Background: Divergent pressures on premiums
There’s been much speculation that workers’ comp will drive significant losses in the property/casualty industry as a result of COVID-19. On the one hand, there is the explosion of presumption laws that discard the basic tenet of workers’ comp that employees must prove they were exposed to the virus during the course of their employment and on the other hand, there are plummeting premiums driven by business closures and dramatic declines in payrolls.
In June, Arkansas, Illinois, and Michigan joined 13 other states in extending COVID-19 presumptive coverage and 12 other states are considering new laws or executive orders. The laws vary significantly, covering different groups of workers and some are rebuttable while others are conclusive. Some are retroactive, while others go into effect in conjunction with the order or law. Employers should keep up-to-date with these rules as they continue to evolve. The National Council on Compensation Insurance (NCCI) has a helpful tracker.
How this impacts premium will also depend on the state Rating Bureau’s position on including or excluding COVID-10 workers’ compensation claims on the experience mod. To date, the following states have adopted rules that exclude COVID-19 claims from the experience mod: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Pennsylvania, Rhode Island, South Dakota, Tennessee,Vermont, Virginia, West Virginia, and Wisconsin.
Also, the costs of many existing claims are rising. The restrictions on nonemergency medical care have meant longer recovery periods and delayed surgeries for injured employees. Delays in adjudication have also extended the life of claims.
Countering this upward pressure on premiums is the dramatic decline in payrolls from furloughs, layoffs, reclassifications, and exclusions of money paid to employees who are not working. PPP dollars ran out at the end of June and employers who had to keep workers on the payroll to qualify, won’t have to keep them “employed.”
According to CalMatters, only 1,098 workers comp claims were filed in California in May, compared with more than 50,000 in January. Although some states have urged insurers to refund premiums, similar to what was done for auto insurance, reflecting businesses’ decreased exposure to workplace injuries during the COVID-19 pandemic, California became the first state to pass regulation requiring insurance companies to reduce premiums paid by employers for workers compensation insurance. This emergency regulation is effective July 1, applicable to all employers in the state, retroactive to the state’s March 19 stay-at-home order and expires 60 days after the order is lifted. The amount of refund has not been calculated.
While it’s clear that these trends dramatically alter the workers’ comp landscape, uncertainty abounds and it’s too early to determine the overall impact. However, early claims data shed light on what’s occurring now.
In Florida, the Division of Workers’ Compensation reported that there were 3,807 indemnity virus-related claims filed as of May 31. About 45% (1,718) of the claims were denied. Health care workers and those working in protective services accounted for 83.3% of the claims. About 55% of the claims from protective service workers were denied and 30% for health care workers. Service industry workers represented 9.1% of claims, office workers 6.1%, and airline workers 1.5%.
While the data did not include medical-only claims, experts have said that most coronavirus claims involve time off from work. The claims amounted to more than $3.4 million in benefits paid so far, or about 3% of the total amount of comp benefits paid for all types of claims from January through May.
Florida has a limited presumption for frontline state employees including first responders, corrections officers, child safety investigators, members of the Florida National Guard, and others who are required to contact people infected with COVID-19.
In Ohio, a monopolistic state but one without a presumption rule, some 23% of claims were denied by the state-run comp program, and 35% of COVID claims were denied by self-insurers.
In Colorado, where a presumption law was introduced in the Senate on June 2, the state’s largest workers’ comp insurer, Pinnacol Assurance, reported to the Colorado Sun that as of mid-May, it had received nearly 1,000 coronavirus-related claims. “But it said the majority of those – 60% – were filed out of an abundance of caution and were dismissed after it was later determined that the worker did not contract COVID-19.”
Of the roughly 400 claims remaining, Pinnacol said it has agreed to pay out on the majority of them, with the average claim amount running around $13,000, The majority of claims has come from first responders and healthcare workers.
According to the article, a spokesperson for Pinnacol said that if the presumption for first responders, health care workers, food-processing workers, and grocery store workers who test positive for COVID-19 passes, there could be a 27 percent increase in workers’ compensation premiums for employers in those industries. If the presumption just applies to first responders and health care workers, the premiums in those industries would triple.
The state has received 1,425 claims, about 60% have been denied by employers and about 27% approved by employers. The remainder are still being processed and investigated. The claims submitted include six for worker deaths; one approved and five remain under investigation.
In California, more than 5,000 COVID-19 related claims were filed from January to May, according to CalMatters. More than 1,000 were denied, but that was before the Governor signed an Executive Order extending protections for essential workers infected on the job on or after March 19.
According to a report by the California Workers’ Compensation Institute that examined over 1,000 claims filed as of April 30, 35% were denied, 28% accepted, and the remainder under investigation. The primary reason for denial was negative results on COVID-19 tests (70%). Lack of exposure at work accounted for 15% of denials and other reasons included refusal to take a test, working from home, and lack of symptoms. About 41 percent of workers’ comp claims were made by health workers, with another 32 percent by first responders including police and firefighters.
