COVID-19 and the onset of a deep global recession are reshaping every corner of workers’ compensation, from legal issues surrounding coverage to the delivery of care to injured workers. Some of the changes can be anticipated based on prior recessions. But others are new and highly dynamic and will vary based on the course of the pandemic.
Amid the flux, we see four changes that are critical for carriers to grapple with. How companies respond to these changes may ensure their survival during an extremely challenging economic environment. Fitch is expecting a 5-year high default rate this month, and economists are expecting even more bankruptcies in the current downturn than in the Great Recession in 2008-2009. Even well-capitalized companies need to quickly adapt.
A Shift in the Types of Claims Filed
Carriers are seeing a sudden shift in the flow of new workers’ comp claims. On the one hand, aggregate claim volume has dropped by 40 percent or more. This is primarily due to the slowdown in activity and hours worked in industries that traditionally drive a high number of claims, especially retail and hospitality. In addition, roads now have 80 percent less traffic, so there are far fewer accidents and claims from drivers on the job.
At the same time, new types of claims are emerging. Most specifically, COVID-19 claims are rising sharply. As many as 1,500 had been filed in California alone by late April, according to the California Department of Industrial Relations. The share of new COVID-19 related claims flowing into Clara Analytics’ cross-industry data lake jumped from 1 percent in March to 4 percent in April.
The large majority of these claims are from healthcare workers that interact with patients and first responders such as EMTs and firefighters. Many of these cases are likely to be covered under workers’ compensation, pending an array of actions at the state level to cover these workers, such as Kentucky’s state order on April 9.
We should also expect to see a rise in claims from employees that have been recently furloughed. This is driven in part by situations where an employee has an injury that he or she might not normally have filed a claim for in a healthy economy but decides to file the claim given a declining bank account. Experience from prior recessions indicates these situations skew toward cumulative trauma claims, which are more complex and costly to manage.
Changes in Healthcare Delivery
Social distancing and crowded hospitals are also leading to treatment delays for non-critical cases, including both recent and long-standing worker injuries. This will create extended periods of disability, more expensive claims, and potential litigation. The impact of these delays will depend on the duration of the pandemic. If the impact on hospitals extends deep into the summer or there is a resurgence of the virus in the fall, there could be a new wave of issues for claimants, employers and carriers.
One positive benefit: The delays are pushing claimants to seek care in new ways, including telemedicine. Services like Righttime and One Call have seen a 2,000% increase in the utilization of telemedicine in just the past few weeks. Quicker, more ready access to physicians may drive better outcomes and enable incapacitated workers to get the care they might not otherwise get, which could lead to lower health-related costs.
Experts predict a rise in fraud in the coming months, as COVID-19 opens up opportunities for new scams by the segment of attorneys and providers known to engage in workers’ comp fraud. We will likely also see more claims that are challenging to define as legitimate or fraudulent because they occurred in a distributed work environment where there are no witnesses to corroborate the injury. Even the definition of a workplace injury is strained in a work-from-home situation.
In response, investigation teams are investing in expanding their online detection practices. AI-based data analysis and predictions can open up new insights. “Advancements in AI now enable claims teams to see through hidden provider links, complex supply chains, and long lag times to identify fraud that previously went unnoticed,” said Dr. Gregory Johnson, a medical cost consultant and former director of medical analytics at the California Workers’ Compensation Insurance Rating Bureau.
A Rise in Litigation
A set of states have recently issued executive orders and directives that shape COVID-19 related workers’ comp coverage, and some states, like California, are on the verge of doing so. As we’ve seen in the past, new legislation drives legal activity, so we can expect to see an increase in COVID-19 litigation over the next few months.
Litigation may also rise from the increase in terminations. An abrupt layoff can leave employees feeling aggrieved. In other cases, workers may simply be anxious to cover an income gap or are uncertain as to whether to file a workers’ comp or unemployment insurance claim. Unreported or latent injuries can come to the fore and result in a sharp rise in workers’ comp claims.
“Companies that initiate layoffs with little forethought and guidance may see a rise in workers’ compensation claims and experience numerous other unintended consequences,” said Kevin Combes, Aon’s director of U.S. casualty claims, Global Risk Consulting. In the last recession, Aon saw post-termination claims surge at companies that did not proactively manage the event. “Companies that develop thoughtful reduction-in-force strategies are likely to see fewer workers’ comp claims and lower overall expenses,” said Combes.
A Reason for Optimism
Some of the changes we’re seeing, while disruptive, could have very positive long-term benefits. New healthcare treatments and delivery channels may emerge that improve outcomes and lower costs. Both private and public players in the workers’ comp system are adopting virtual case reviews, settlement discussions, and other new practices that might also increase efficiency and system access.
In addition, factors that drive cost in the industry may be seeing positive short-term shifts. For example, many claimants and attorneys may be focused on near-term cashflow and are less intent on maximizing claim values by stretching out litigation. As a result, many of CLARA’s customers are seeing cases move to settlement more quickly, at or below reserve estimates. This may be a prime opportunity to resolve stubborn cases or resolve new ones quickly.
Short-Term Disruption, Long-Term Progress
Claims operations at carriers and third-party administrators are not standing still. They are taking a number of steps to respond and prepare for the future. The most proactive are preparing teams to handle the shift in claims, including new training, handling procedures, and updated case reserve guidelines. Many are evaluating new tools and programs to optimize organizational productivity in anticipation of eventual recovery. Principal among the tools available to manage this new world are the AI applications that have recently come to market.
It’s an ideal time to be evaluating AI, which can dynamically update models to account for changes in claims types and trends. By applying AI, claims teams can identify new providers to bring into their networks and evaluate and optimize the performance of their attorney panels with evidence from prior outcomes. AI also can aid in making smarter decisions about when to settle a claim and when to litigate.
By investing now in talent and technology, claims teams set themselves up for success when we move into recovery.
About Gary Hagmueller
Gary Hagmueller, chief executive officer of CLARA analytics, has been a leader in the technology industry for more than 20 years, with a deep focus on building artificial intelligence and machine learning applications for the enterprise market.
The article first ran in claimsjournal.com