The California workers’ compensation insurance market has come a long way in the past 15 years. Not so long ago, rates were sky high. For companies with claims, affordable coverage was nearly impossible to secure and so expensive, it could single-handedly destroy your profitability.
Fortunately, thanks to a series of legal reforms, the market improved. California employers have enjoyed unprecedented low rates and coverage accessibility for the past decade.
Unfortunately, our soft, comfortable work comp market may be hardening sooner than any of us expected.
What could push California workers’ comp into a hard market?
Forces both old and new continue to impact California workers’ compensation insurance and could contribute to a hardening market:
If anything can push workers’ compensation toward a hard market, it’s a global pandemic. The big unknown right now is how the COVID-19 crisis will impact workers’ compensation in the long term. Record numbers of people are filing for unemployment which could prompt a rise in claims. Employers could also see a glut of claims for COVID-19 infections. There could be compensability uncertainties and legal challenges. There are already medical supply chain challenges. Delays in medical treatment and return to work are inevitable, and that will affect loss trends and drive up premiums. And ongoing travel and social distancing restrictions could negatively affect employment levels, creating uncertainty about future payroll levels and overall claim frequency.
Riding on a wave of reduced claim frequency and lower combined ratios, workers’ compensation carriers have continued to offer lower rates in recent years. Many in the industry feel this has been shortsighted and is unsustainable, and that we’ve reached the bottom of the cycle.
Increasing claim severity
The number and frequency of workers’ comp claims has continued to drop, but our aging workforce, rising medical and legal costs, and large loss claims continue to push claim severity up. In fact, claim severity rose 175 percent from 1997 to 2017 according to NCCI’s Annual Issues Symposium 2018 State of the Line Highlights.
The aging workforce
With more people working later into life, we’re seeing more severe injuries, new healthcare complications, and treatment and recovery complications due to chronic conditions such as diabetes, heart disease, and obesity. These issues will continue to negatively impact your workers’ compensation costs.
The opioid crisis
Injured workers are prescribed opioids at three times the rate of the U.S. average according to the Centers for Disease Control. And those with long-term opioid prescriptions draw temporary disability benefits much longer than those treated without opioids. It’s a crisis that adds an enormous amount to claim costs and shows no sign of slowing down.
Mental health exposures
Claims involving psychological conditions are on the rise, and these are the types of claims that can quickly spiral out of control. Compensability for mental only injuries can also be sticky, so managing these claims can be complex and costly.
What will a hard market look like? It’s hard to predict in this fluid situation, but you’ll likely see:
- An end to relaxed insurance calculators and discounts
- No more premium bidding wars
- Reduced carrier capacity and limits
- Stricter underwriting criteria
- Fewer insurance carrier options
- Vastly different rates come 2021 (higher rates for everyone!)
For the coming hardening market, a strong insurance partner is key.
Samuel Hale thrives in hard markets. If you depend on controlling your workers’ compensation costs to stay in business, we can provide the protection and stability you need. Visit us at www.samuelhale.com for more information.