In the blog, Managed Care Matters, Joe Paduda of Health Strategy Associates reports that 35 workers’ comp insurers, state funds, TPAs, and service providers and large self-insured/self-administered employers were surveyed on the impact of COVID-19 claims. Payers have received about 33,000 COVID-19 claims to date and accepted just over 20% of all claims filed. The most common reasons for denial are a lack of a diagnosis, no symptoms, and/or a negative test for COVID-19.
The good news is that only a few have been very expensive claims (>$200,000) involving ICU and ventilator care.
The survey also reported on the “non-COVID” effects:
- a drop of 25% to 50% in new injury claims since the outbreak
- slower return to work due to an inability or unwillingness to access care and/or adjudication processes
- respondents’ estimate that 2020 will end with a 20% decrease in the total number of claims
Of course, the impact will vary by industry with disproportionate COVID-19 claims in public entities and healthcare, and small businesses, retail, hospitality, and travel hardest hit by declining payrolls.
It is premature to make predictions bases on this data, particularly since much comes from the early months when there was a shortage of diagnostic tests. However, it does provide guidance on how employers should proceed when faced with a COVID-19 claim.
- Understand the state’s position on presumption.
- Know what information the insurance company wants to process the claim and how to identify it as a COVID-19 claim. Share any information about the job/employee that may relate to a perceived lower or higher risk of exposure from the workplace.
- Be proactive. Find out when the symptoms began and if the diagnosis has been confirmed. Determine if the worker had contact with a person known to be infected with COVID-19 and when and where that contact occurred. Determine if immediate family members are currently showing similar symptoms or recently traveled to any high-risk areas.
- Ask what other employees the worker may have had close contact with recently and begin contact tracing.
Substance abuse and mental health issues surge
The data indicates that employers can face a surge in addiction, stress, depression, and mental health issues as employees return to work. Isolation, uncertain job security, family distractions, and a lack of access to traditional support networks have caused some employees to turn to alcohol or drugs. At least 30 states are reporting increases in fatal opioid overdoses amid the COVID-19 pandemic. The percentages of individuals who sought screening for anxiety and depression in May were 370% and 394% higher, respectively, than in January, reported the nonprofit, Mental Health America.
Prescriptions in the U.S. for anti-anxiety medications and antidepressants rose 10.2% and 9.2%, respectively, in March compared with March 2019 according to health-research firm IQVIA Holdings Inc. Sales of alcoholic beverages in March were up 55% compared with March 2019 according to marketing research firm The Nielsen Co., and at least one state with legalized marijuana, Washington, reported record sales during the pandemic.
For many employees, the issues are not going to go away when they return to work, affecting employees’ well-being long after the crisis has passed. And it can continue for those who work remotely. A survey by alcohol.org found that one in three Americans are more likely to drink when working from home. The National Safety Council (NSC) is urging employers to implement substance abuse policies and procedures as part of their return to work strategy and offers free resources for employee mental health and wellbeing. Such issues can be a serious threat to worker safety and cost tens of thousands in productivity losses, absenteeism and presenteeism, and workers’ compensation claims if employers do not plan ahead.
Remote workers and cybersecurity
Almost as quickly as the pandemic brought the world to its knees, cybercriminals seized the opportunity to attack the millions working from home. Phishing attempts, the largest source of ransomware, are quickly increasing. According to Net Diligence, the average ransomware cost is $229,000 and the cost of a cyber breach for small businesses (85% of claims) is $673,787 and $8.8 million for large businesses.
In addition, data protection and managed services provider, Digital Guardian, published a report created by aggregating anonymized telemetry from January 1, 2020 through April 15, 2020, via 194 global companies. It found a 122% increase in employees copying company data to USB drives, 74% of that data was classified. Also, a 79% increase in data egress via all means (email, cloud, USB, etc.). More than 50% of observed data egress was classified data.
The Cybersecurity and Infrastructure Security Agency (CISA), a department of US Homeland Security, recently announced key cybersecurity recommendations for employees working from home.
- Update VPNs, network infrastructure and devices used for remote work – as all devices are variables.
- Notify employees of increased phishing attacks and offer training/guidance.
- Ensure IT Security teams are proactively monitoring logs/devices and are prepared for incident response/recovery.
- Implement Multifactor Authentication (MFA) on all VPN connections and wherever possible.
- Routinely test VPN network for limitations of mass usage.
- Do not use Public WIFI, even with a VPN.
A white paper prepared by TechAssure, a not-for-profit trade association for insurance brokers that specialize in technology-related risks, offers additional tips:
- On all devices that employees are using to access their work environment, Multifactor authentication (MFA) is critically important.
- Alert employees that fraudulent websites and apps are appearing daily claiming to contain COVID-19 resources, safety supplies, etc.
- Password management is key. Reusing passwords is common, which increases vulnerability if one account is hacked.
- Picking up the phone can avert a disaster if something appears suspicious. The client/vendor will appreciate the extra steps to confirm the request.
Cyber insurance policies might provide valuable coverage to mitigate against the possibility of a costly cyber incident during a time when many businesses can afford it the least.
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