After a multiyear trend of falling workers' compensation prices, there is some evidence that pricing in the business line is starting to stabilize.
Over the course of the pandemic, workers' compensation costs have been pushed in different directions as states shut down, reopened and then were forced to partially re-close certain businesses in many regions that experienced surges in cases of COVID-19. Because of a lack of data, it is hard to definitively say how the market might ultimately be impacted. However, Piper Sandler analyst Paul Newsome said it would appear that claims are down, particularly for the second quarter, because a lot of people have been working from home.
Workers' compensation claims have been falling for several years, which is probably related to improvements in safety in the workplace, Newsome said. In most other lines of business, however, prices have been increasing and that is accelerating because of the pandemic. The signs that workers' compensation pricing might be starting to flatten out would be mostly a result of what is happening with the rest of the industry, Newsome said.
Presumptions for certain workers present challenge
About one-third of states have implemented some kind of workers' compensation presumption, either through legislation or executive order, that would allow certain types of employees who contracted coronavirus to file workers' compensation claims without having to prove that they contracted it in the workplace.
Michael Duff, a law professor at the University of Wyoming, said the laws vary across states but most of them extend the presumption to first responders at a minimum. States like California and Minnesota extend protections to a broader class of workers.
Minnesota's list of first responders is particularly expansive and includes correctional officers, healthcare workers or providers and some childcare and home care workers, among others.
Meanwhile, California's executive order on the matter states that "any COVID-19-related illness of an employee shall be presumed to arise out of and in the course of the employment for purposes of awarding workers' compensation benefits." In order to qualify, an employee must test positive or be diagnosed with COVID-19 within two weeks of being on the job.
A couple of insurers released some information pertaining to COVID-19's impact on their workers' compensation policies within their second-quarter estimates.
Hartford Financial Services Group Inc. said it expects second-quarter 2020 losses related to the pandemic to total $251 million before tax. The company's workers' compensation losses include an estimate for presumptive losses, relating to states that have laws or executive orders that provide presumption of coverage for certain industry classes.
Although it did not give a specific number related to expected pandemic losses, Hanover Insurance Group Inc. said its view of those losses was expanded to include workers' compensation, though they are not expected to be material to its second-quarter results.
During Travelers Cos. Inc. second-quarter earnings call, CEO Alan Schnitzer said the workers' compensation market looks to be at or "near bottom" in terms of pricing. Claims related to COVID-19 have mostly been from healthcare workers and first responders, which were not a significant portion of Travelers' book of business, he added.
Schnitzer said the frequency of claims also stabilized during the quarter, which he thought was due to improved supply of personal protection equipment and the experience the healthcare community gained from managing patients over time.
The reality of rebuttals
Most presumption laws require that a certain series of requirements be met, mainly that an employee was working in regular duty, was diagnosed with COVID-19 and falls into an eligible job category, Duff said. He also noted that there are two basic types of presumptions, those that are irrebuttable and those deemed rebuttable.
The majority of states' presumption laws are rebuttable, meaning that the employer or insurer could challenge the claim, but Duff said it would be difficult to prove that the individual did not contract the virus from the workplace because "it's certainly possible that they did," particularly for those working in healthcare settings.
There are avenues that insurance companies could pursue in order to rebut claims. During a virtual presentation hosted by Boenning & Scattergood, Laurie Kamaiko, an attorney with Saul Ewing Arnstein & Lehr, said there is some technology that can show how various viruses have different DNA signatures, so it could be possible to trace infection sources outside the workplace.
But Fred Karlinsky, an attorney who serves as co-chair of Greenberg Traurig's insurance regulatory and transactions practice group, warned that even if an insurer could show that an employee did not contract the virus at the workplace, spending time proving it takes up resources.
"The fact of the matter is it costs a lot of time and effort and money to get to that point," he said. "Therefore, whether it's your loss ratio or your expense ratio, something's going up."
Also speaking during the virtual presentation, Karlinsky said that workers' compensation insurance was never intended to cover every hazard possible, but rather injury or something specific that happens on a job site during work that one is doing for an employer.
If other things get "bootstrapped" onto that type of coverage, even if it is on a go-forward basis only, that will ultimately go back to consumers and hurt them in the end, he said.