Workplace Reset Workers’ Comp Insurers Adapt to a Post-COVID World WORKERS’ COMPENSATION SUPPLEMENT INSIDE: A Reawakened Economy: What It Means for Workers’ Comp Page 02 Author: Elements of Workers’ Comp Date Back to the Early Days of Piracy Page 03 Insurers Writing Workers’ Compensation Insurance Pages 11-106 ...AND MOREWorkers’ Compensation Supplement 2 COPYRIGHT © 2022 A.M. BEST COMPANY, INC. AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. A Reawakened Economy: What It Means for Workers’ Comp The U.S. labor shortage is causing lower hiring standards, creating an unseasoned and undertrained labor force that poses many risks. During the pandemic, certain industries struggled while others flourished. Now, we’re seeing more economic stabilization as we enter a period of reawakening and a return to something closer to normal. This new phase certainly brings challenges for workers’ compensation clients. Fortunately, independent agents have the experience necessary to help them. The data is clear. New employees are far more likely to be injured than tenured employees. With the labor market experiencing an unprecedented migration, many companies are being forced to lower hiring standards—sacrificing educational qualifications, training, prior experience and more. Consequently, this unseasoned and undertrained labor force poses a big risk, especially in industry sectors like manufacturing, construction and commercial auto. In addition, in response to the labor shortage, many companies are asking employees to assume broader responsibilities and longer hours, increasing fatigue and stress. Much like unseasoned labor, employees with expanded roles and hours, without the appropriate training, represent an increased risk. At the same time, many companies are paying higher wages to attract or retain talent, which means higher premiums. California, for example, has seen a significant increase in its statewide average weekly wage and maximum compensation rate. Nationwide, benefit dollars have increased by 50% to 100% between 2000 and 2018, according to the National Council on Compensation Insurance. Historically, workers’ compensation has been a profitable line for agents. Margins may get compressed, however, as the lack of skilled labor combines with increases in payroll and benefits. With evolving risks on the workers’ comp horizon, experienced agents offer great value, taking proactive measures to help their clients. First, they are working even harder to understand clients’ operations. Turnover, job openings, use of temporary labor and average tenure can help agents and carriers better understand and manage workforce hazards. With the changes in classifications caused by the pandemic, agents are validating class codes to help ensure they reflect new operations, such as “hybrid” workforces. Second, agents are emphasizing hiring and training discipline. Businesses are at a significant disadvantage if they cannot invest in training. A safety-first culture, combined with updated policies, manuals and procedures, job descriptions, and hiring practices, along with formal training programs, effective communication and strong return-to-work programs, can go a long way in protecting businesses. Third, experienced agents are taking full advantage of carrier resources. Carriers offer various risk management information and programs for insureds—understanding what each provides can help reveal the true value proposition. Top agents partner with carriers that offer top-tier workers’ comp capabilities, including online resources, consultation Workers’ Compensation Supplement 3 COPYRIGHT © 2022 A.M. BEST COMPANY, INC. AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. and customized plans developed with claims and risk management experts. For example, some carriers offer AI-assisted ergonomics, which apply AI to recorded footage of work and prioritize corrective measures to reduce risk. Similarly, carrier-provided wearables can improve ergonomic safety by alerting the wearer to incorrect postures and movements. The dynamic workers’ compensation market presents challenges, but agents are a valuable resource for clients looking to navigate the economic reawakening and enhance their risk management practices. Combined with the right carrier partnerships, insureds can feel confident they have great protection for their needs. By Richard W. Lavey Author: Elements of Workers’ Comp Date Back to the Early Days of Piracy In his book, Chris Boggs traces the history of workers’ comp and details the modern system and its operations. Myths and legends have long surrounded workers’ compensation and its history. Surprisingly, many of those myths are in fact true, including fables about pirates injured while working aboard ships being compensated by a system much like modern-day workers’ comp, said Chris Boggs, executive director, risk management and education, at the Independent Insurance Agents and Brokers of America. He is the author of the book, The Insurance Professional’s Practical Guide to Workers’ Compensation From History through Audit. Over the centuries, workers’ compensation has undergone some legal and regulatory changes. But today’s compensatory system for injured workers remains much like it was in its infancy, including the “simplistic concept” in which it was built, Boggs said. Following is an edited transcript of an