Currently, the U.S. federal government requires employers in all states, except Texas, to have workers’ compensation insurance for their employees. That’s why in 2017 alone, more than 140 million workers in the U.S. had workers’ compensation insurance, as reported by the Federation of American Scientists (FAS). Due to natural catastrophes such as wildfires and floods, insurance companies are tightening up the underwriting procedures for commercial insurance policies such as umbrella liability insurance, property insurance, and Directors and Officers (D&O) liability. Fortunately, these new rules do not affect workers’ compensation insurance in any way.
Here’s what you need to know about workers’ compensation performance and stability.
Workers’ Compensation Performance
Companies use specific performance metrics to measure the viability of their worker’s compensation programs in the U.S. Some of the useful metrics include, among others:
• Revenues Required to Cover Injuries – In 2018, the cost of a medically consulted work-related injury in the U.S. was over $40,000, with an average worker having to make about $1,100 to cover the general costs of a work-related injury, as reported by the National Safety Council (NSC). Hence, an employer must consider the amount of revenue required to offset the worker’s compensation costs.
• Total Cost of Risk (TCOR) – It is the total cost of the workers’ compensation program. It varies depending on the type of industry and the employer’s ability to control injury-related losses. For example, the construction and transportation industries that experience the highest rates of work-related injuries and fatalities have higher TCOR costs, as reported by the U.S Bureau of Labor Statistics (BLS).
• Claim Frequency – This metric measures how often an employee files a worker’s compensation claim. The type of claim and cost per claim is also crucial in measuring the performance progress of your workers’ compensation program.
• Lag Time – It is the length of time an employee takes to report an injury. According to the National Council on Compensation Insurance (NCCI), a longer lag time results in increased claim costs.
• Return-to-Work Ratio – This figure represents the number of workers returning to work within four days after an injury. If the return-to-work ratio is over 95%, it means the workers’ compensation program is performing well. It also determines the average closure rate, which is the amount of time taken to close a claim after a work-related injury. Thus, a closed claim means that the injured worker is back to work.
Workers’ Compensation Stability
The instability of workers’ compensation insurance in the U.S. began in 1984, when the workers’ compensation costs rose at a fast rate, affecting the cost of premiums and claims, as published in the SAGE Journal. This continued for more than a decade until the costs of workers’ comp began to decline in recent years. However, in 2018, the premiums started to increase again, thanks to the robust job market. The resultant increase in payrolls prompted insurance companies to raise the costs, as reported in a recent study published in the Insurance Journal. Even so, the competitive prices in the workers’ compensation industry caused the net change in the premium costs to be relatively flat. Besides, the underwriting rules became favorable to workers and employers because of factors such as:
• Legislative reforms in the worker’s compensation programs
• A lower frequency of claims
• Enhanced safety in the workplace
Understanding these metrics will help ensure greater accuracy while measuring the performance and stability of your workers’ compensation insurance program. Do you have any questions about workers’ comp insurance? Contact our experts at Pittman Insurance Group, LLC. Our dedicated team is eager to assist with all your coverage questions and needs.