Claims frequency up for 2021, but compensation benefits ‘unprecedented’
ORLANDO, Fla. — For the first time in more than a decade, the frequency of workers’ compensation claims, outside of COVID-19 illness claims, increased in the United States last year.
But don’t worry, the trend won’t last and the workers’ compensation industry continues to be the most profitable business in property and casualty insurance, actuaries and economists said Tuesday at the symposium. Annual Report of the National Council on Compensation Insurance.
Profitability numbers over the past decade, in fact, are “unprecedented” and “quite remarkable,” NCCI chief actuary Donna Glenn told the crowd of more than 800 people.
Glenn’s data, compiled from 38 states in which the NCCI recommends worker compensation rates, shows that over the past two decades the compensation industry has seen a decline in the frequency of lossy claims. time almost every year. The average annual decline for the 38 states was 3.8%, based on information provided by private carriers and state funds.
In 2020, as the pandemic led to widespread business closures and layoffs, claims frequency, excluding COVID claims, fell 7.6% – the biggest drop in at least the past 20 years. But in 2021, the frequency rate increased by almost the same amount.
The reason? Last year there were more short-term temporary workers who perhaps knew less about their workplace and best practices, said Leonard Herk, executive director and senior economist at NCCI.
When 2020 and 2021 are considered together, claims frequency decreased by approximately 1%, continuing the long US trend toward safer work environments, fewer workplace injuries and fewer claims.
“Nothing tells us it’s not going to drop further,” Glenn said. “There is safety, automation and technology that employers continue to use to mitigate workplace accidents.”
Average claims severity, excluding COVID figures, increased 5% in 2020 but remained the same in 2021, according to NCCI data. Injuries from motor vehicle crashes recorded the biggest drop, closely following the decline in traffic nationwide as people stayed home for the first year of the contagion.
COVID claims have impacted workers’ compensation, but perhaps not as much as some in the industry had feared. Virus-related claims for 2020 and 2021 reached about 60,000 in the 38 NCCI states, resulting in losses of about $500 million.
But the majority of those claims were medical-only and were under $1,500 each.
“The system has proven to be resilient to all the stresses created by COVID-19,” Glenn said.
Despite the coronavirus, the supplemental insurance industry is thriving, experts and their data said. The combined ratio of private offset carriers in the United States remained at a microscopic 87% for calendar year 2021. This is the same ratio as in 2020, it was only slightly higher than in 2019 and continued a profitable trend that began in 2014.
“Workers’ compensation continues to be the most profitable line,” Glenn said.
The P&C industry as a whole shows a combined ratio of 99% for calendar year 2020 and for 2021. Only the personal auto lines show an increase in the combined ratio and a decrease in profitability. The numbers were based on data from NCCI states, ratings bureaus in nine other states and the National Association of Insurance Commissioners.
The pretax operating gain of workers’ compensation insurers also increased, from 23.2% in 2020 to 25% in 2021, more than double the average of the past two decades. “That’s nearly a decade of double-digit operating earnings,” Glenn said.
Net written premium increased slightly in 2021, to $38.3 billion, following a decline in 2020. While 2020 saw a huge decline in the workforce, 2021 premium was impacted by a sharp rise employment and a significant increase in wages in certain sectors. The industry’s reserve redundancy has also increased – to $16 billion in 2021, noted NCCI Chairman Bill Donnell.
Trends to watch that could affect workers, insurers and employers in 2022 include continued payroll growth, fueled by rising wages, rising employment and general inflation. In addition, Herk warned, upheaval overseas could trigger an economic downturn, particularly if the current COVID lockdown in China again disrupts the global supply chain.
The symposium, held in person this year for the first time since 2019, continues Wednesday with deep dives into economic forecasts, the growing use of artificial intelligence in compensation, and medical claims and costs. . The 2022 line status report can be viewed here.
Pictured: NCCI Chief Actuary Donna Glenn explains the business case for workers’ compensation at the board’s 2022 annual symposium.
Trends Claims Loss of profit