“The state of the Workers Compensation market is calm for now, but increasing medical costs, changing regulations and cyber attacks could threaten the line,” suggested Nancy Grover in the October 2015 issue of National Underwriter. She quotes Mark Walls, vice president of communications and strategic analysis at Safety National and founder of WorkCompAnalysis, who said, “Medical costs continue to be the number-one cost driver, in spite of all the efforts to contain them.” Grover added that the NCCI reports “the average medical cost per lost-time claim grew by 4 percent in 2014, following rises of 2 percent to 3 percent in each of the prior three years. Contributing toward the increase is the use of compound medications, i.e. personalized prescriptions created through the use of multiple ingredients, which can command a high price due to their bespoke nature.” These costs, one survey found, increased 6.4 percent between 2013 and 2014.
Grover also noted a change in the approach to claims. “The increased complexities of cost containment, combined with tighter regulatory requirements, are complicating the job of managing claims,” she said. “Some third-party administrators are increasingly being asked to help facilitate compliance for their clients. ‘As states look for money, they have tried to seek fines and penalties [for violations] that were on the books before, but not enforced,’ ” Grover quoted Kathryn M. Tazic, managing director of Client Services at Sedgwick Claims Management Services. “Claims and risk managers also need to be aware of the relationship between workers compensation claims and compliance areas, such as OSHA and the Americans with Disabilities Act, added Tazic, ‘because the regulations … have become so much more complicated, not less.’ With claims adjusters managing 120 to 180 claims per day on average, the job has become ever more complicated. Some insurers are seeking solutions in technology,” such as predictive modeling.
She cited an A.M. Best’s Research & Development (R&D) report showing that in 2013, U.S. workers compensation costs totaled $51,922,000, with a direct incurred loss ratio of 63.3; with California, New York, Illinois, Texas, Pennsylvania and Florida being the top states for such losses, and New Jersey, Wisconsin, North Carolina and Georgia not far behind.
What are some of the factors contributing to increased workers compensation costs? Medical challenges, such as a 6 percent increase in prescription costs and the fact California and Delaware have medical benefits per claim at more than 50 percent greater than the median. Debbie Michel, president of Helmsman Management Services, also suggested the “labor on demand” economy. Under this system, “There is neither a formal workplace nor defined hours of employment, as many of the sharing economy’s facilitators disclaim having employees, insisting they are ‘independent contractors.’ ” She cited Uber as an example. Another factor she mentioned was “the aging workforce,” which impacts workers compensation, as roughly 20 percent of the workforce is aged 65 or older. Michel named obesity as another factor: Thirty-five percent of Americans are obese, and the rates continue to worsen.