Workers' Compensation Risks in 2024: An In-Depth Analysis

Workers' compensation, a critical component of an employer's safety net, has seen its share of changes and challenges in recent years. With 2024 already begun, it's essential to understand the evolving landscape of workers' compensation risks. This article explores the various risks associated with workers' compensation in 2024 and how they have transformed over time.

Frequency Rates and Medical Inflation

One of the most significant risks to workers' compensation involves the frequency of claims. Over the past few decades, accident frequency rates have generally trended downwards, leading to reduced premiums for many businesses. However, recent data suggests an uptick in workplace injuries, indicating a potential increase in claims frequency and, consequently, higher premiums for businesses 1.

Another major risk factor is medical inflation. While most workers' compensation medical costs are regulated by fee schedules, concerns about rising medical costs persist. In particular, states like Illinois have introduced automatic inflation adjustments into their medical fee schedules, leading to increased medical service costs for workers' compensation 1.

Adverse Reserve Development

There are concerns that the insurance industry may find itself needing to increase tail claim reserves in multiple lines due to a variety of factors, including increasing commercial general liability and auto jury awards, remaining backlog of pending cases in the courts due to COVID, jury awards granted now are related to 7–10-year-old incidents, inflation rates are much higher than anticipated on claims prior to 2019, extensive losses due to climate change and increased rates that cannot keep up, and adverse development on workers compensation tail claims due to increased attendant care costs and longer life expectancies for severely injured workers 1.

Evolving Presumptions

Presumption laws regarding first responders have expanded over time to include conditions such as cancers and post-traumatic stress disorders (PTSD). These presumptions shift the burden of proof so conditions are "presumed" work-related unless the employer can prove otherwise. This shift in presumptions means that even if a condition isn't directly caused by an accident, it can still be considered work-related, potentially leading to more claims and increased risks for businesses 1.

Economic Recovery’s Impact

The workers’ compensation line, being a major part of the commercial insurance market, has shown resilience in the face of the COVID-19 pandemic. The pandemic’s impact on insurers’ financials was less severe than anticipated. As the economy rebounded in 2021, with businesses reopening and workers returning to full-time employment, it produced a positive shift in the market. This recovery, evidenced by the drop-in unemployment rates to 3.4% in early 2023, points towards a potential increase in workers’ compensation premiums. However, these trends are not immune to the broader economic factors and the looming possibility of a recession 3.

Mental Injury Legislation

Recently there has been significant legislative attention on workplace related mental injuries. Ten states enacted laws related to mental injuries, with most laws either expanding or providing a mental health presumption to first responders. Washington and Connecticut expanded eligibility to file claims for post-traumatic stress disorder or if an event is witnessed that affects their mental health. In Illinois, the definition of compensable mental injury was expanded to include repetitive stress and in California the definition was expanded to include any mental injury resulting from a stress related injury. These developments reflect a growing recognition of the impact of mental health issues in the workplace and applying appropriate benefits for these conditions 3.

Key Changes to NCCI’s Experience Modification Factor

The experience modification factor, or e-mod, plays a pivotal role in determining the pricing strategy for workers’ compensation coverage. Since e-mod is an indicator of an employer’s workers’ compensation loss history compared to its industry peers’, it’s used as a multiplier to increase or decrease premium. For companies in sectors like construction or oil and gas, the e-mod also significantly impacts the bidding process. As a result, it’s vital to be aware of the forthcoming alterations to the mod rules by the National Council on Compensation Insurance (NCCI) for 2024 and beyond, impacting every experience-rated risk 4.

Labor Shortages

Businesses of all sizes and sectors have been facing labor shortages for several years, which poses employee safety risks and elevates workers' compensation exposures. Various workforce movements, such as the Great Resignation and the Great Reshuffle, have led to a difficult labor market. Many employees have opted to either exit the workforce altogether or leave their positions in search of roles that better suit their shifting priorities. In response, businesses have begun hiring a larger number of workers who are inexperienced or new to their particular fields. This shift is evidenced by recent National Council on Compensation Insurance (NCCI) data, which found that the proportion of short-tenured employees—those who have been with their respective employers for 12 months or less—increased across multiple sectors over the past year 2.

Changes in Federal Employees' Compensation

The Integrated Federal Employees’ Compensation System (iFECS) has been updated with rate changes for the periodic disability and death payrolls. This update reflects the evolving nature of workers' compensation, with the system now accommodating changes in compensation pay based on the Consumer Price Index (CPI) Cost-of-Living Adjustments. The cost-of-living adjustments granted to a compensation recipient under the FECA are based on the “Consumer Price Index for Urban Wage Earners and Clerical Workers” (CPI-W) figures published by the Bureau of Labor Statistics (BLS) 5.

Special Case Handling in Certain Firefighter FECA Claims

The Federal Employees' Compensation Act (FECA) covers injury in the performance of duty; injury includes a disease proximately caused by federal employment. On April 10, 2022, OWCP issued FECA Bulletin 22-07 which provided that as the result of the specific exposures that routinely occur in the course of their employment, Federal firefighters are at increased risk of certain types of cancers, heart disease and lung disease. This Bulletin indicated that when filing claims for these certain medical conditions, there is an implicit recognition of a higher likelihood of illness related to such federal employment. It provided claims staff with streamlined processing instructions for handling these occupational disease claims filed by Federal firefighters 5.

Steps to Protect your Business With Workers Comp

The landscape of workers' compensation risks is dynamic and continually evolving. Businesses must stay informed and proactive in managing these risks to protect themselves and their employees. By understanding these risks and implementing effective risk management strategies, businesses can navigate the complex world of workers' compensation in 2024 and beyond.

Deerfield Advisors would be happy to assist with any inquiries and requests you may have about workers’ compensation or other policies. Contact us using the form below.