While workers’ compensation has been considered the most stable property and casualty insurance line for several years, there are still important trends to monitor, which are impacting claims costs and workers’ compensation benefits eligibility.
“While accident frequency in workers’ compensation has been steady to slightly downward for several years due to loss prevention methods, claim severity continues to trend upwards,” said Mark Walls, Vice President of Client Engagement at Safety National. “This is especially true for catastrophic injury cases where the costs are rising dramatically and predicting future costs is very challenging.”
These are essential issues for every risk manager and insurance professional to monitor in the coming year.
1. Workplace Violence
Workplace safety gaps can result in massive costs, injuries and even loss of life. The continued escalation of workplace violence is heavily affecting businesses, with the Bureau of Labor Statistics reporting that more than 20,000 workers experience physical trauma in the workplace each year. An October report from Zippia indicated that workplace violence causes American businesses to lose $250 billion to $330 billion yearly. 85% of workplace violence deaths are due to robberies, with national crime statistics showing an increase in the frequency of thefts in major cities across the U.S.
According to the National Fraternal Order of Police, in 2022, 331 police officers were shot, and 62 were killed, with deaths representing a 32% increase from 2020. Most workplace violence occurs in the healthcare industry, accounting for roughly 75% of all incidents each year. However, the frequency of workplace violence has been increasing in any profession that interacts with the general public, including teachers, transportation workers, delivery drivers, retail employees and restaurant workers.
2. Rising Medical Costs on Catastrophic Claims
Workers’ compensation tends to be shielded from medical inflation due to fee schedules tied to Medicare reimbursement rates, helping to stop surges in fee-for-service items. However, a few key factors are causing medical costs to rise in the treatment of catastrophic injuries, including:
- Accident survivability – Severely injured individuals are more likely to live due to better care on the scene, air ambulances and the care provided by Level 1 trauma centers.
- Life expectancy – Catastrophically injured workers are living longer due to the improved medical science used to prevent complications associated with severe burns or quadriplegia.
- Costs not covered by fee schedules – This includes extended intensive care unit (ICU) hospitalizations, extensive durable medical equipment (DME), newer state-of-the-art care and attendant care. The costs of these services are increasing at rates far more significant than average medical inflation.
Medical care advances vastly improve the quality of life and independence for injured workers, but these technologies come at a price. According to Safety National’s catastrophic claims data over the last three years, there has been a 30% increase in claims incurred over $10 million and increases in claims incurred of $5 million to 10 million. Although these large claims are infrequent, they cost much more and continue escalating.
3. Employee/Independent Contractor Classification
States and the federal government have debated the definition of what constitutes and employee versus an independent contractor for years. The definition within employment and tax laws may be different than it is under workers’ compensation, creating a confusing situation for employers and workers.
In October 2022, the U.S. Department of Labor announced proposed rules to correctly classify workers, intending to significantly reduce the number of workers classified as independent contractors and reverse a previous Trump administration ruling. The October proposed rules were an extensive, multi-prong test focused on the control of the work, the worker’s skill, and whether the work performed was integral to the principal’s business. The final rules are expected to be issued in early 2023.
Regardless of these rules, it will ultimately be the court’s interpretation of them that determines whether someone is classified as an employee or independent contractor. Employers could be subject to litigation that may eventually change their current classifications. Risk managers should continue to pay special attention to the agreements and insurance certificates affiliated with their independent contractors.