There’s widespread interest in large claim trends for compelling reasons — they can be devastating for the injured worker and can have significant implications for carrier operations.
Workplace injuries that result in large claims — e.g., exceeding $1 million in claim costs — form a small share of all lost-time claims, less than 0.5%. But they have a massively disproportionate impact on losses, comprising up to 15% of total indemnity and medical costs for the workers’ compensation system.
New research from the National Council on Compensation Insurance (NCCI) segments claims of more than $1 million into two groups: Fast-emerging claims that exceed the threshold of $1 million within two years, and slow-emerging claims that exceed the threshold two years after injury or beyond. By deconstructing large claims into these categories, NCCI identified clear differences and meaningful trends.
NCCI research revealed that construction-related occupations stand out, representing almost one-third of all fast-emerging claims. Fast claims are typically caused by falls from elevation and motor vehicle accidents resulting in traumatic brain injury, burns severe spinal cord injuries or traumatic fractures. Almost half result in fatality or permanent total disability.
Nearly a quarter of slow-emerging large claims are construction related, with a meaningful share arising from the operation of motor vehicles and the installation of machines and equipment. Slow claims typically arise out of a strain or injury by lifting, resulting in lower back strains. About 25% of these injuries result in fatality or permanent total disability.
The Great Recession brought about a large decrease in construction, which contributed to a drop of more than 30% in the relative frequency of large claims over the period of 2008-2012. Since 2012, relative to lost-time claims, large claim frequency has decreased by about 2% a year.
Deconstructing that trend indicates a decline in slow-emerging claims of 4.8%, driven in part by a decrease in disc degeneration and pain diagnoses. An increase in burns, spinal cord injuries and traumatic brain injuries, the most severe of large claims, offsets the decline in slow-emerging claims to some extent.
Fast-emerging, large claims often require extensive acute care due to the nature of injury. The average fast claim will require more than $3 million in indemnity and medical costs, compared to $1.6 million for the average slow-emerging claim. Fast and slow emerging claims each have an average indemnity cost of $700,000. Thus, differences in medical treatments over time are the primary driver of costs.
Initially, hospital costs comprise the largest share of medical expenditure. As treatments of the injured worker progress, the fast-emerging burns, spinal cord injuries, and traumatic brain injuries require higher shares of home health care services, while medical payments for slow emerging claims are largely for prescription drugs and medical equipment. Identifying the mix of medical services is key to accurately quantifying inflationary impacts on large claims over an extended period.
Identifying large claim cost drivers is critical. A large claim is often characterized by multi-year or lifetime durations, which can lead to compounded uncertainty, powered by high severity, inflationary pressure, changes in utilization, and changing medical conditions considered in an actuary’s estimate.
Article Published By: PropertyCasualty360.com
Article Written By: Raji Chadarevian and Anae Myers, ACAS, MAAA