COVID-19 Impact on Workers’ Compensation Costs Much Lower than Initial Estimates According to Oliver Wyman Actuarial

Oliver Wyman Actuarial announced updated results of a study to assess the impact of the COVID-19 pandemic on US workers’ compensation claims.

Esther Becker, Partner and Central Zone Leader of Oliver Wyman Actuarial Consulting states:

“Oliver Wyman’s COVID-19 workers’ compensation study has uncovered many important changes and trends caused by this unusual environment that we believe all claims and risk managers will want to understand. Initial estimates of additional costs in the worker’s compensation system due to COVID-19, ranged from a few to tens of billions of dollars. Oliver Wyman’s longitudinal study, however, indicates that claims costs have increased very little during the pandemic. In fact, compared to 2019, 2020 losses were down 4% and 2021 losses, through September 30, were up only modestly across most industries.”

The report looked at COVID-19 infection claims and the impact the environment has had on workers’ compensation claims in general, across a select group of companies. Key findings include:

• Reported claim counts were down significantly since the start of COVID. The downturn was observed across all industries, even those including businesses deemed “essential.” The stand-out points are these:
  • Medical-only claims dropped precipitously in 2020 Q2 and have remained lower YoY in almost every quarter since COVID started.
  • Indemnity claim counts were down to a much lesser degree and actually increased significantly YoY in 2020 Q4 and 2021 Q1, despite the overall downturn in reported claim counts.
  • The industry with the most stark trends is - unsurprisingly - Healthcare, where claims counts were down initially (in 2020 Q1-2) but then increased with a significant spike in 2020 Q4 (54.4% YoY increase) and 2021 Q1 (43.6% YoY increase). However, following the COVID claim spike, healthcare claim counts changes moderated (flat in 2021 Q2 and small increase in 2021 Q3).
  • Reported counts reached their most significant YoY decrease in 2020 Q2 and were down 9.8% in total for 2020. Reported counts were down 8.5% YTD through September for 2021 vs down 12% YTD through September of 2020. Note that due to the presence of a number of large healthcare providers in our database, the appearance of the December 2020 and January 2021 reported claim spike may be exacerbated. Without the large healthcare industry spike which, in turn, was largely due to COVID claims, reported claim counts would be down to a greater degree. Medical-only claims dropped precipitously in March through May 2020 and have remained lower YoY in almost every month since COVID started.
• Closed claim counts were only slightly down YoY in 2020 Q1 but have been down significantly since then with a decrease of 15.4% in 2020 Q2 and another large drop in 2021 Q3 of 11%, aligning with the emergence of the Delta variant. Obviously the downturn in closed claims is expected in part due to reported claim levels being down, but additionally rates of closure are down. Claims closure rates have been down since the start of COVID, aside from a slight uptick in March 2021.

• COVID-19 infection claims as a proportion of total reported claims reached a new peak of 26.5% of all reported claims in January 2021, preceded by another spike in December 2020 of 24.7%. This corresponds with the population-wide increase in COVID infections in December 2020 and January 2021. The proportion of COVID claims relative to total WC claims YTD is 8.88% through September 30, 2021. COVID claims as a proportion of total reported claims are highest in states with presumption laws/rules that cover all employees and, notably, 49.2% of reported claims in January 2021 in these states were COVID claims. Note that this result is strongly driven by companies included in the study in the healthcare delivery industry. Interestingly, COVID claims as a proportion of total reported claims in states with presumption laws covering first responder or extended contact exposure employees spiked in April at 49.8% but then has remained quite low since.
  • The age of COVID claims in months by severity bands suggests that the more severe COVID claims are staying open for longer.
• An important finding in the data is that the ratio of indemnity claims to total claims is up significantly during the COVID months and this is putting upward pressure on loss costs. Pre-COVID, the average ratio of claims with indemnity to total claims was 20-22%. Since March 2020 this ratio has increased to between 23% and 29%.
  • The presence of COVID claims is influencing this phenomenon. A finding so far is that many COVID infection claims are “indemnity only” and many at least involved a component of indemnity, given that infected workers must quarantine and are not able to return to work.
  • However, this trend exists even when excluding COVID-19 infection claims. Without COVID claims, the ratio has increased to as high as 27% in April 2020. Excluding COVID claims, the ratio of indemnity claims to total appeared to be normalizing somewhat in July through December 2020, increased again to between 25-26% in January-April 2021 (likely due to the winter spike in COVID claims which, as noted above, tend to have high indemnity proportions), and now appear to be normalizing again in May through September 2021.
  • Note that indemnity claim counts have been up since Q2 2020. They surged to YoY increases of 15.2% in 2021 Q1. Indemnity counts YTD are down 1% in 2020 but up 2.6% YTD through September 2021.
    • Incremental incurred losses were down fairly substantially at the beginning of COVID – namely in Q2 2020 they were down 10%. Incremental incurred losses have continued to remain down since then until a surge in 2021 Q1 and have been up since. YTD through September 2021 incremental incurred dollars are up 9.2%. Total incremental incurred dollars in 2020 were down 4% over 2019. YTD through September 2020 incremental incurred dollars were down 4.1%.
    • The severity of indemnity and medical-only claims reported in the COVID-period have not changed significantly over prior months, aside from a few spikes in indemnity severity in June and October; however total claims severity is up somewhat due to the higher proportion of indemnity claims.
    • “Reported Incurred” dollars - defined as loss incurred on claims reported in the month - surged significantly in 2020 Q4. Reported incurred dollars on Indemnity have been up since 2020 Q2, reaching a high of a 44.2% YoY increase in 2020 Q4. Total reported incurred dollars in 2020 were flat compared to 2019. YTD through September 2021 reported incurred dollars are up 1.8.
• Changes in reported claim volume across different cause of injury and injury body part since COVID began are fairly similar across all types (generally down between 60-80%) except for COVID related causes and body parts, where increases are significant.

• The average age of an open claim appears to have increased by approximately 2 months since the start of COVID.

About the COVID-19 Study

The COVID-19 Impact Study aggregates data from over one hundred organizations across numerous industries and geographies, with thousands of monthly claims to inform statistics on workers’ compensation losses. This information has proven extremely useful in confirming what participants in the study see anecdotally in their own experience and has enabled responsive loss forecasts during these uncertain times.

The data from this study is valued as of September 30, 2021 and comprises about eighteen-and-a-half months in a COVID-19/Shelter-in-Place type environment. Trends may shift or solidify as the nature of the pandemic changes and new variants emerge.

Oliver Wyman created the COVID-19 Impact Study to help our clients navigate the turbulence caused by COVID-19 on their claims experience and as a tool to aid the accuracy of liability estimates and forecasts for our clients and wouldn’t have been possible without the consistent engagement of our study participants.

About Oliver Wyman

Oliver Wyman’s Actuarial Property & Casualty Consulting (Oliver Wyman) practice has provided property and casualty actuarial consulting services since 1986. As a firm, Oliver Wyman serves over 25% of the Fortune 100 and has over 200 credentialed actuaries serving more than 1,500 clients.

Oliver Wyman is a global leader in management consulting. With offices in 60 cities across 29 countries, Oliver Wyman combines deep industry knowledge with specialized expertise in strategy, operations, risk management, and organization transformation.

At Oliver Wyman, we are redefining what it means to be an actuary. Our vision is to discover what lies beyond the obvious, achieve breakthroughs for our clients, and persist as an industry leader. Our mission is to be a leader in the integration of actuarial science, data science, and information technology to solve our clients’ most demanding challenges. Together, our vision and mission serve as a beacon for what our clients can expect when they hire us, and for what our colleagues expect when we hire them.