Employers, take a bow. Your efforts to reduce workplace injuries have paid off big time. “The number of reported accidents under the workers’ compensation system has been falling steadily in recent years,” says James J. Moore, president of J&L Risk Management Consultants. “The reason has been largely due to successful safety programs.”
The healthier workplace environment has attracted a good number of insurance companies to the workers’ compensation market, putting downward pressure on prices. “In general, insurance companies find workers’ compensation to be a profitable line of business,” says Randy Sieberg, president of Workers Compensation Consultants. “As losses have been trending downward, the end result is a really decent claim experience.”
DANGER AHEAD
Despite a mostly sunny workers’ compensation environment, employers should be wary of dark clouds gathering on the horizon. Foremost among them is an increase in expensive catastrophic claims, driven largely by advances in medical technology.
“While there’s been a soft insurance market for several years, those days might be numbered,” says Matt Morris, principal at World Insurance Associates. “The increasing incidence of million-dollar claims is going to start catching up with carriers.”
The mega claims are coming at the same time that more states are adjusting their fee schedules to reflect higher costs. “We’re seeing many states increase workers’ compensation benefits across the board, adjusting for inflation, higher medical expenses and a rising cost of living,” says Morris. “And ever since COVID, we’re seeing carriers covering a lot more mental health conditions and PTSD.”
Safety programs at employers have produced positive results in recent years, as the number of reported accidents has been falling steadily.Photo courtesy Todd Lipsky
Yet another danger emanates from Washington. While workers’ compensation is primarily a state driven phenomenon, that doesn’t mean actions at the federal level can’t affect employer costs. “We’re concerned about the possible negative effects of U.S. trade policy,” says Dennis Tierney, director of Workers’ Compensation Claims at Marsh, a global insurance broker. “Employers who get impacted by tariffs may start cutting expenses, and that often means getting rid of employees. And reductions in force typically lead to an increase in workers’ compensation claims.”
Such increases can often be fed by desperation, notes Tierney. People who lose their jobs often look for another source of income, and may find it in the form of back pain or similar condition that developed over the years and that could be deemed an occupational injury.
This temptation to assign workplace culpability comes while many states are passing laws reflecting a more liberal presumption — a term referring to the automatic determination that certain injuries are work-related, and thus compensable by the workers’ compensation system. It is up to the employer to prove otherwise.
A healthier workplace environment has attracted a good number of insurance companies to the workers' compensation market, putting downward pressure on prices.Photo courtesy Todd Lipsky
Security cameras can help provide a defense against some of these instances. “Having everything monitored is a best practice and a good way to avoid frivolous claims,” says Morris. “Many times, employees will be joking around and not doing the right things on a work site and then claim a work-related injury when the video shows something else happening.”
Tariffs may lead to cost hikes for other reasons — escalating drug prices among them. “Raw materials for drugs are a big part of medical spend,” says Tierney. “Duties on imported ingredients may result in bigger bills for end users.”
Tariffs can also have a deleterious effect on labor costs. A manufacturing reboot in the U.S. may increase the demand for workers, putting upward pressure on wages. “Restrictions on immigration could lead to the loss of cheaper labor, and thus affect workers’ compensation rates which are figured off wages,” says Moore.
Finally, trade policy can lead to more hiring of younger workers to fill the ranks of reshored employers. The replacement of retiring Boomers poses a particular risk. “In five years, we figure that some 25% of employees are going to be Gen Zers,” says human resources consultant Rachel Shaw. “We are concerned that we may see more injuries as a result, since there is a question mark as to whether they are coming into the workforce with the same skills and training and experience.”
These upward payroll pressures are coming at a time when the federal government is deregulating workplace safety standards and reducing the number of workplace inspectors, notes Shaw. “Some companies love the idea of deregulation because it can reduce immediate costs. But an increase in injuries might well raise costs over the longer term.”
The difficulty younger workers face in obtaining affordable health care may add fuel to the fire. “We may see an increase in claims as people struggle with obtaining and maintaining medical care,” says Shaw. “We have, in the past, seen people use the workers’ comp system for either personal medical needs or as wage extension.”
