Renewals May Mark a Turning Point for Workers Comp

COVID-19, low interest rates and higher claim severity due in part to an aging workforce are among the factors that have reversed a years’ long trend of flat or lower renewals for workers compensation coverage, experts say.

“In the rate environment we are starting to see it tick up from a flat renewal to the low single digits” on average, said Rob Stein, New York-based middle market client segment leader for Aon PLC. “This is a reverse trend from the large decreases that we have seen.”

Prices are beginning to slightly increase, said Mauro Garcia, Schaumburg, Illinois-based technical director and head of workers compensation underwriting for Zurich North America.

The COVID-19 pandemic and related uncertainties are a leading factor in the changing market, experts say. The pandemic has brought changes to the workforce and a flurry of disease presumption laws and proposals — more than 20 states had such laws or proposals in place as of Tuesday — that are clearing the red tape for infectious disease compensability if certain requirements are met.

The COVID-19 presumption laws have “changed how folks think about comp,” said Matt Waters, Boston-based executive vice president and general manager of middle markets for property and casualty at Liberty Mutual Insurance Co.

“COVID has made this renewal season very different from the past; it’s very complex,” Mr. Garcia said.

There remains uncertainty about the duration of the pandemic, the rollout of vaccines and the long-term effects of the disease, he said.

“COVID has been the big wild card,” said Mark Moitoso, Atlanta-based risk practices leader for Lockton Cos. LLC.

The Boca Raton-based National Council on Compensation Insurance is collecting information on COVID-19 workers comp claims nationwide to better understand its costs to the system, said Jeff Eddinger, NCCI’s senior division executive.

“For the most part they tend to be mostly inexpensive,” he said, adding that there are a small number of “outlier” claims that are costly.

COVID-19 also added complexity to underwriting workers comp, according to experts. For example, some restaurants have staff delivering food in vehicles, retailers deliver items to customers curbside and much of the workforce is working from home.

“We have had to adjust to the major shift in exposures,” Mr. Waters said. “Exposures can go either way: Your risk profile can get better or worse.”

Changes in the renewal process can depend on the type of business involved, said JoEllen Thelen, St. Louis-based, middle market practice leader for the central region for Aon.

“With health care and anything food-related, anything retail, you can expect to have to prepare the client for a significant number of questions about COVID, about COVID-related (safety) procedures,” she said.

During renewals “clients are not going to be used to the detail of questions they are going to be asked to respond to,” Ms. Thelen said.

Brokers need to carefully review terms and conditions, to see how insurers respond to communicable disease issues, she said.

Historically low interest rates are also contributing to the pressure on insurers to raise rates.

“You can’t rely on the investment income for a long-tail line like workers comp to boost profitability. Now, you have to shift gears and focus on the underwriting results,” Mr. Garcia of Zurich said.

“We invest our premium in mostly bonds that have only been returning at 3%; now it’s 1%,” Mr. Waters said.

The aging workforce is also contributing to the market conditions, he said. In 2021, 25% of workers are over the age of 55, Mr. Waters said.

“In 2009, that was 12%,” he said. “With an aging workforce you get a slower return to work and an onslaught of comorbidities, and that will only increase severity.” 

However, the market remains competitive, experts say.

“Unlike other property and casualty lines, coverage for workers compensation continues to be a sought-after line of business for underwriters,” Mr. Moitoso of Lockton said. In terms of competition, “the marketplace is still behaving in an ordinary manner,” he said.

Source – BusinessInsurance.com