January 25, 2008
Did you know...?
Many factors indicate that the US is either in a recession or about to be. What does that mean for workers' comp?
Broadly speaking, there are no studies that indicate workers' compensation costs decline as a result of recessions; in general costs tend to increase. Research indicates that costs rise during recessions for two reasons - claims rates increase (by far the most important factor) as does disability duration.
Frequency
Common knowledge holds that claims
frequency increase as workers fearing layoffs 'incur' injuries
that keep them out of work, and receiving benefits. But 'common knowledge' is
not entirely supported by solid research - while injury rates rose during the 'recession' in the early
nineties, they usually decline. There is anecdotal evidence
that specific layoffs are preceded by 'flurries' of claims. One such example
included Oklahoma manufacturer Big Yank. As the plant closed in 1991 the
employees filed nearly 400 workers' compensation claims for injuries on the
job, despite having filed only 6 in the previous year. The company, which had
already been battered by foreign competitors with lower labor costs, saw
workers' compensation premiums for its nine factories across the country rise
to more than $3.6 million a year from $1.8 million. It says the increase
forced it to shut three more factories that had employed 800 American workers. Big
Yank's complaint illustrates a problem widely reported by employers and
insurance companies but little studied so far on a national scale: when
companies close plants -- as they did during the 1990's recession -- workers'
compensation claims often skyrocket. Although experts say there has been no
overall study of the problem, data from various states indicate a widespread
increase in the use of workers' compensation as unemployment rises. Risk-management
experts, insurance executives and investigators across the nation say that
employees frequently file waves of workers' compensation claims when plants
close in declining industries, particularly in states with liberal workers'
compensation laws.
Anecdotes do not a trend make however, and while workers fearing for their jobs may try to go out on WC, others may well do whatever they can to stay in the good graces of their employers. It may well be that injury rates continue their decline during this recession, both for factors unrelated to the recession, and because the production rate will slow and the workforce still employed will be more experienced than those laid off.
Indemnity expense
Expect indemnity costs (benefits paid to workers and employers' costs for
workers' compensation) to increase at a faster rate than wages, as recessions
are marked by flat or even declining incomes. Research shows that declines in
employment appear to have caused modest, temporary increases in workers
compensation payments such as in the latest recession in 2001 in which wages
grew by just 2.4 percent, while total workers' compensation benefits grew by
3.5 percent -- for a total of $49.4 billion.
The net
There are other factors that may well have a larger impact on workers'
compensation than the recession - rising drug costs; cost-shifting by providers
hammered by reductions in Medicare and Medicaid reimbursement; higher facility
costs; a de-emphasis on loss prevention; the soft market; and declining
investment returns; the 15-year decline in frequency; WC reforms in various
states; etc. That said, payers would
do well to carefully monitor policyholders teetering on the edge of layoffs,
as the evidence suggests claims may spike, and during a recession it is tougher
to place workers.
To read more workers' compensation benefits, coverage and cost reports point your browser to the National Academy of Social Insurance's web page at http://www.nasi.org/.
To learn more about services OHS-COMPCARE has to offer, contact our Client Services Team at (816) 559-6306 or by e-mail at customerservice@ohscompcare.com. You can also visit us at www.ohscompcare.com.
*Please feel free to forward this information to any member of management in your company who would benefit from it.*
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