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The economic downturn and the slowdown of court proceedings amid the COVID-19 pandemic are boosting efforts to close older workers compensation claims, according to experts who say an uptick in settlements is on the horizon.
The crisis has led to “an unexpected development” that claimants who previously declined settlements are coming forward, said Beth Dupre, Seattle-based managing director and claim consulting practice leader for Marsh LLC. “It opens the opportunity for us to do just that and at a generally decent cost.”
Noticing the trend, Rich Lenkov, capital member and head of the workers compensation practice at Bryce Downey & Lenkov LLC in Chicago, said his firm is seeing a modest 10% decrease in settlement value across the board.
“That said, many employers and carriers want to maintain their cash reserves during this uncertain economic environment and so are in no rush to pay on workers comp claims,” he added.
Financial reports released this month by the Boca Raton, Florida-based National Council for Compensation Insurance showed the comp industry in good standing with adequate reserves at the end of 2019, before COVID-19 created a storm of uncertainty for insurers.
Marsh released a white paper in April on how the industry could improve its financial outlook during and after the pandemic, pointing to “outstanding liabilities associated with aging inventories of open workers compensation claims” that could “significantly reduce the amount of working capital.” The broker said that settling old claims “can help employers improve their balance sheets given uncertainty about the post-COVID-19 economic environment.”
Marsh says that for each $1 of reserves set aside on average to close the claims, 72 cents is spent.
Ms. Dupre said it benefits insurers to pay now. “(The pandemic) is going to severely affect cash flow” for insurers, she said.
“What we are finding is that with a structured claim closing initiative you can close files more sensibly and below the dollar (amount) they are reserving. … (It’s) well within the normal payout.”
The uptick in closures is an expected result of the slowdown in cases being heard by courts during the pandemic, as well as anticipated layoffs of claims management staff as insurers grapple with less premium because of massive unemployment — a cascading effect that could lead to the slowing down of claims handling overall, experts say.
Dan Anders, Chicago-based chief compliance officer for Tower MSA Partners, a provider of Medicare secondary payer services for comp insurers, said insurers have long been focused on closing legacy claims, particularly those where prescription costs are involved, and the pandemic could sharpen the focus.
“Part of it is insurers have become a little more proactive in looking at older, legacy claims to see if this may be an opportunity to take a first or second look are [at] settling those claims,” he said. “The other part is you have an injured worker in a financial situation where a settlement would be critical to them. You can have a win-win situation.”
For injured workers, though, the deal may not be a good one, said San Diego-based workers compensation attorney Robert A. McLaughlin of the Law Office of Robert A. McLaughlin and president of the California Applicants’ Attorney Association, which advocates for attorneys that represent injured workers.
The courts slowing down is a bigger factor than family income, as some workers and their families have been bolstered with additional federal aid, he said, noting that most states cap unemployment benefits at six months.
Mr. McLaughlin predicts that the longer the shutdown goes on “the more we have people want to settle their claims who are not prepared to settle,” he said. “We will have people calling us, saying, ‘We need money. We need to settle our claim.’”
More insurance and workers compensation news on the coronavirus crisis here.