The current state of the workers’ compensation industry: Turbulence

Every year, Stephen Klingel, president and CEO of the National Council on Compensation Insurance, Inc. (NCCI – the workers’ compensation rating bureau for most states inside the USA), chooses one word to define the current state of the workers’ compensation industry. This year, that word is Turbulence. It’s a word that does not emote confidence; rather, it conveys turmoil, unrest, and instability. Not comforting for employers.

Speaking at NCCI’s 2015 Issues Symposium in May, Mr. Klingel noted:

  • Lost time claims decreased an estimated 2% in 2014, which is a smaller decrease than the 2.9% reported in 2013. “Our industry runs in cycles.Watch for upward pressure on claim frequency from new workers in unfamiliar jobs.”
  • The workers’ compensation sector should prepare for “difficult times” as “workplaces and the workforce evolve.” “We are going to see employee relationships with no defined workplace or work schedule. This will lead us to develop new definitions of injuries and complicate investigations into course and scope of employment. Determining whether a person is an employee or an independent contractor will be increasingly challenging.”
  • The fundamental principle of workers’ compensation is the grand bargain where employers receive exclusive remedy protections in exchange for providing workers with a no fault benefit. In the last year, we have seen media reports (Propublica, The Demolition of Workers’ Comp) and court cases that question whether the grand bargain still exists. If we are not careful, the current perception of unfairness will grow. We need to be sensitive to this.
  • It is anticipated that there will be significant scrutiny of benefit levels in state systems in the future. If benefit rates are increased, there must be corresponding rate increases to maintain the financial strength of the industry. There is turbulence ahead for our industry. The system is under attack from all sides.
  • “From ongoing threats to exclusive remedy, to the risk of benefit increases without appropriate rate adjustments, to the rapidly changing nature of our workforce and workplaces, our industry is being tried on all sides today. While I am confident that we will work our way through these challenges, it is important to be realistic about current conditions and to recognize that the current positive results may not last.”

Kathy Antonello, Chief Actuary for NCCI presented their State of the Line review and noted: “Results for the workers’ compensation line improved again in 2014. Among the more positive signals were a combined ratio that fell below 100 for the first time since 2006, a second year of above average operating gains, and a continued decline in claim frequency.”

“On the other hand, indemnity and medical severity increases have begun to outpace increases in the average weekly wage and medical consumer price index, low interest rates continue to make investing a challenge, and employment in some sectors of the economy – particularly construction and manufacturing – remains well below prerecession levels.”

  • Average indemnity costs per lost-time claim increased by 4% – the highest increase since 2008. This was 1% higher than the increase in state average weekly wage.
  • Average medical-cost-per-lost-time claim increased 4%, which is the 20th consecutive year with a cost increase. Change in the U.S. Medical CPI was only 2.4%, so workers’ comp costs are increasing at a higher rate than overall health costs. Only six states have seen a decrease in medical costs in the last five years.

View the complete State of the Line.

Employer takeaway: It’s easy to develop a myopic view of workers’ compensation since it’s so claims driven. But employers cannot afford to have their head in the sand when it comes to the “bigger picture.” The issues are here now and how we handle them will determine the future of workers’ compensation.

For Cutting-Edge Strategies on slashing Workers’ Compensation Costs visit www.PremiumReductionCenter.com

David Leng, CPCU, CIC, CBWA, CWCA, CRM

Author | Speaker | Certified Risk Manager | Certified Work Comp Advisor

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