Webinar Counters Insurer Warnings About COVID-19 Impact on Work Comp Profits

By Jim Sams | August 12, 2020

A well-known workers’ comp number cruncher and an actuary are calling Chicken Little on insurance industry warnings about the cost of COVID-19 claims.

Health Strategy Associates owner Joe Paduda and Bickmore Actuarial principal Mark Priven dispute assertions by Moody’s, the Insurance Information Institute and the National Council on Compensation Insurance that workers’ compensation claims related to the pandemic endanger insurer profits. The two are hosting an Aug. 20 webinar titled Pandemic, Premiums, and Profits: Is it the Sky that’s Falling…or the Floor?

Paduda and Priven are saving the details for the webinar, but both said Tuesday during interviews with the Claims Journal that the total number of workers’ compensation claims has plummeted because of the pandemic, saving insurers far more than the cost COVID claims.

Paduda said various industry analyses that have warned about the cost of forcing workers’ comp carriers to shoulder the cost of COVID claims haven’t addressed the impact of tumbling claims counts.

“They don’t want to speculate about the impact of lower claims counts but they do speculate about—and I’m doing air quotes here—the profit impacts of COVID claims,” Paduda said.

Dr. Steve Weisbart, chief economist for the Insurance Information Institute, said Tuesday morning that he stands behind comments he made during a July 23 webinar that it will be difficult for the workers’ compensation line to turn a profit this year. Weisbart said the coronavirus is spreading far more rapidly than federal health officials thought it would. He said children returning to school increases the risk of even further spread.

What’s more, medical researchers are learning that the novel coronavirus may cause long-term organ damage, which could drive a spike in long-term disability claims. He said his comment about insurer profits was meant to be “directional.” He did not intend to declare that there certainly will not be any profit, but that any profit earned will be less than it would have been without the virus.

“The early data are not at all indicative of whats’ going to follow,” he said.

Paduda is probably best known to workers’ comp industry observers as author of the Managed Care Matters blog. He is owner of Health Strategy Associates, a consulting firm based in Skaneateles, N.Y., that works with insurers and employers to hold down costs. He also is co-founder of CompPharma, a consulting firm that analyzes data from pharmacy benefit managers.

Priven is vice president and co-owner of Bickmore Actuarial in Sacramento, Calif. He also acts as a consultant for the public members of the California Workers’ Compensation Insurance Rating Bureau, who fill a consumer advocacy role.

Paduda said his firm conducted a survey in June and learned that workers’ comp professionals predicted a 20 percent decline in workers’ compensation claims in 2020, compared to the prior year. He noted that data from the California Workers’ Compensation Institute shows that the total number of claims from Jan. 1 to June 30 is down 28.8 percent compared to the total number of claims in the first half of 2019. The total number dropped even though a projected 19,146 COVID-19 claims were filed — up from zero in 2019.

Paduda said COVID claim cost an average of $25,000. Only 20 percent of claimants require hospitalization and very few of them reach the “catastrophe claims category.” He said he can’t understand how industry researchers can predict a plunge in profits in light of the drastic reduction in total claims.

Paduda said the workers’ comp line had an 85 percent combined ratio in 2019 and enjoyed an 11 percent return on investments. He said it would take more than COVID-19 to erase those earnings.

“All we have seen so far is revenues are going to drop,” he said. “Profitability as a percentage if anything is going to increase.”

The insurance industry has warned of gloomy times ahead. Weisbart said during the webinar that the workers’ comp line is unlikely to make a profit this year and may not recover in 2021. He and officials with the National Council on Compensation Insurance said the cost of COVID-19 claims will not be factored into rates that are now being developed for next year because those rates are based on historical, pre-COVID data.

The Sedgwick Institute last month posted online an essay that warned of the potential costs of presumptions passed by states that make it easier for workers to prove their claims that they were sickened by COVID-19 at work. The presumptions, passed through new laws or executive orders, require insurers and employers to prove that workers who file claims did not contract COVID-19 at their workplaces, reversing the usual burden of proof.

“As we share in our conclusions, the stage is set for workers’ compensation in some jurisdictions to face potentially significant cost increases associated with COVID-19 as the presumption is used by some states to provide benefits to cover it under workers’ compensation statutes,” Sedgwick Senior Vice President Chris Mandel said in an executive summary. “As states expand their coverage, they will need to raise premiums.”

Mandel could not be reached for comment.

Priven said undoubtedly premiums will drop because the pandemic has spawned record unemployment. Also, insurers exposure had been reduced because more workers are telecommuting, which also reduces premiums.

The system-wide decrease in costs of non-COVID-19 claims outweighs expenses associated with COVID-19 claims, Priven said.

While insurers are warning about the danger of passing on the societal cost of COVID-19 on to insurers by passing presumption laws, Paduda said in his view the rebuttable presumption ordered by California Gov. Gavin Newsom in May 6 seemed like a reasonable approach. That presumption expired on July 5, but legislation is pending that would reinstate it if passed.

“Work comp has never had a good reputation,” Paduda said. “This is an opportunity for the industry—which has been extremely profitable for the past several years—to step up and do the right thing.”

To register for the webinar, click here.

Was this article valuable?

Here are more articles you may enjoy.