COVID-19 a Year Later: The State of Workers’ Compensation in 2021

Last year, COVID-19 affected nearly every sector of the insurance industry – including workers’ compensation(WC). As we near the end of the first quarter of 2021, it’s important that your employer clients be aware of changes and issues in WC insurance that could very well continue to impact insurers, and in turn policyholders, well into the new year.

Here’s what we know so far about the state of the WC market.

  • At the end of 2020, new business submissions were down 10% overall for most industries; 17% in public administration and similar services industry segments; and 23% in the arts, entertainment and hospitality industries, according to a recent report by Insurity, a leader in insurance technology solutions, and the Valen Data Consortium. The report cites certain industries that may continue to be distracted amid COVID-19-related challenges and won’t actively be shopping for coverage or pursuing quotes anytime soon. However, industries that naturally withstood the impact of the pandemic, such as agriculture, manufacturing and mining, will likely continue to shop WC rates and coverages.
  • According to the National Council on Compensation Insurance, WC rates in 2021 will be based on pre-COVID-19 data and losses. However, for new business that is more difficult to underwrite and rate than renewal policies, carriers will likely use current data and analytics.
  • Policy retention rates for renewals in September 2020 were 97% of what they were in September 2019. Once again, the Insurity report shows that shopping for insurance isn’t top of mind for policyholders due to more pressing pandemic priorities. In 2021, retention rates are predicted to remain relatively steady.
  • The average reported payrolls through the third quarter of 2020 remain consistently flat from pre-COVID-19 levels. However, with payrolls holding steady, insurers will likely have to make up significantly more premium this year than they have in the past. According to the Insurity report, underwriting profitability is paramount, and insurers will be hyper focused on selecting the right new business risks so as not to miss out on opportunities to put quality new business on the books.
  • Insurance Journal reports that 17 states have passed laws or orders that extend WC benefits for employees who contract COVID-19 on the job. In addition, federal employees may also receive workers’ compensation if they’ve contracted COVID-19 at the workplace. As compensability legislation continues to make adjustments to WC benefits, we may see an increase in loss severity for certain sectors such as health care or other service industries where COVID-19 is assumed to have been contracted during the course of employment. Of course, compensation for a COVID-19 illness will depend on how individual WC policies are written, the type of business and the state in which the business operates.
  • Employees who have been placed in new roles for the duration of the pandemic could be assigned new class codes. According to NCCI, a change in classification could occur when the employer’s operations have changed to a different classification, or when an employee’s occupation for the employer has changed to a different classification that may be applied to the employer’s policy (e.g., when an employee receives a job promotion). Moving forward, employers must maintain separate payroll records for any change in the operations or wages earned for an employee whose occupation has changed. If records are not kept up to date, their entire payroll will be assigned to the highest-rated applicable class code.
  • Identifying where a worker may have contracted COVID-19 has been an ongoing legal challenge for employers and their employees and has created an influx of lawsuits. In many cases, it was determined by carriers that employees were likely to have become infected outside the workplace. According to the Wall Street Journal and as reported by Fox Business, the data also suggests that a significant percentage of claims related to COVID-19 are being denied — even in states with the so-called presumptive-eligibility rules. Amid the pandemic, this will likely become an ongoing issue as more COVID-19-related claims are denied and head to the courtroom.

Conclusion

At the one-year mark, COVID-19 continues to bring change and uncertainty to businesses and the insurance industry. As an insurance professional, it’s critical to discuss and proactively address key WC issues that could impact your employer clients today and throughout the year.

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