The workers' compensation sector of the insurance industry has historically been both stable and profitable in the U.S. Workers' compensation provides financial support, medical care and benefits to employees who suffer injuries or illness due to duties pertaining to their job. Workers' compensation insurance is mandatory in every state except Texas. The severity of injuries and the cost to protect employees under workers' compensation policies had remained relatively steady, until now. A recent insights report from the National Council of Compensation Insurance revealed that the frequency of claims increased by 3% in 2021 and the severity of the claims raised by 1%. Experts are predicting these numbers to further rise in 2023 by as much as 4%.
What is Causing the Rise in Costs?
Most professionals in the workers' compensation field expected the frequency and severity of claims to decrease once the Covid-19 pandemic was under control. But experts had not predicted how the pandemic would shift the industry altogether. There are a few main factors to consider which are leading to the increase in workers' compensation claim costs.
Changes in the Workforce
The pandemic dramatically changed the workforce across all industries, and many employers are struggling to fill roles with qualified candidates. In 2023, almost 23% of the U.S. workforce was age 55 and older. This demographic of workers statistically experience more workers' compensation claims as well as a longer, more costly duration of care. Workers' compensation insurance has two main benefits: financial compensation to cover necessary medical bills, and financial compensation to cover lost wages due to inability to work during an injury recovery period (lost time injury). Workers aged 55 and older account for 1/5th of lost time injuries which increases the overall cost a severity of the claim. This is likely due to older individuals needing more time to physically heal, and also have a higher frequency of comorbidities.
Additionally, due to labor shortages across the country, many businesses have had to hire inexperienced employees. Often times with high turnover rates, employees aren’t staying long enough to become experts before the business has to start training new hires again. In fields like construction, manufacturing, and automotive, inexperience can lead to an increase in severe injuries like falls, burns or accidents.
Medical Care Inflation
Inflation increased in the United States by 7% in February of 2022 compared to 2021. Most areas of life have been impacted by inflation, with the medical field experiencing some of the most significant price increases. The medical field has, on average, increased by 10% in the past year. Some services have impacted the increase more than others. For example:
- Medicine services saw a 25% increase
- Outpatient services saw a 22% increase
- Rehabilitation and physical therapy saw an 8% increase
- Improved technology leads to more costly services
With the frequency of workers' compensation claims on the rise, there needs to be more margin protection in place for insurers who are providing workers' compensation in an inflated market with higher risk. This is driving the challenging combination of a higher cost to protect, with a higher cost to care.
In addition to the rising costs of medical supplies and services, labor shortages are hitting the medical field at high rates. In November 2021 alone, 598,000 medical professionals quit their jobs. The lack of labor resources available can also impact workers' compensation costs, and the time it takes it complete care.
What Types of Claims are Increasing?
With a better understanding of what is causing the rise in costs associated with workers' compensation claims, it’s equally important to understand what kind of claims are most frequent. The industries with the most worker's compensation claims include construction, manufacturing, healthcare, warehousing, trucking, logging, and farming. The top injuries filed in a worker's compensation claim are:
- Lacerations (deep cuts and wounds to the skin)
- Sprains and strains from falling or lifting
- Burns from chemicals, heat, electricity, and radiation. Internal burns can occur from inhaling smoke
- Broken bones from auto accidents, falling, and machinery accidents
- Eye injuries from chemicals, environmental toxins, and equipment
- Cumulative trauma which occurs from long-term overuse of muscles, joints, and repetitive motion
Though these are the injuries that are reported, the two main factors contributing to the increase in injury are stress and inexperience. New workers account for 35% of all worker's compensation claims, which indicates the lack of experience and proper training that can lead to accidents. In addition, 57% of workers surveyed that they feel stressed at their jobs daily, and suffer from burnout and overworking. With the labor shortages across the nation, a majority of employees are taking on more responsibility than their standard job duties. This leads to a lack of proper rest, a lack of necessary break time, and overworking employees both mentally and physically. Numerous studies show the correlation between stress and work accidents, which makes these factors more evident than ever when it comes to worker's compensation claims.
How can Businesses Reduce Worker's Compensation Claims?
Most businesses will experience an increase in their worker's compensation premiums, but with the proper approach, it is possible to avoid an increase in claims. To reduce your risk and keep your employees safe as a top priority, you can:
- Prioritize risk management
- Ensure proper training of all employees, with supervision until deemed not necessary
- Reduce overtime and make sure employees take their regular breaks
- Provide mental health resources
- Provide adequate paid time off
- Provide an employee handbook and training for operating any machinery
If at any time you feel a worker is at risk of injuring themselves, or you feel your policies are not providing adequate risk management, it’s important to address this as soon as possible.
Protect Your Employees with ECBM
ECBM has expert teams of agents and consultants who can help you ensure you have adequate workers compensation, and identify gaps in your coverage. ECBM has consistently helped clients get the best coverage for the best price point and will identify financial leakage in your current insurance programs. Through our consulting and strategic approach to insurance programs, you can feel confident that your workers and financial well-being are protected. For more information on our services, contact one of our agents today.