Tag Archives: workers’ compensation

COVID: Chance to Rethink Work Comp

Workers’ compensation pre-COVID was an extremely competitive market and now, as we’re in the midst of COVID, continues to be a highly competitive line of business. With declining payrolls, insurers are looking for ways to differentiate and retain their existing book of business while finding ways to attract and grow new business.

Well, I have an idea for you. It’s an entirely new product for workers’ compensation.

You may be asking: How can that be? Workers’ compensation is defined by law, right? It’s a state-mandated program consisting of payments required to be made to an employee who is injured or disabled in connection with work. The coverage is mandated by law, the benefits are defined by law and the rates are determined by law. So how can you create a new workers’ compensation product?

Well, what if you redefined the product? What if instead of saying, “Our goal is to provide employers with the means to meet their legally mandated requirements,” you instead said, “Our goal is to help the citizens of our state(s) recover when an employee is injured”? That change in wording suddenly opens up a wide variety of other benefits that could be provided. You can think of it as two new endorsements that wrap around the traditional workers’ compensation coverage.

The first endorsement is what you can think of as Employee Plus. Similar to accident insurance, which wraps around a traditional health policy and provides additional benefits for a fee, Employee Plus could provide additional benefits for a fee – for the kinds of expenses that employee incur when injured. For example:

  • Transportation expenses for family members trying to get to the hospital or to the pharmacy to pick up a prescription or for the injured worker to get to physical therapy visits.
  • Childcare reimbursement for family members who are at the hospital with their injured family member and are unable to care for children.
  • Costs for food delivery for family members who no longer have time to prepare meals. Even just a few meals could help.
  • Housekeeping, gardening or laundry services that may be needed when a family member is either injured and unable to perform these tasks themselves or are spending their time caring for the injured family member.
  • Family therapy – to deal with the aftermath of the injury.
  • Spousal retraining – for those who now have to go back to work or find new ways of generating more income as the employee is injured.
  • Remodeling expenses for a home – if the injured worker is severely disabled and can no longer easily navigate through a home. Ramps, wider doors and remodeled showers can all be key to allowing an injured worker to stay in their home.
  • College scholarships for the children of injured workers

You get it: the kinds of out-of-pocket costs that only occur if someone is injured. There’s probably a zillion other options that could be provided – or an insurer could choose a subset of these to provide. These benefits would be small fixed limits and may be triggered by the level of injury. A permanent total injury might trigger a $10,000 scholarship where a temporary partial would not. The employer could choose to offer one or more of these and could choose the limit it wants to provide injured employees. What a great employee benefit an employer could offer to attract or retain employees.

Similar to Employee Plus, an insurer could launch Employer Plus, to cover the kinds of additional expenses an employer incurs when an employee is injured. Examples might be:

  • Public relations support should the accident hit the news and create a reputation risk.
  • Therapy for employees who witnessed the accident.
  • Costs for equipment needed if a job needs to be redesigned to accommodate the worker.
  • Staff augmentation reimbursement to cover the salary of a temporary replacement worker.
  • Head hunter fees – to cover the costs of finding a permanent replacement.

There are likely a number of additional options that could be provided on a fixed limits basis and triggered by the severity of the injury. Today, workers’ compensation provides no recovery solutions for the employer – it only covers the injured workers. But put yourself in the place of the employer or the injured worker, identify all the hidden costs and irritants — and, voila, you’ve found a new product.

See also: Big Changes Coming for Workers’ Comp

Our work on customer experience shows that while many insurers are focused on making the process fast and easy, customers also expect help recovering from their losses -beyond a simple check. And while some insurers provide some of these services outside of the contract when they feel it is warranted, there is no reason that you couldn’t explicitly offer these coverages and generate a little revenue while demonstrating that you truly care about their recovery.

Hoping this idea triggers some insurers to consider new ways of differentiating themselves in a highly regulated product line. And feel free to reach out if you want to brainstorm on this some more!

This blog entry has been reprinted with permission from Celent.

Six Things Newsletter | July 28, 2020

Growing Risks of Social Inflation

Paul Carroll, Editor-in-Chief of ITL

“Social inflation,” an on-again, off-again issue for the insurance industry for more than four decades, is on again as a major factor in insurance claims and, thus, rates. The issue, related to beliefs and trends that lead people to expect ever-higher compensation and for juries to grant it, has been growing for several years and seems to have accelerated since last summer.

The pandemic and the economic crisis that resulted may exacerbate the problem for insurers — or may mute it. There are arguments on both sides. Some see social inflation being dampened as financially strapped people and businesses become more willing to settle a claim and as the logistical complications that come with less face-to-face interaction drag out negotiations and judicial proceedings. Some see social inflation increasing as people feel wronged and try to take out their anger on those that they distrust and that have enough assets to make them tempting targets — read, insurers (among others).

