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Coronavirus Could Alter Trajectory of Work Comp Market

The COVID-19 pandemic is changing the dynamic of the workers compensation insurance marketplace.
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The COVID-19 pandemic is changing the dynamic of the workers compensation insurance marketplace.

Prior to COVID-19, the work comp market was relatively soft, with both rate and premium reductions seen in most states over the past five to seven years. At the same time, the softer pricing correlated to a claims frequency diminished by the strong economy.

But it appears that’s about to change. With the massive number of people being laid off and a recession looming, workers comp insurers can expect to return premiums to employers both mid-term and at audit. There is also the possibility that they may see a spike in claims frequency filed by those employees fearful of losing their jobs, those who actually are losing their jobs or those who are coming back to work after being furloughed to a tenuous job situation.

Some carriers—especially those that have not been adequately pricing their workers comp books of business—might be headed toward a difficult landing in the near future.

Regardless of whether a COVID-19 claim is ultimately deemed compensable, employers are once again required by the Occupational Safety and Heathy Administration (OSHA) to report such claims as “disease-as-injury” or “occupational disease” claims. If they fail to report, they could be subject to OSHA fines.

While the overall COVID-19 impact to date for workers comp insurers has been moderate, the long-term impact may be more significant based on the increased workplace exposure for those employees that do not work from home. In addition, the respective state insurance departments and governors continue to modify the regulatory landscape to clarify what is deemed compensable under statutory law.

For example, earlier this month California Gov. Gavin Newsom signed an executive order that made it easier for essential workers who contracted COVID-19 to obtain workers compensation benefits. In effect, the change associated with the order shifted the burden of proof that typically would fall on a worker to the companies or insurers to prove that the employee didn’t get sick at work. Newsom’s change also covers all claims filed for 60 days from May 6 and is retroactive to claims filed as early as March 19.

In response to the pandemic, many workers comp carriers have issued position statements detailing how they wish to respond to the economic slowdown associated with COVID-19 and continue to send out updates. Some have granted automatic 30-day extensions to work comp policyholders that need more time to submit their monthly payroll reports. Others are offering insureds the ability to re-estimate their annualized premiums midterm based on submitting updated payroll estimates.

The significant payroll adjustments currently impacting many businesses at this time could also potentially impact workers comp renewals. Properly evaluating the anticipated employee base and payroll has never been more important for agents and their clients.

To be prepared for the anticipated changes in the workers comp market, agents should:

  • Keep abreast of individual state work comp laws regarding the compensability of COVID-19 claims.
  • Help clients create/implement a risk management plan for working from home with modifications made as needed to promote a safe work environment away from the traditional office.
  • Communicate with clients who have significantly reduced their employee base and ask if their workers comp carriers are amenable to re-rate their policies with adjusted payrolls midterm, especially if the insureds are strapped for cash.
  • Anticipate that you will have to return premiums at audit time due to short-term or long-term workforce reductions.

The impact of the COVID-19 virus on the workers comp market is very fluid at this time, but the anticipation of a shift to a tighter market with reduced carrier capacity may be one reality.

Patrick Edwards is workers compensation practice leader, RPS.