Despite improvements in the overall workers' compensation insurance landscape, experts are concerned about a potential increase in expensive catastrophic claims, driven largely by advances in medical technology.Photo courtesy Feverpitched
MORE MENTAL STRESS
The influx of younger workers can increase costs for two other reasons. First, younger workers have a more liberal attitude toward the use of recreational marijuana. “The younger generations see marijuana as more like beer or alcohol,” says Shaw. “We anticipate that as more states legalize recreational marijuana, we’re going to continue to see some impact, especially in industries that require workers have balance and focus to do their job well and to be safe and not have catastrophic injuries.” The National Institute on Drug Abuse (NIDA) found that workers testing positive for marijuana were involved in 55% more industrial accidents, 85% more injuries, and experienced 75% more absenteeism.
Additionally, mental health issues have much less stigma among members of the younger generations, who are more comfortable than Boomers discussing and claiming workrelated stress. They also expect mental health support from their employers.
“Mental health claims seem to be the fastest growing segment of the workers’ compensation picture,” says Sieberg. “While they currently don’t add up to a large percentage of overall claims, they can cost from two to five times the amount of traditional claims, and run two to five times as long.” Mental health claims are also more likely to be litigated, further escalating costs.
Many states are introducing regulations that help fuel the growth of mental health claims. For example, there is an increasing presumption of a work-related nature for reported psychological and stress-related injuries. Furthermore, many states are no longer requiring that mental health claims be preceded by physical injuries. It used to be that a worker claiming work-related depression would have to show that a preceding event, such as a back injury, caused mental stress by keeping them from carrying out their normal daily routines. “Today, employees might claim they were abused in the workplace by a coworker or a manager, or they witnessed an event that caused psychological damage,” says Tierney.
REDUCING COSTS
Employers are not powerless to navigate the more challenging workers’ compensation landscape. Indeed, the number one defense is to establish the very workplace safety programs that have helped control costs to date. “The claim that doesn’t happen is the least expensive claim,” says Sieberg. “Employers need to be proactive in creating programs that train employees on how to perform their work safely. That can include everything from making sure they’re wearing the right shoes and other protective equipment, to ensuring they’re lifting correctly and taking appropriate breaks.”
Quick claims processing can also help cap expenses. “When an injury occurs, employers need to promptly report the matter to the carrier, then conduct an investigation into how the injury occurred and how the company can obviate similar incidents in the future,” says Sieberg. “When discussing the accident with employees, remember that the investigation is not about blame, but about learning how to eliminate future risks.”
Employers can also reduce costs by establishing effective claims management programs. And the first step of such programs is the empathic communication with injured workers. “One of the most expensive parts of workers’ compensation is litigation,” says Shaw. “Bear in mind that employees usually don’t sue employers because of injuries, but because they feel disbelieved, ostracized, and unsupported. It’s an emotional reaction. And so I always encourage employers, especially smaller ones where lawsuits can threaten their livelihoods, to treat injured employees with concern. Employees should understand that you take their injuries seriously, and you will stay on top of their treatment until they can return to work.”
Security cameras can help provide employers with a defense against spurious claims.Photo courtesy Lev Kropotov
PROMPT ACTION
Prompt action is especially cost effective for claims of psychological stress. “The temptation by insurance companies is to delay mental health claims, especially during the first couple of months after a report,” says Shaw. “But what we know is that if we can get those people prompt behavioral support, even if we do not accept workplace responsibility, we can get them back to work more quickly and reduce claim cost and duration by up to 70%.”
Employers would also be wise to have a workers’ compensation attorney on call for shepherding injury cases, even if litigation is not anticipated. “Bear in mind that insurance companies often have a self-interest in managing claims slowly, while it can be better for employers to get the workers back to work without delay,” says Shaw. “It can be cost effective to have an attorney on retainer for a couple of hours a month to push claims forward.”
While the business environment is becoming more sympathetic to the claims of injured workers, employers can take steps to mitigate the dangers. “The financial health of the workers’ compensation system follows from businesses being in control of safety programs and managing claims effectively,” says Sieberg. “But employers have to be diligent. They have to stay on top of things.”
