Workers Comp Performed Strongly During Pandemic Even With Premium Plunge

Because of job losses and shrinking payrolls during the pandemic recession, the workers compensation industry’s net written premium dropped 10 percent to $42 billion in 2020.

However, private insurers posted a profitable calendar-year combined ratio of 87, the industry’s fourth straight year with a combined ratio below 90.

“The workers compensation system has been strong and resilient,” said Donna Glenn, chief actuary for the National Council on Compensation Insurance (NCCI), which released data on the performance of the workers compensation system in 2020.

She said there have been fewer COVID-19 claims than originally anticipated. There have been 45,000 COVID-19 claims, generating a total of $260 million in losses. Lost-time claims account for 75 of the losses, while the average claims runs about $6,000. Healthcare and first responders accounted for 75 percent of COVID-19 workers compensation claims.

Not counting COVID-19 claims, claim frequency decreased 7 percent in 2020, in keeping with the long-term trend in declining lost-time claim frequency.

She noted that while net written premium dropped significantly during the recession, other financial metrics came in at or near historic highs.

Looking ahead, Glenn and other NCCI experts noted a series of issues on the organization’s watchlist, including the uncertainty of how workers with long-haul symptoms will fare and how quickly the recovery will drive an increase in payrolls and workers compensation premiums.

Among the issues carriers will be watching are any potential mental health effects of the coronavirus crisis. The report notes that while a majority (32) of states specify some mental health coverage under workers compensation and seven exclude such coverage, the rest are silent on the matter.

By the Numbers

Below are some of the numbers from NCCI’s State of the Line Report on workers compensation insurance:

• Combined Ratio—The calendar-year combined ratio was 87. The combined ratio was 85.4 in 2019.
• Loss Ratio— The loss ratio for the year rose to 47 from 44.2 in 2019.
• Reserves—The reserve position for private insurers remains strong, growing to a redundancy of $14 billion as of year-end 2020.
• COVID-19 Claims—Workers hurt by COVID-19 made more than 45,000 claims in 2020 with more than 95 percent of those claims costing less than $10,000. Carriers reported $260 million in total COVID-19 incurred losses in 2020.
• Workers Hurt by COVID-19—Hardest hit were workers in nursing homes, hospitals, clinics and other healthcare settings, along with first responders, which all together account for 75 percent of the claims.
• COVID-19 Severity—To date, the costliest 1 percent of COVID-19 claims account for 60 percent of COVID-19 loss dollars.
• Claim Frequency—Excluding COVID-19 claims, claim frequency decreased 7 percent in 2020, continuing the long-term lost-time claim frequency decline.
• Claim Severity—While indemnity claim severity is expected to increase 3 percent in 2020, the average cost of the medical portion of a lost-time claim is expected to change between plus or minus 2 percent.

Sources: NCII’s State of the Line Report and State of the Line Guide

*This story ran previously in our sister publication Insurance Journal.