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Comp trends may not hold true during COVID downturn


The sudden loss of millions of jobs, restrictions on nonemergency health care and the potential workers compensation claims from pandemic-related illness have experts doubting whether claims will follow the conventional industry pattern of past downturns.

Experts say they are on the lookout for greater frequency, a longer chain on claims because of limited medical services and increased cumulative trauma claims.  

“Not all recessions are the same,” said Len Herk, executive director and senior economist at the National Council on Compensation Insurance. “We might see some of the same themes as in past recessions, but … the pandemic recession is really a different animal.”

During recessions employment and payroll reductions typically lead to a drop in workers compensation premium, and injury frequency dips below trends, according to research from Boca Raton, Florida-based NCCI.

Workers compensation economists have a number of theories as to why claim frequency tends to dip during a recession, Mr. Herk said. One theory is that employers typically lay off their newest employees — who are more likely to be injured than longer-tenured workers — and when they are hired back they remain more susceptible to injury, he said.

Another theory is that employers who fear they may be laid off if they file a workers comp claim will be less likely to do so.

However, there is limited evidence on how much each factor contributes to these recession trends, and the data is too aggregated to “clearly distinguish one theory from another,” Mr. Herk said. “There are a lot of good questions about employment fluctuations and workers comp that remain to be carefully addressed in research.”

In the economic downturn spurred by shutdowns to limit the spread of COVID-19, “all bets are off,” said David Bellusci, executive vice president and chief actuary of the Workers Compensation Insurance Ratings Bureau in Oakland, California.

“We almost instantly went from close to full employment to perhaps unemployment as high as 25% in a matter of four months,” he said. “Even during the Great Depression, (unemployment) eventually went to 25% but that was over four years. It’s really unprecedented, and exactly how that’s going to impact (workers comp), who knows? We’ve never seen anything like this.”

Nationally, the “relative magnitudes” of other factors will determine whether workers compensation acts differently during this economic downturn, NCCI noted in a quarterly briefing in April.

Some factors that could affect the comp system include whether injured employees who are temporarily laid off defer the reporting of workplace injuries for fear of losing their jobs when stay-at-home orders are lifted, or whether workers who anticipate a permanent job loss “accelerate” their reporting of injuries.

The enhanced unemployment insurance made available to laid-off workers by lawmakers early in the pandemic may also impact claims reporting, since the federal unemployment benefit for many lower-wage workers is higher than full indemnity benefits under workers comp — and generally workers cannot claim both unemployment and workers comp benefits at the same time, according to the NCCI.

While some claims are automatic — an employee needs immediate medical treatment and an ambulance is called — minor injuries may be discretionary. And many factors may drive employee claiming behaviors for a discretionary claim, Mr. Herk said, such as how a worker’s particular industry has been affected during the downturn and whether the rest of a worker’s household has been negatively affected financially by the recession.

The diversion of medical resources to fight coronavirus could also negatively impact current comp claims, said Bill Zachry, San Carlos, California-based workers compensation consultant and board member of California’s State Compensation Insurance Fund.

“(COVID-19) might actually increase the cost of some of the claims by extending the disability or delaying surgeries,” he said, and the inability of some employers to bring injured workers back because of furloughs could increase temporary disability exposure.

Unlike other recessions, there also may be an uptick in injuries because workers are not performing their jobs in a typical manner or in their typical environment, said David Langham, deputy chief judge of the Florida Office of Judges of Compensation Claims in Tallahassee.

“Where I sort of see the risk for greater injury occurrences is with the environment at home,” he said. “Safety people tell us change is a big driver of claims. If you’re used to working in an office … and now put in a position working in a more confined space, or different space, that change may very well lead to trips and falls and slips and that sort of thing.”

In California, unlike the majority of states, a rebuttable presumption was created via executive order to enable essential workers to more easily collect workers compensation for COVID-19 infections presumed to be work-related. Those COVID-19 claims, combined with the state’s historically higher level of post-termination claims, are “two phenomena that may cut against the normal economic decline in claims,” Mr. Bellusci said.

In a report released Monday by the WCIRB, the California ratings bureau speculated that COVID-19 claims could lead to an estimated uptick in claims frequency of 14% over the four-month period that the presumption is in place.

Post-termination claims are also a concern in California, which saw about 25 post-termination claims from every 1,000 job losses in the state in 2011.

“If we even took half of that rate … and apply that to the 4 million-plus Californians who have already lost their job (because of COVID-19), it would generate about 50,000 post-termination claims, which would bump frequency by 25%,” Mr. Bellusci said. Among those claims from the Great Recession, the most commonly filed injuries were cumulative trauma, which are typically soft-tissue injuries involving multiple body parts, according to the WCIRB report.

Mr. Zachry said he’s more concerned that unscrupulous individuals filing questionable cumulative trauma claims will now tag a COVID-19 claim on to their comp lawsuits.

“Prior to COVID … that was one of the biggest cost drivers in California,” he said. “I definitely think that there will be a continued uptick in the number of CT claims.”