interview with AM Best TV. What does the book say about the history of workers’ compensation? While aspects of the system date back many centuries, workers’ compensation actually began in Europe in the late 1800s. Germany was the first country to offer a type of workers’ comp—employers’ liability. The system, however, didn’t make it to America until the early 1900s. In 1917, laws were passed that allowed for companies to require certain types of insurance. Workers’ comp jumped on that and became one of the first required compulsory coverages for purchase. Around 1911, New York put a workers’ comp code in place, but it was declared unconstitutional by the Chris Boggs Executive Director – Risk Management and Education, Independent Insurance Agents and Brokers of AmericaWorkers’ Compensation Supplement 4 COPYRIGHT © 2022 A.M. BEST COMPANY, INC. AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. New York Appeals Court. The day after that decision, 146 people died in a fire at the Triangle Shirtwaist Factory in the state. Most of the deaths were caused by employees jumping out of the multistory building to escape the fire. The only recourse their families had was to sue. However, they only received around $75 for the work-related fire. That was another impetus to remove the prior practice of employees having to go to court to prove their employer was negligent. How has the system changed or evolved over the years? Essentially, it hasn’t. The biggest change has been in the legal climate. It’s become very regulated. Workers’ comp as a concept is very simplistic. You have some- body who’s working, they get hurt while working, and you pay for it. It was really designed for one location, one operation. But over time it’s become very legalistic and has evolved to keep up with changes in our work lives. What do you hope people will take away from the book? The book came about as a series of articles I wrote to help people understand the intricacies of workers’ comp. I hope readers can understand them and how the system was simplistic in its creation, yet detailed and nuanced in its application. I also hope readers understand how each state has its own rules, and that they can see that workers’ comp—and all insurance—is unique and fascinating. US Supreme Court Asked to Rule Whether Workers’ Comp Covers Medical Marijuana A Minnesota woman claims years of opioid prescriptions and surgeries failed to help her, and she began paying for medical marijuana out of pocket. Eventually, she sought and won her claim for coverage under the state workers’ compensation code. Hartford Insurance Group is fighting a Minnesota woman’s request to the U.S. Supreme Court to hear her appeal of a state high court decision that federal law prohibits coverage of medical marijuana treatments under the state’s workers’ compensation law. Susan Musta is asking the Supreme Court to hear her appeal of a ruling in favor of Hartford and her former employer, Mendota Heights Dental Center. Musta was a hygienist at the center in 2003 when she hurt her back attempting to catch an elderly patient who was falling, according to her brief to the court.Workers’ Compensation Supplement 5 COPYRIGHT © 2022 A.M. BEST COMPANY, INC. AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. Years of opioid prescriptions and surgeries failed to help her, it said, and she began paying for medical marijuana out of pocket. Eventually, she sought and won her claim for coverage under the state workers’ compensation code. The center and Hartford appealed, and a divided Minnesota Supreme Court ruled that the federal Controlled Substances Act preempted the order requiring coverage for medical marijuana. Musta’s appeal noted that while the Minnesota Supreme Court decision agreed with a ruling by the high court in Maine, supreme courts in New Jersey and New Hampshire came to the opposite conclusion. In the end, the Minnesota Supreme Court said Congress has not acted to make possession of cannabis legal, so the Controlled Substances Act preempted coverage. In her appeal, Musta’s lawyers said the Controlled Substances Act “provides a complex, carefully reticulated scheme of regulation of controlled substances.” However, citing the dissent from the Minnesota Supreme Court, they said the act “does not ‘purport to regulate insurance practices in any manner.’” The New York chapter of the National Organization for the Reform of Marijuana Laws and cannabis industry groups from New York joined Musta’s U.S. Supreme Court appeal recently. They argued that because of the legal conflict among the states and between the states and the federal government—which labeled cannabis as a dangerous Schedule 1 drug—the court could only resolve the problem by determining the Schedule 1 status to be unenforceable. An attempt to obtain comment from Hartford was not immediately successful. Cannabis Market Growth Expected but Federal Laws Remain a Roadblock, an AM Best report released on June 30, found that the cannabis industry would continue to grow, but federal law was a barrier to faster expansion. In 2018, New Jersey lawmakers debated a bill to require workers’ compensation insurers to cover medical marijuana. It did not pass, but the New Jersey Supreme Court in April 2021 said prescribed medical marijuana should be covered by workers’ compensation insurance. By Timothy Darragh Workers’ Comp Residual