A new analysis of the economic effects of the coronavirus finds that while layoffs of workers will have the most immediate effect on workers compensation, a rise in business failures could pose a major challenge later.
Unemployment claims for the four weeks ending April 11 were more than 40 percent of the total 52 million unemployment claims filed during 2008 and 2009, the first two years of the Great Recession. However, the impact of current layoffs has been uneven.
“While coronavirus-induced layoffs are severe and widespread, they are not uniform across all sectors of the economy. There is a broad divide between businesses that are public-facing or worksite-centric and businesses for which telecommuting is a viable temporary solution,” writes Leonard F. Herk in his analysis for the National Council on Compensation Insurance. The analysis is titled Economic Impacts of Coronavirus on Workers Compensation.
Herk notes that the economic impact of the coronavirus recession will depend on its duration. During the Great Recession, unemployment stayed between 8 percent and 10 percent for more than three years.
A major worry downstream is whether small businesses that make up such a sizable portion of the economy can survive, according to Herk. He cites studies showing small businesses tend to lack sufficient cash flow to stay afloat for long. One survey found that almost half would rely on the owner’s personal funds to cover a two-month revenue loss, and 17 percent would go out of business.
Overall, Herk thinks that workers compensation premium is likely to fall by more than employment during 2020, although the exact relationship can’t be determined now. To date, layoffs have not been concentrated in sectors with high premium rates, such as contracting and manufacturing, and those businesses that have been hardest hit, including leisure and retail, do not have exceptionally high premium rates per employee.
“However, making up for that is the fact that small businesses have been hit exceptionally hard,” Herk writes.
The frequency of worker injuries is expected to decline, with one possible exception.
“Warehousing constitutes a potential exception to our general view that injury frequency is likely to decline in most sectors of the economy,” the NCCI analysis states, citing an influx of inexperienced and short-tenured workers that may temporarily boost injury rates.
However, at the same time, the spike in demand for home delivery services has included app-based platforms like DoorDash, Grubhub and others that use independent contractors not covered by workers compensation.
The coronavirus-related demand for increased medical services has not led to a surge in hiring but has exposed a shortage of medical personnel. This is likely to worsen as care providers get sick themselves, Herk warns.
One effect of the diversion of medical resources and reduced access to medical care during the pandemic may be an increase in the duration of existing worker injury claims, according to the report.
*This story ran previously in our sister publication Insurance Journal.