Workers’ compensation insurers are delivering innovative solutions despite the highly regulated nature of the business line. They are investing in capabilities to improve the ease of doing business for insureds, agents, and brokers and mitigate loss costs that continue to rise due to medical inflation. Core systems transformation, portals, and the expansion of predictive analytics are key to both goals.
The pandemic has also been the catalyst for new regulations and the relaxation of certain reporting requirements. Premiums are down overall, but insurers continue to invest in new capabilities. COVID-19 claims saw a return to a greater percentage of indemnity vs. medical losses.
Pay-as-You-Go
For insureds, the widespread adoption of payroll integration, especially for small-to-midsize businesses, has simplified the process of monthly reporting and pay-as-you-go insurance. Most businesses already manage much of their finances through their payroll provider, so pay-as-you-go combined with payroll integration is now a matter of convenience and less about the cost benefits of monthly adjustment.
Numerous pay-as-you-go solution providers offer integration with core billing and policy administration solutions to calculate premiums based on insurers’ current rates, invoice policyholders, and collect premiums.
Telehealth and Workplace Clinics
Easy access to medical care is vital to improve return to work outcomes and manage loss costs. Telehealth adoption has expanded significantly, thanks in part to states improving access and ensuring provider reimbursement. Almost every state now allows payment for telehealth services in workers’ compensation.
The volume of telehealth claim lines grew significantly between 2019 and 2020, though some sources indicate a slower increase in the use of telehealth in recent months. Half of U.S. states either added a telemedicine option for workers’ compensation or expanded their usage for worker injuries during the pandemic.
Benefits from telehealth include reductions in average claim costs, litigation frequency, and average days open for cases. Telehealth has also lowered treatment costs and reduced time away from the job. Workers’ compensation uses telehealth mainly for point-of-injury care and triage.
Changing Regulations
The NCCI is considering relief from assessments or data reporting requirements on a case-by-case basis. The NCCI has already been leveraging this data to understand claims activity and the impact of presumption legislation.
As of July 2021, 28 states have considered, enacted, or are considering legislation concerning presumptions as to how workers contracted COVID-19, according to A.M. Best. Several states have proposed legislation to create presumptions of compensability for infectious diseases and pandemics generally. Some states have expanded the classes of workers subject to presumptions of compensability.
The American Rescue Plan of 2021, signed into law on March 11, 2021, provides some federal workers’ compensation benefits for injuries deemed to be caused by exposure to COVID-19 due to employment. Multiple states have proposed legislation addressing compensation for mental injuries, including PTSD. Multiple states also have proposed legislation to create single-payer health insurance programs; five states specifically cited injured worker benefits or workers’ compensation. The question of whether independent contractors are employees of gig economy firms continues to work its way through state legislatures.
States continue to legalize the use of marijuana for recreational purposes, medical purposes, or both. States are divided as to whether they allow, prohibit, or require reimbursement for medical marijuana. Four states enacted legislation addressing standards for intoxication and the potential impact on workers’ compensation benefits for intoxicated workers.
Impact of COVID-19
Seventy-five percent of COVID-19 claims were lost-time claims, a combination of indemnity-only and indemnity plus medical, according to the NCCI. This figure is far higher than before the pandemic when lost-time claims accounted for 25% of claims. COVID-19 claims totaled $260M in losses, with an average severity of $6,000.
Almost 75% of claims came from first responders and healthcare professionals, with many of the remainder coming from building operations, distribution, restaurants, and stores. Nationally, COVID-19 claims accounted for 7.4% of all claims (by claims count) in accident year 2020.
Recent Financial Trends
Workers’ compensation premium continued to decline in 2020, largely driven by lower loss costs, a slight increase in combined ratio for private insurers, and reserve redundancy that places the industry in a favorable position to withstand the economic impact of COVID-19. Indemnity and medical claim severity increased moderately. Residual market share and premium continued to decline through 2020. Written premiums are expected to decline between 2020 and 2021 as well.
2020 marked the fourth consecutive year that the combined ratio has been under 90%, the seventh consecutive year of underwriting gains, and the third-lowest combined ratio since the 1930s. Underwriting expenses have been stable, and loss adjustment expenses are at their lowest since the early 1990s. As of Q2 2021, workers’ compensation prices were essentially flat.
Growing Importance of A.I./Machine Learning
Insurers are using A.I., machine learning, and analytics to identify claims that might be expensive without proactive intervention, triage more complex claims, and identify fraud proactively. InsureTech for Insurers: 250 Startup Profiles includes several startups leveraging A.I. for claims analytics, incident and loss reporting, loss control, and more accurate and granular underwriting. Artificial Intelligence Use Cases in Insurance explores insurance use cases and their relationship to Novarica’s Three Levers of Value framework.
Insuretechs and Workers’ Compensation
The Internet of Things, combined with drones, GPS, RFID badges, telematics, and video surveillance, means most companies will soon have “smart offices” or “smart worksites.”
S.D. Refinery’s ClaimMeasure Workers Comp provides claim performance metrics and monitors operational efficiency in claims handling. Ajira’s IntelliFROI leverages A.I. and speech recognition in incident reporting. NeuralMetrics offers an AI-enabled underwriting solution that includes automated classification of firms into business and industry segments; it also supports lead qualification and generation.
Several insurers have partnered with startups to distribute workers’ compensation online. Briza offers small commercial coverage, including workers’ compensation from ACUITY, AmTrust, Berkshire Hathaway Guard, CNA, Crum & Forster, Employers, Hiscox, Liberty Mutual, and Markel. Semsee offers workers’ compensation from AmTrust and CNA. Tarmika offers workers’ compensation from AmTrust as well.
These front-end-based approaches to partnership enable incumbent insurers to achieve faster speed to market. Several MGAs are leveraging data and analytics to lower the cost of workers’ compensation, including Insurate and futureWork Insurance Solutions.
Technology Priorities
Workers’ compensation insurers are increasingly adopting predictive analytics solutions. Small insurers are working with organizations that can provide pooled data and insights. Insurers that haven’t already upgraded their claims and policy administration systems are doing so now to gain competitive advantages via improved efficiencies in claims handling, better outcome management from improved data, and the flexibility to incorporate third-party data sources for underwriting scoring. A.I. and analytics solutions for severity scoring, claim triage, and medical management are enabling leading-edge insurers to improve return-to-work outcomes.
On the digital front, workers’ compensation insurers are assessing agent and customer needs and extending capabilities to them, building functionality with an eye toward reuse. They are streamlining the rate/quote/bind process with STP, particularly for the small end of the market. Insurers with loss control organizations that bring a competitive advantage to the marketplace are exploring digital service delivery. They are using business rules to manage workflow and predictive analytics to build pricing models — improving risk selection and risk pricing while reducing operating expenses.
Read Aite-Novarica’s report Business and Technology Trends: Workers’ Compensation for an in-depth look at the trends in this space.
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