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Workers compensation insurance premiums could drop by nearly 20% in the second quarter of 2020 and are unlikely to recover before 2023, according to a report released Thursday by the Deloitte Center for Financial Services.
With the number of workers laid off or furloughed due to the COVID-19 pandemic, workers comp premiums — which are driven by payroll — will see a drop that will likely extend into early 2021, and may not return to pre-pandemic levels for several years, the financial analysis arm of New York-based Deloitte LLP said in its report.
Deloitte’s financial services center along with Deloitte’s actuarial practice studied 25 years of net written premiums of several property/casualty lines to predict the impact that the pandemic may have on premium volume.
Deloitte noted that unemployment was 4.4% near the beginning of the year before spiking to 15% in March and declining slightly to 13% in May and created three scenarios for workers comp premium recovery: a baseline, a fast bounce back and a slow recovery.
The baseline scenario predicts that comp premium volume could decline 19.5% the first two quarters, and another 4% the third and fourth quarter of 2020 before bottoming out in the first quarter of 2021. If recovery is even slower, workers comp premium volume could decline more than 20% quarter over quarter, and another 5.5% the last two quarters of 2020. If the economy and workforce bounces back quickly, premium volume is still expected to decline 19% quarter over quarter, but drop by less than 3% the last two quarters of 2020, according to the report.
However, even in the best-case scenario, Deloitte predicts that workers comp premium volume will not return to pre-pandemic levels before the end of 2022.
“In the meantime, insurers should expect a mixed bag for workers’ comp claims, with varying impacts across industries,” the report said. “Insurers should also prepare for a decrease in claim file closure rates and higher operational costs because COVID-related claims will likely remain open longer than the average.”
Underwriters may be able to mitigate the risk they face currently in workers comp by reviewing their risk selection standards and pricing, note the likelihood that more covered employees will likely continue to work remotely and invest in ways to accelerate claims efficiency.
More insurance and workers compensation news on the coronavirus crisis here.
High unemployment numbers and drops in payroll totals could lead to declines in workers compensation premiums, even mid-policy, experts say.