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Workers comp may see rough stretch before rebound: Panelists

COVID graf

Workers compensation is likely to experience a rough patch financially, but experts are optimistic that the line will rebound to its 2019 strength in a few years.

However, the lack of data on COVID-19 and low interest rates are creating much uncertainty in the workers comp line, panelists from the National Council on Compensation Insurance and the Insurance Information Institute said during a webinar Thursday.

“Up until now, very few people would have considered a pandemic as a likely workers compensation catastrophe,” said Jeff Eddinger, senior division executive at Boca Raton, Florida-based NCCI. 

This will be a “really difficult year” for workers comp, said New York-based Steven Weisbart, senior vice president and chief economist at the Insurance Information Institute. 

“We’re operating with rates that were essentially generated a year ago or at least six months ago, and that’s obviously not in tune with current conditions,” he said. “Quite possibly, rates will be insufficient to cover all conditions.”

One of the biggest challenges for NCCI is the lack of data on COVID-19’s impact, said Sean Cooper, practice leader and senior actuary at NCCI. 

The only pandemic data that NCCI has received so far is from medical transactions in March, and it does not expect to have its first solid COVID-19 data until September. Regardless, the ratings agency will be making its 2021 rate filings following its usual schedule, Mr. Eddinger said.

Once pandemic data is available, “we’ll be able to get a handle on how impactful (COVID-19) may be for workers comp,” Mr. Cooper said. “I think it’s natural to think about what’s going to be the direct cost for those workers that actually contract the disease. If you think about the direct COVID claims, certainly that’s going to have an upward influence on claim frequency.”

Questions over how rebuttable presumptions passed in California, Connecticut, Illinois and Vermont — which extend workers compensation to essential workers presumed to have contracted COVID-19 on the job — will impact the industry also present a challenge, both for NCCI and risk managers, he said. The agency created a hypothetical scenario tool available on its website that allows users to change frequency and severity figures to estimate the cost impact of COVID-19.

Low interest rates are also affecting the workers compensation line, Mr. Weisbart said, noting that interest rates are a significant part of rate calculations for long-tailed insurance lines like workers comp that rely on the investment income that higher interest rates provide. 

“Interest rates are now incredibly low — no one would have dreamed they would be this low,” he said. “It looks like it will be challenging for this line to break even this year, and maybe for future years, in spite of the fact that in many recent years this has been a profitable line of insurance.”

However, Mr. Weisbart is optimistic that the line will rebound after a tough 2020 and 2021.

“I think we might have two tough years but, beyond that, return to the kind of success we’ve had in the last five or six years,” he said.

More insurance and workers compensation news on the coronavirus crisis here