Me? I see the pandemic boosting social inflation… continue reading >

Optimizing Care with AI in Workers Comp Claims

In workers’ compensation, we’ve all seen seemingly basic claims morph into catastrophic claims.This free on-demand webinar, sponsored by CLARA analytics, lays out a tangible solution that realizes the promise of AI.

Learn More


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‘Yoga Your Way’ to Better WC Results

With the advancement of telehealth and mobile workforces, an exciting concept has emerged to assist employers and employees to take control of their body and provide better quality of life. This new concept is Yoga Your Way.

Yoga popularity has grown tremendously in the past several years, and National Health Interview Survey data conducted by the Centers for Disease Control and Prevention (CDC) show increased usage for complementary and alternative medicine (CAM) treatments. In 2007, yoga was the seventh most commonly used CAM therapy. There has been a steady rise in the use of yoga since 2017 to treat musculoskeletal conditions; the limiting factors are cost, convenience, timing of class and access to studios.

Derived from the Sanskrit word “yuji,” meaning yoke or union, yoga is an ancient practice that brings together mind and body. Practicing yoga is said to come with many benefits for both mental and physical health. Proven yoga physical benefits are: reduced inflammation, reduced chronic pain, improved flexibility and balance, improved breathing and sleep. Yoga also has psychological benefits of decreasing stress, anxiety and depression.

If there is a work-related injury, yoga is considered self- care, as it can help prevent seeking medical care. It not only leads to better outcomes while helping to eliminate OSHA recordables and workers’ compensation claims, but it is a skill that can increase quality of life and be used to prevent work-related injuries in the future. Yoga, in comparison with spinal manipulation, physical therapy and acupuncture, may be more cost-effective because it can be delivered in a group format and self-administered at home. However, actual cost analysis of yoga interventions is needed.

This literature review suggests that yoga is effective in reducing pain and disability and improving both physical and mental function.

About one-fourth of U.S. adults report low back pain, lasting a whole day or more, with average duration of three to six months. It is the most common cause of limited activity in people below the age of 45, the second-most frequent reason for visits to a physician, the third-most common reason for surgery and the fifth-most common cause of hospital admission in the U.S., according to Spine Journal The majority of individuals with back pain and sciatica recover from an acute episode in four to eight weeks, and 80% to 90% return to work within 12 weeks post-injury. However, 25% to 80% of patients with low back pain experience some form of recurrent back problem in the following year. Among those who suffer from an episode of low back pain, one year later as many as 33% have moderate intensity pain, and 15% may have severe pain.

In other words, there is a huge opportunity for yoga to address.

See also: How to Optimize Healthcare Benefits  

Yoga Your Way is a new concept in a trend to take yoga outside of the studio and allow anyone to practice and integrate the benefits of mind-body interaction. Yoga Your Way can be brought to the worksite and paid for by the employer as a employee health benefit, providing customized yoga videos designed for a person’s ability and needs.

Studies have shown that practicing yoga 15 minutes per day leads to reduced illness and improved mental health. Yoga Your Way incorporates these principles for the  mobile workforce such as the transportation industry as well for a more stationary workforce. Custom programs can range from simple stretching done in a truck (while parked) to exercises for those overseas in a war zone.

Yoga Your Way is not only providing relief from work-related conditions but is a preventive measure to strengthen and increase endurance, overall health and mind/body awareness.

Yoga is not just stretching in a crowded studio. It it is anyone, anywhere and any time.

Why Not to Make Opening Statements

Times have changed. In the past, mediators would open a mediation by asking for opening statements from lawyers for each party. Problem was, though, these were typically so inflammatory that a meeting that was supposed to be about resolution started with animosity. Sometimes, one side walked out right then, before the real mediation even started.

That’s why I have never invited opening statements at the start of a mediation.

Lawyers no longer want opening statements, either. I have even had lawyers ask that there be no opening joint session with all parties present. Rather, they wanted to work with me only in caucus, one side meeting with the mediator,  keeping every communication confidential. The lawyers wanted to avoid the hostility that previously permeated the parties’ dealings.

Unless there is strong objection, I start mediations in a joint session. I introduce myself and go over logistics: important stuff such as where the bathrooms are and how we will handle meal breaks.

See also: How Mediation Should Progress  

I also assure everyone that nothing bad can happen. The parties control the outcome, and there can be no result they did not agree to.

Everything that happens in mediation is confidential and cannot be used against anyone in a different civil forum. To emphasize that rule, while we are still in the opening joint session every person present signs a confidentiality agreement.

Then we typically break up into caucus.

The only person who has made an opening statement is me, the mediator.

