, different industries will post different results. The decline in hospitality, manufacturing and distribution, for example, could be offset by increased demand for health care, groceries and home delivery of goods. In the “middle,” many industries have increased telecommuting, which has led to fewer layoffs in some fields. 

Meanwhile, the industry should expect midterm premium adjustments that take into account lower payroll figures, she said.

Robert Hartwig, clinical associate professor and director of the Risk and Uncertainty Management Center at the University of South Carolina in Columbia, said it’s likely that the payroll decline will be temporary, as some industries began reopening last month, albeit with adjustments to scheduling and other changes to better manage the pandemic risks. 

In addition, several states are making changes to presumption language. Some have initiated efforts to make sweeping changes that would allow “essential” workers who catch COVID-19 to presume they caught it while at work, and thus file a workers comp claim. California Gov. Gavin Newsom cleared the way with an executive order in May — a move other states are unlikely to follow, said Mr. Hartwig. 

But COVID-19 claims will likely be manageable, he said. “Does the industry have the resources to manage a spike in claims related directly to COVID-19 or the presumption of COVID-19? Based on what we see today, the answer is yes,” he said. 

Meanwhile, claim activity outside of COVID-19 is likely to vary, Ms. Glenn said. Some employees may delay care or not report claims, as they may be too afraid to seek medical care unrelated to COVID-19 for fear of exposure to the virus, and some existing claimants could see their return to work and recovery hindered by fewer jobs and doctor check-ups, she said.