In today’s world captives have evolved to insure coverages such as workers’ compensation.
In the US, workers’ compensation is compulsory for almost all employers in every state, apart from Texas where non-subscription coverage is used to cover employer liability.
Medical costs are the most significant expense for companies in terms of workers’ compensation.
Dustin Partlow, senior vice president at Caitlin Morgan Insurance Services, says: “With medical costs continuing to rise, the most significant dynamic in terms of any company controlling their workers’ compensation costs and claims is ensuring there are adequate tools in place to help mitigate medical costs for claimants under their workers’ compensation.”
The US has the most expensive healthcare system in the world. According to the Centers for Disease Control and Prevention (CDC), during 2015, health expenditures per-person were nearly $10,000 on average, with total expenditures of $3.2 trillion, which makes up 17.8 percent of the country’s gross domestic product (GDP). Spencer Poole, chief compliance officer at Venture Captive, says that for any company, in terms of workers’ compensation, the biggest losses come from productivity as well as increased claim costs arising any time an employee must take time off from work stemming from a workers’ compensation incident.
According to the US Department of Labor, Bureau of Labor Statistics in 2018, the top 10 private industry occupations with the largest number of injuries and illnesses included labourers; truck drivers, heavy and tractor-trailer; janitors and cleaners; nursing assistants; and general maintenance and repair workers; retail salespersons; stock clerks and order fillers; registered nurses; light truck and delivery service drivers; construction labourers.
While workers’ compensation is legally required, the costs of traditional insurance continue to rise, which is why there has been an increased interest from companies looking at a captive insurance solution.
Poole suggests that a captive offers the opportunity to fund the deductible and take the working layer of risk, which cuts down on traditional insurance costs while giving the beneficial owners of the captive an opportunity to utilise risk management practices to achieve a greater underwriting profit.
“In contrast, workers’ compensation for certain professions and classes of business, such as professional employer organisations or staffing agencies, are very expensive in the traditional market and require letters of credit or other collateral; a captive provides the beneficial owners with stability in the insurance placement and control over the claims process”, he says.
COVID-19 and working conditions
Prior to the start of 2020 workers’ compensation loss costs were starting to decrease in most classes due to the state of the economy. However, since the onset of the pandemic, there have been catastrophic job losses.
Poole explains that currently, the workforce is under extreme pressure as employees in critical industries that have been designated ‘essential’ are working through the pandemic.
He says: “The economic downturn coupled with the effects of COVID-19 will drive an upward trend in loss costs and higher rates for certain business sectors.”
Workers’ compensation has seen tremendous claims volume compared to general and professional liability during the pandemic, he explains.
In addition, the uncertainty over immunity protections “has created angst in the market as carriers and insureds don’t know what to expect or how to plan for the future of workers’ compensation”, Poole adds.
COVID-19 has caused significant challenges around workers’ compensation.
Specifically for healthcare and other essential industries that have been forced to work throughout the virus which has led a number of workers to get the virus. Partlow says this has resulted in a significant number of workers’ comp claims for lost time due to being infected with the virus.
To further complicate complicating things, Partlow notes that it is trying to determine whether any worker who contracts COVID-19 whether it is a workers comp claim as that largely centres on whether the worker contracted the virus while at work, which is very challenging to prove.
He adds: “Some states are forcing carriers to accept compensability for these claims which for very large employers, could result in a significant amount of workers comp claims and liabilities as essentially they will be on the hook for at a minimum two weeks of a lost time claim under their workers’ comp for every employee who contracts the virus, really regardless of where that worker may have contracted the virus.”
An issue that has received less attention, according to Poole, is the effect of the new remote workplace on workers’ compensation; for example, if an individual is injured on the job, but at home, how would or should workers’ compensation respond?
Poole explains that from a captive perspective, the beneficial owners can make this distinction.
He says: “It will be interesting to see how the traditional market approaches this paradigm shift.”
Looking ahead
If 2020 has taught us anything is that predicting the future can be difficult but it’s no shock that the ongoing pandemic is likely to continue into 2021 and the implications of it will still be rolling out.
Forecasting the next 12 months in terms of this coverage, Poole suggests there will be an increase in rates for workers’ compensation as claims arising out of the pandemic will continue to be reported.
Poole explains: “The rise or decline in total workers’ compensation premium written will largely depend on how quickly the economy recovers and what the recovery looks like; if firms continue to allow employees to work remotely, we would expect the net premium to be less than in years past, but it’s all conjecture at this point.”
“Until the pandemic is contained, there is no certainty around the future of workers’ compensation insurance,” he adds.
Partlow affirms that as the market firms up he thinks there would be an increase in captives writing workers’ compensation, especially in the nursing home industry and other industries being hard hit by COVID-19 claims.
“Certain carriers are no longer writing healthcare business, and those that are, have significantly increased pricing and minimum premiums,” Partlow concludes. ?
