As a highly regulated line of business, workers’ compensation is split between two types of initiatives. The first type involves core system and portal enhancement/replacement as well as digital initiatives to improve efficiency and service quality. The second type is data and analytics investments to mitigate or prevent losses. Examples of the latter include investments in AI and predictive analytics, as well as leveraging sensors and wearables.
Pay-as-You-Go
In the past, the added complexity of monthly reporting meant only businesses with large staffing fluctuations, e.g., construction companies or seasonal employers, used pay-as-you-go. Widespread adoption of payroll integration, especially for small-to-midsize businesses, has simplified the process. 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.
Changing Regulations
The NCCI has begun collecting indemnity benefit data monthly and quarterly, adding new data elements to insurers’ existing reporting requirements. Novarica has heard from insurers that many are addressing reporting requirements themselves, but it is worth investigating whether statistical providers with whom insurers have preexisting relationships can help.
The NCCI has also proposed that COVID-19-attributed claims be excluded from experience rating and merit rating, beginning with claims having accident dates of December 1, 2019, with state regulators making the final decision.
The NCCI has noted other regulatory trends, including proposals to increase wage replacement benefits and make first responders eligible for cancer and mental illness compensation.
The most significant legislation addressing compensability to date is California Governor Gavin Newsom’s executive order that workers in all occupations working outside the home who have tested positive for COVID-19 are presumed to have contracted COVID-19 at work. This legislation was further codified by Senate Bill No. 1159, which extended the presumption until January 1, 2023. This presumption is disputable but anticipated to have an impact in the billions.
Impact of COVID-19
The insurers Novarica has spoken with said that the impact of COVID-19 on claims and retention has been less than anticipated. CIAB reports increased claims activity as of 2020-Q2, mostly in the upper end of the large commercial segment. Worker furloughs or unemployment and deferral of reporting and treatment may reduce immediate claims impact. Those same deferrals and return-to-work or light-duty programs may drive up claims severity.
Telehealth adoption has expanded significantly, thanks in part to states improving access and ensuring provider reimbursement. It remains to be seen if telemedicine reimbursement equivalent to in-person care will continue post-COVID-19.
Recent Financial Trends
Loss trends over the past several years, combined with reserve redundancy, place the industry in a favorable position to withstand the impact of COVID-19 on the economy. As of 2020-Q2, the CIAB Commercial Property/Casualty Market Index survey reported a 0.7% premium price increase for workers’ compensation—the first increase in 21 quarters.
The extent of COVID-related losses is still uncertain and is dependent upon determinations of presumption of COVID-19 claims deriving from the workplace and the ultimate severity of the pandemic.
Growing Importance of AI/Machine Learning
Insurers are using AI, 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 AI 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.”
Several insurers have partnered with startups to distribute workers’ compensation online. Examples include Glow, which offers coverage from Chubb (including accident, health, and workers’ compensation), and Huckleberry, which offers coverage from Markel. Glow also integrates with payroll platforms for pay-as-you-go billing and offers claims support. These front-end-based approaches to partnership enable incumbent insurers to achieve faster speed to market.
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. AI 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 Novarica’s report Business and Technology Trends: Workers’ Compensation for an in-depth look at the trends in this space.
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