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Pandemic was Profitable for Comp Insurers

Workers’ comp insurers warned of impending doom last year, but it turns out the slow-down in economic activity was very profitable for the industry, according to a recent report from the National Council on Compensation Insurance.

“While net written premium dropped significantly during the recession, other financial metrics remain favorable, at or near historic highs. We have seen fewer COVID-19 claims than originally anticipated,” notes Donna Glenn, NCCI’s chief actuary.

“We feared that it could be devastating for the workers’ compensation system and it was not,” she said during the group’s recent annual symposium, held virtually. The workers’ compensation calendar year 2020 combined ratio for private carriers was 87% - the third-lowest workers’ compensation combined ratio since the 1930s. This is the seventh consecutive year the workers’ compensation line of business has posted an underwriting gain. As of year-end 2020, private carriers had $14 billion more in reserves than needed to pay claims.

Workers’ comp remains profitable even though rates have dropped in recent years. Of the 38 jurisdictions that report data to NCCI, only five are expected to increase rates in 2021 and several states have instituted double-digit rate decreases. A recent analysis by FitchRatings notes thanks to years of profitability, workers’ compensation is the only major commercial-lines segment not experiencing significant premium rate increases.

Among other favorable trends: greater use of telemedicine in case management, more prevalent work-from-home arrangements, and reduced employee travel activity. However, Fitch cautions employers will likely see more claims as business activity picks up pace in 2021.

Average lost-time claim frequency across NCCI-states declined by 7% in 2020, offsetting the loss of premium because of job losses. The economic shutdown meant less premium, but it also resulted in fewer claims because fewer workers were on the job.

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The hardest-hit segment was the Leisure and Hospitality sector, which accounted for 40% of all job losses. States that suffered the biggest losses are in the Northeast, Midwest, and on the West Coast, plus North Carolina, Alaska, and Hawaii. NCCI reports the time-path of job losses is similar: huge job losses in April and May but followed by recovery to year-end. States that suffered the biggest job losses in April remained those with the biggest job losses in December, and vice versa.

According to NCCI, comp insurers received approximately 45,000 COVID-related claims last year, nearly 95% of those for less than $10,000. About 75% of all claims were filed by those employed in nursing homes, other healthcare facilities, and by first responders. Other essential workers—mainly those in restaurants, building operations, distribution systems, and retail—accounted for an additional 15% of COVID-19 claims.

The agency also reports the pandemic caused treatment times to slow during the first surge of the virus but time to treatment quickly recovered to pre-pandemic levels. Longer time to treatment is not always bad, according to the NCCI. For instance, the agency adds, longer time to surgery does not affect outcomes for some injuries, such as cruciate ligament tears. And for certain injuries, such as herniated discs, longer time to surgery may be associated with better outcomes.