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The ancient Greek philosopher Heraclitus once said, “There is nothing permanent except change.” That’s certainly the case with our workers’ compensation system. It’s a system constantly evolving under the pressures of multiple issues. And those issues all have an impact on your rates.
On the national level, the market has been good. But will it last?
While most other lines of insurance are trending toward a harder market, workers’ comp has been a soft market holdout. Rates have been decreasing in most states, including California, Oregon, and Washington.
The chart below, from A.M. Best, shows just how much workers’ compensation insurance profitability has improved compared to previous years. When combined ratios go down, rates follow, which is what we’ve seen in recent years. However, many in the industry feel that we’ve probably hit the bottom of this cycle.
What are the biggest issues impacting your workers’ compensation insurance rates? Some trends negatively affecting rates include:
- An aging workforce. More people are working later into life, for a variety of reasons. An older workforce creates a host of issues including new healthcare complications, more severe injuries, and treatment and recovery complications due to chronic conditions such as diabetes, heart disease, and obesity. These issues will continue to put pressure on workers’ comp costs.
- The opioid epidemic. According to the Centers for Disease Control, injured employees are prescribed opioids at three times the rate of the U.S. average. A 2018 study by the Workers Compensation Research Institute showed injured workers with long-term opioid prescriptions receive temporary disability benefits more than 250 percent longer than those treated without opioids. Those are staggering numbers, and the crisis continues to add to claim costs.
- Increasing mental health exposures. While only a few states have laws in place addressing workers’ comp coverage for mental-only injuries, claims involving a psychological condition are on the rise. Managing these claims is complex and every state has unique guidelines and limitations. Mental-only claims also require intense investigation, so it’s easy for them to spiral out of control.
- Increasing claim severity. While the number and frequency of claims have continued to drop, claim severity has continued to rise. Why? An aging workforce, rising medical and litigation costs, and large loss claims all play a role. Also, as wages have risen with the growing economy, the cost of lost time has skyrocketed. According to NCCI’s Annual Issues Symposium 2018 State of the Line Highlights, workers’ compensation medical lost-time claim severity soared 175 percent between 1997 and 2017.
Fortunately, it’s not all bad news. Some trends are positively affecting rates:
- Telemedicine. Telemedicine has changed the game for how medical care is delivered to injured workers. By getting them to care earlier, you improve outcomes and reduce claim costs. Already a fixture in some industries, telemedicine is starting to be big in senior care situations.
- Blending wellness with workers’ compensation. Wellness programs, when done right, can give you healthier employees, reduce absenteeism, lower healthcare costs, and lower claim costs.
- Decline in claim frequency. The number and frequency of claims been declining for several years. Lower unemployment, better technology, better overall awareness by employers, and better communication about safety are all playing a role.
- Early return to work. A robust ERTW initiative is a critical element for any workers’ compensation program. It’s vital for injured workers, both physically and mentally, to keep them engaged, help them recover faster, get them back to work faster, and reduce claim severity.
Workers’ compensation rates have no place to go but up. Will you be prepared?
If you want to be ready for inevitable workers’ compensation rate increases, now is the time to revisit your workers’ compensation and risk management best practices. Propel Insurance has the knowledge and the tools to help your business prepare and prosper. Contact us to learn more.