The Continued Impact of COVID-19 on Workers Compensation

Defining Workers Compensation

First and foremost, the definition of a workers compensation claim has been fundamentally redefined. When workers compensation started over 100 years ago, it was to cover traumatic workplace accidents, things that happened at a specific date, time, and place.

Over time, workers compensation expanded to cover occupational diseases. These diseases could be traced to exposures that were particular to the workplace and associated risks—a chronic disorder caused by work activities or environmental conditions in the workplace. In many states, workers compensation expanded to cover injuries occurring gradually over time. As a result, repetitive trauma/continuous trauma claims are now a significant cause of injuries and workers compensation claims in some states.

Front and center today are infectious diseases; workers compensation was not designed to cover a global pandemic. Claims for an infectious disease could be covered under workers compensation if there was an increased risk due to employment and there was documentation of exposure and a diagnosis. Tens of thousands of workers compensation claims for COVID-19 have been covered nationally under this standard. But now we have states enacting presumptions that COVID-19 is work-related for specific occupations. These presumptions fundamentally change one of the basic tenants of workers compensation: the burden of proof. Typically, the affected employee would be responsible for proving exposure happened in the workplace and that they are at a higher risk for exposure than the public. With presumptions, it leaves employers responsible for proving exposure did not occur in the workplace, which can be extremely difficult.

With these changes, one of the more frequently asked questions in the industry is, does this open the door for future infectious disease coverage under workers compensation? I participated in a Southern Association of Workers' Compensation Association regulatory roundtable discussion earlier this year, and the consensus from the panel was yes, that door is now open.

Reinsurance

Workers compensation is a statutory coverage. Insurers cannot exclude specific causes of loss like other insurance coverages can. After the 9/11 terrorist attacks, the reinsurance market responded by excluding terrorism from workers compensation treaties. Now we see reinsurers exclude infectious disease and pandemic from coverage. Since the insurers writing the coverage cannot exclude that risk, this leaves them exposed to unlimited liabilities. There has been talk of a federal pandemic reinsurance program, similar to the Terrorism Risk Insurance Act with terrorism. But those talks are very preliminary.

Payroll

Tied closely to the workers compensation industry is employer payroll. Fewer people working means fewer premiums, and the payroll in certain sectors is significantly down. The question is, when will this bounce back? Recently, the CEO of one of the largest hotel chains in the world said that it would be at least 2023 before they returned to 2019 occupancy levels. Major airlines are predicting decreased demand through at least 2022.

But the impact is going beyond the travel industry. As many office buildings around the nation remain mostly unoccupied, this impacts all of the ancillary businesses around those buildings—restaurants, retailers, dry cleaners, parking garages, etc. Brick and mortar retailers that were already struggling are facing an increasing challenge. Thousands of businesses will ultimately close forever.

When will the economy bounce back? When will we see 2019 employment levels again? Those are two huge unknowns facing the workers compensation industry.

Claims Volume

Because fewer people are working in some industries, that leads to fewer claims. In April 2020, third-party administrators (TPAs) reported that their claims volume was down close to 50 percent. While that volume is bouncing back, it remains below 2019 levels.

This decrease in claims adversely impacts all workers compensation industry vendors that are volume-dependent. TPAs, medical networks, medical providers, case managers, and even defense attorneys are seeing decreased volume. This reduced revenue may eventually lead to more industry consolidation.

Not all claim volume is down. First-responder claims are increasing more than ever before, with both the pandemic and civil unrest resulting in thousands of new injuries. Healthcare industry claims are up as well. Some retailers, including supermarkets and big-box stores, have expanded their payroll to keep up with demand. Trucking, shipping, and delivery businesses have also expanded payrolls.

Catastrophic injury claims have not decreased during the pandemic because the types of industries where there are higher incidences of such claims have kept working, such as construction, trucking, and public entities. Violent attacks against first responders have also increased with the civil unrest around the nation.

Data Accuracy

The foundation of the insurance industry is the law of large numbers and predictability. Years of accumulated data is analyzed by actuaries to determine the expected claims for the future. How has COVID-19 changed this? Unquestionably, there has been delayed medical treatment and extended disability on existing claims. The big question is, to what degree? It will take years for this to flow through actuarial development triangles.

The pandemic has likely impacted the benchmarks that you used to measure your workers compensation programs. Employers need to reset their starting point when evaluating the effectiveness of their loss prevention and claims handling programs.

COVID-19 Claims

As time passes, we are starting to understand better the types of claims the industry is seeing from COVID-19.

Safety National's data shows their most impacted industry group, as expected, is health care. However, closely behind health care is first responders with police officers, firefighters, and paramedics. According to the National Fraternal Order of Police, 247 law enforcement officers have died from COVID-19 through the end of October 2020. The public entity piece is missing from the bureaus' analysis because most of these entities are self-insured.

At this time, Safety National's data also shows the total number of death claims reported for employees below age 55 is almost the same as for employees over age 65. However, there are 48 times as many claims in the under 55 age group.

Sedgwick has handled over 45,000 COVID-19 workers compensation claims for their clients, with 78 percent of those closed with an average paid of $1,050 and 54 percent of the claims had no payments made.

Health care accounted for 57 percent of Sedgwick's COVID-19 claims, with public entity, retail, services, and food/beverage rounding out their top industry groups.

Sedgwick claims show almost an equal distribution of claims by age group between 30–40 years old up to over 60 years old. However, the average incurred in the over 60 age group is close to double any other age group. Over 71 percent of the death claims that they have seen were for employees 51 or older.

Overall, most of the COVID-19 claims by the workers compensation industry are relatively minor. However, death claims and claims with extended intensive care unit hospital stays can have total incurred values over $1 million.

One big question going forward is, how will these claims develop? Will we see continued medical complications develop? Will we see permanent partial and permanent total disability claims?

The Path Forward

One way in which the workers compensation industry has adapted to the pandemic environment is with the increased use of telemedicine. Sedgwick still sees telemedicine on over 10 percent of their claims. Before COVID-19, telemedicine utilization was on less than 1 percent of claims.

Return to work has been a more significant challenge with business restrictions, which could increase costs on existing claims. Sedgwick data showed a 21 percent increase in temporary total disability paid on active claims from March 2020 to September 2020 compared to 2019.

Finally, insurers have to develop new models to estimate their potential exposure to future pandemics. Without question, COVID-19 will continue to impact the workers compensation industry significantly into 2021 and beyond.