Understanding the Big Picture in Work Comp

In workers’ compensation, the trends over the past few years have been pointing to declining rates in most states. At the 2019 NCCI Annual Issues Symposium (NCCI-AIS), NCCI indicated the 2018 industry private carrier calendar year combined ratio was a record low of 83%. I heard comments from many carriers attending the NCCI-AIS that they were very surprised by this figure as it did not reflect what they were seeing on their book of business.

To fully understand the workers’ compensation marketplace, it is very important to understand what information is included in NCCI and the independent bureau analysis in addition to the different ways they look at data. It is also important to understand the drivers that ultimately affect the costs of workers’ compensation.

The calendar year combined ratio is not necessarily the most-reliable or accurate measure of rate adequacy or the profitability of a book of business. Instead, calendar year combined ratio is essentially an accounting measure that may be materially affected by things like carrier reserve strengthening or releasing of reserves for all prior accident years. A carrier could be writing unprofitable business yet still show a calendar year combined ratio below 100% if it is releasing prior-year reserves. A better measure to understand industry profitability is the accident year combined ratio. For 2018, NCCI indicated that this figure for private carriers was 89%.

It is also important to understand what bureau data may NOT include. In general, it does not include any data from self-insured employers. That exclusion omits most data from municipalities, states and school districts. It also misses a significant amount of data from other industries, such as higher education, retail and healthcare.

Bureau data may also exclude information from deductible policies (read those footnotes). It is estimated that the “retention” marketplace, defined as employers that retain risk through self-insurance or high deductibles, covers close to half of the payroll in the U.S. If the database does not include information from the retention market, it is missing a very big piece of the overall picture.

You also need to check to see if the data set includes just “private carrier” information. If it does, it is likely excluding data from state funds, which tend to operate at much higher combined ratios.

Also, keep in mind that there is no single source for workers’ compensation industry data. There are 15 states that have independent bureaus or are monopolistic. These states are not included in NCCI’s analysis. Three independent bureau states (CA, NY and WI) have more workers’ compensation payroll than the combined NCCI states.

To further illustrate this point, the National Association of Insurance Commissioners (NAIC) indicated that the 2018 accident year combined ratio was 97%. In theory, the NAIC data set includes information from the bureaus around the nation, so it is likely closer to the actual industry figure in the guaranteed cost marketplace for private carriers.

This explains why many carriers may not fully embrace the 83% combined ratio figure that was cited at the NCCI-AIS conference. NCCI data is accurate for what they analyze. But, because they only see a piece of the entire picture, their data may not be a true reflection of what is really going on in the entire workers’ compensation landscape, and it may not reflect what individual carriers are seeing on their book of business. It is a piece of the puzzle, but not the complete picture.

See also: The State of Workers’ Compensation  

According to data reported at the 2019 NCCI-AIS, over the last 20 years, the cumulative change in indemnity claim cost severity was 100%. This was about 20% higher than wage inflation. The cumulative change in medical lost time claim cost severity was 150%, which was 89% higher than medical inflation. During the same time period, carriers’ loss adjustment expenses (LAE) also increased steadily. LAE includes the costs of claims handling, including payroll, benefits and facility costs, as well as claim-specific expenses such as litigation costs. Data from the other bureaus shows similar trends, although California claim costs did drop after some significant reform legislation.

Given the upward trend in costs over the last 20 years, why have we seen a decrease in rates the last few years? The answer is simple: frequency.

NCCI data shows that, during the last 20 years, the average annual decrease in frequency was 3.9%. That is a significant decrease in the number of claims due to factors such as automation of certain tasks and an increased emphasis on safety and loss prevention. During the last few years, the decreases in frequency more than offset the increases in the average workers’ compensation claim costs, leading to declining rates in the guaranteed cost marketplace.

The impact of frequency is a very important distinction between the performance of the guaranteed cost market and the retention marketplace. Thousands of small employers in the guaranteed cost market will have no claims. However, in the retention market, all large employers will have claims. Ultimately, it is claims severity (costs), not frequency, that determines the rates and profitability of the retention marketplace.

There has been very little study of the retention marketplace, especially of the larger claims, as those cases tend to be outside the analysis of the bureaus. In September, the New York Compensation Insurance Rating Bureau (NYCIRB) published a study on loss development patterns for claims with incurred losses over $250,000. According to this study, “Large claims can take several years to emerge above the $250,000 threshold. Typically, only a small share of large claims are recognized as such at first report, and that share will grow considerably over the subsequent three or four reports.”

The NYCIRB study noted that large claims only accounted for 4% of the claim count, but over 50% of the ultimate claim incurred losses. The study also illustrated how these larger claims tend to develop over time.

