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The aftershocks of the COVID-19 pandemic will be felt for years to come in the workers compensation industry, as its impact on jobs, wages and workers will continue to shape the evolution of the line.
Since the start of the pandemic, the workers compensation system has dealt with myriad changes. Some have ultimately been positive, some have placed — or will continue to place — stress on the system. Without question, however, the system that is emerging will remain indelibly marked by COVID-19.
Jobs have returned strongly in the construction and manufacturing industries, and most clerical jobs, such as those in financial services, were unaffected by the pandemic. But in March 2020, the unemployment rate rose to 14.7% from 4.1% the prior month, which is what the federal government considers to be roughly the level of “full employment.”
That rate was 5.4% as of July of this year. While job creation appeared to stall in April 2021 after promising reports in January and February, it picked up again in the summer but still lags in the leisure and hospitality space, where despite recent growth employment is still down 10.3% from February 2020. But, overall, the return of jobs and workers also means an influx of workers compensation premiums.
According to the National Council on Compensation Insurance, unadjusted wages rose 7% in 2020. While this sounds positive, most of the increase was due to changes in class mix. After adjusting the wages for class mix, the figures rose just 3% among those who remained employed. The average hourly wage was $30.17 in April 2021, up 5.8% from February 2020. These factors contributed, again based on NCCI data, to a 7% drop in claim frequency in 2020.
Due to the higher overall wages and the fact that those employees who were left working were generally in less hazardous positions, you see fewer claims. But many business owners are having to balance both their top line and bottom line with these changes, and many are having to evaluate which shifts — or even which days — they are able to remain open.
This has been exacerbated because employers are struggling to encourage workers to return to work. This is especially noticeable in restaurants. I was chatting with a restaurant owner recently and he noted that his inability to attract new wait staff had forced him to cut down on the number of days he is open. He now is only open Thursday through Sunday.
With fewer workers, employees are working longer hours, with the average number of hours worked per week hitting 35 in 2020 — the highest level in the last 15 years. Traditionally, longer hours worked contributes to workplace fatigue, which increases the likelihood of workplace injury. The frequency data cited by NCCI would have been even better if the number of hours worked per week had not increased. We have also seen these longer hours and smaller workforces affect service levels and customer satisfaction, which can have a negative spiraling effect on employees’ stress levels.
This challenge of finding workers will also likely lead to wage growth as employers fight to attract and retain talent. While this traditionally has a positive impact on workers compensation, it may also prompt employers desperate to keep regular working hours to lower their hiring standards or lower their training and onboarding quality. This will result in workers less suited to their positions, and looser hiring standards will undoubtedly place pressure on both frequency and severity for workers compensation.
Many clients have admitted to “taking what they can find” from the available workforce and they are worried about these downstream effects. Many used to take great pride in how carefully they would use onboarding as a way to demonstrate what was so special about their operation, and often they aren’t able to do this today with the same conviction.
Also affecting the industry will be discouraged workers who have dropped out of the workforce and refuse to return to roles in their prior industries, viewing the pandemic as an opportunity to explore their career options.
In fact, the number of small-business job applications received in 2020 showed the largest increase in the past decade. While that increase is positive news on many levels, new businesses traditionally have a higher failure rate as well as training and onboarding issues with new employees that can lead to workers comp claims.
Changes in work situation were also feared to lead to an influx of claims. As the pandemic hit, Stanford University economist Nicolas Bloom estimated that 42% of the U.S. labor force was working from home. At its apex, more people were working from home than were working at their work location. With this transition, which came virtually overnight, many workers were left dealing with less than ideal workspaces from an ergonomic perspective. There were concerns about the impact that this would have on workers compensation. However, in light of recent NCCI data, it appears that the offsetting benefits — including no longer having to drive to work and not being exposed to other work-related hazards — more than made up for those concerns.
At its core, the workers compensation system has always been impacted by economic factors, both positively and negatively. The sheer volume of changes we have witnessed in the last 18 months has required diligent monitoring to evaluate the winds of change. As a line of business, there is little doubt the imprints of this pandemic will be historically indelible.
Matt Zender is senior vice president, workers compensation strategy, at insurer AmTrust Financial Services Inc. He currently serves as chairman of the board of the California Workers’ Compensation Institute. He can be reached at email@example.com