The guaranteed cost industry standard is to use seven to 10 years of data to determine an experience rating. Thus, those carriers generally stop looking at loss data past 10 years post-accident. In the retention marketplace, things are very different.

According to one large national retention market insurance company, at 10 years post-accident, only 70% of the claims that will ultimately breach the retention will have been reported to the carrier. This is because the most severe catastrophic claims that will exceed the retention are reported quickly, usually in the first 12 months. But the majority of remaining claims that will eventually breach the deductible/self-insured retention are not catastrophic injury claims at all, but instead are slow-developing claims that take years to reach required reporting thresholds. Because of this slow development of retention claims, at 10 years post-accident, actual claim case incurred is approximately 40% of the expected ultimate claim costs. So, when the first-dollar marketplace stops looking at the data, the retention marketplace is still actively seeing new claims, and significant additional incurred development is expected.

As an example, consider a 30-year-old claim involving a now 62-year-old worker that recently necessitated a $1 million incurred increase. The claim had been reserved appropriately based on then-known information, but the exposure worsened, as the injured workers’ condition now requires 24/7 attendant care. The cost of 24/7 institutional attendant care can run $300,000 or more a year. The bureaus and the guaranteed-cost marketplace are not looking at development like that because it is occurring long after they stop monitoring such things. This is only one example of the extremely long claims tail in the retention marketplace. Because of this long tail, carriers in the retention market are affected more by increasing claims costs as they handle and pay out such long-duration claims for 60 years or more.

There has been much publicity around the “shock losses” being seen in the general liability, auto and property marketplaces, with carriers seeing claims creep higher than ever. Factors such as excessive jury awards and runaway wildfires are contributing to carriers having to redefine what their worst-case exposures may be in these lines.

The significant cost increases currently being seen in liability and property coverage are also being seen on catastrophic workers’ compensation injuries. Although catastrophic injury claims are only a tiny percentage of the total claims count, these injuries are a significant percentage of total workers’ compensation claim costs. Catastrophic injuries include spinal cord injuries, brain injuries, severe burns, major amputations and other severe traumatic injuries.

There are several reasons for these rapidly increasing costs. First, consider that, unlike with group health insurance or Medicare, there is no policy limit or excluded treatments in workers’ compensation. The carrier is responsible for any treatment deemed reasonable to “cure or relieve” the injury without limitation. On workers’ compensation catastrophic injuries, it is common for the carrier to have to pay for things like attendant care, prosthetics, home and auto modifications, skin grafts or new housing, transportation and even experimental treatments.

Standards of care for seriously injured individuals are constantly evolving. What was the norm five to 10 years ago is not the standard today, and in five years that standard will be even different. Think of all the medical innovation you see in the news regarding spinal cord injury recovery. The medical technology is evolving at a pace never seen before.

Consider Christopher Reeve, the actor who suffered a spinal cord injury in 1995 that left him a quadriplegic. He was 43 years old at the time of the accident. Reeve received the best care money could buy from experts around the world. He lived less than 10 years after the accident. Fifteen years after his death, medical science has advanced to the point that a quadriplegic can live a near-normal life expectancy because physicians are able to prevent the complications that lead to shortened lifespans.

Accident survivability is another factor affecting the increasing costs of catastrophic injury cases. Due to advances in emergency medicine, both on the scene of accidents and at Level 1 trauma centers, many patients who died shortly after their injuries will now live. According to the American College of Surgeons, from 2004-2016, the fatality rate for the most severe traumas declined over 18%. Every one of those cases likely results in millions of dollars in medical care. For example, I saw a severe burn claim that would have likely resulted in death within days 10 years ago. That person survived for three months, and, during that time, that individual received over $10 million in medical treatment.

See also: 25 Axioms Of Medical Care In The Workers Compensation System  

These rapid advances in treatment for catastrophic injuries are saving lives and significantly increasing the function and life expectancies of seriously injured patients. But they have also resulted in costs that have never been seen before by the workers’ compensation industry. When I started handling claims 29 years ago, $5 million individual claims were rare. Today, the workers’ compensation industry has seen numerous individual claims with incurred exposures over $5 million  and losses in excess of $10 million and even higher are becoming more frequent. These claims are likely to get even more costly as increasingly expensive medical advances come along.

To understand the big picture in workers’ compensation, it is important to take a close look at the data you are relying on. Pay careful attention to understand what this data includes and what it does not. It is also important to distinguish between the guaranteed cost market and the retention market. Because the retention market has an extremely different developmental tail, rate trends are very different than in the guaranteed cost market. Claim frequency trends in the guaranteed cost market are fairly predictable and significantly influence rates. However, in the retention marketplace, rates are driven by severity, which is evolving to levels never seen before in a world of rapid medical advances.