Market Rates Tumble in Delaware by Average of 20% Workers’ compensation insurance rates will continue falling in Delaware, with voluntary loss costs dropping an average of 21.02% and residual market rates going down an average of 20.01%. The new rates mark the fifth consecutive year that rates have gone down in Delaware, according to the office of Insurance Commissioner Trinidad Navarro. “We have worked hard to lower workers’ compensation costs year after year to help our local businesses and attract new ones to our state,” he said in a statement. “I’m proud to say that companies are doing their part to reduce risks through programs like our Workplace Safety initiative as well.” The Delaware Compensation Rating Bureau agreed to the lower rates after discussion with the Department of Insurance and the state’s Ratepayer Advocate. The bureau had Workers’ Compensation Supplement 6 COPYRIGHT © 2022 A.M. BEST COMPANY, INC. AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. originally submitted proposed overall changes of -18.37% in residual market rates and -19.40% in voluntary market loss costs. The approval process included a review of the DCRB filing by actuaries for each party and a public hearing. Actual savings vary by policy, the department said. The department also highlighted its Workplace Safety Program, which it said saved about $7 million for the roughly 1,100 companies involved. Eligible businesses can earn up to a 19% discount on their insurance by undergoing annual safety inspections and complying with associated recommendations, it said. A Nov. 24 Best’s Market Segment Report said work- ers’ compensation insurers weathered the first year of COVID-19 well, adding that there is reason to be optimistic that the same will hold true for 2021. In 2018, Navarro approved rate cuts of 10% for the voluntary market and 7.29% for the residual market, reflecting the impact of 2014’s House Bill 373, which cut reimbursements paid to health care providers for treatment of workers’ comp patients. At the time, those payments were three to five times higher than the same kind of payments in other states. The top five writers of workers’ compensation insurance in Delaware in 2020, based on direct premiums written, were Hartford Insurance Group, with 9.06% market share; Zurich Insurance US PC Group, 8.38%; AmTrust Group, 7.1%; Donegal Insurance Group, 6.97%; and Travelers Group, 5.91%, according to BestLink. By Timothy Darragh Best’s Market Segment Report: Workers’ Compensation Results Still Outpacing Other U.S. Property/Casualty Insurance Lines Underwriters of workers’ compensation insurance have consistently generated better underwriting profits than other property/casualty (P/C) lines of business, again doing so in 2020 amid the pandemic, according to a new AM Best report. The Best’s Market Segment Report, titled, “Workers’ Compensation Still Outpacing Other Lines,” states that underwriting results of workers’ compensation insurers remained strong in 2020, despite a 10% decline in bottom-line net premiums written, owing to the substantial drop in payrolls during the second quarter of the year. The combined ratio of 91.1 in the workers’ compensation segment in 2020 was a few points higher than in 2019, but still comfortably under the break-even mark of 100.0, reflecting profitable underwriting. Given the decline in premium, expense ratios rose, but the increase was nominal and did not overly dampen underwriting earnings. Premium volume for workers’ compensation writers also has been constrained by rate decreases in most states. According to the report, some writers are looking to develop new products and explore new markets in other lines of coverage and allowing their Workers’ Compensation Supplement 7 COPYRIGHT © 2022 A.M. BEST COMPANY, INC. AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. workers’ compensation top-line premium to decline in the states where they generate significant premium. Despite the smaller premium base, workers’ compensation insurers remained highly profitable in comparison with other P/C lines. Workers’ compensation under- writers have benefited from a decline in lost-time claims frequency tied to efforts to improve workplace safety. Other factors that have benefited the line’s profitability are the declines in fraud, workplace accidents and defense costs. AM Best also analyzes the overall health of the workers’ compensation line of business through its Workers’ Compensation Composite, which is composed of U.S. companies, including state funds, whose workers’ compensation and excess workers’ compensation net premiums constitute 50% or more of their total net premiums. Even with the 2020 decline in workers’ compensation premium due to the pandemic, the market share of these specialists rose to 26.2% in 2020, up considerably from 16.7% in 2011. AM Best’s negative market segment outlook for the workers’ compensation segment, the largest component of the U.S. commercial lines market, reflects the continued uncertainty about the effects of COVID-19, from an economic and a regulatory perspective, as well as a legislative one as states consider presumptive legislation stemming from the pandemic. Moreover, although the impact of the pandemic on insurers’ balance sheets to date has been tempered, concerns about the prolonged low interest rate environment persist. As a result, investment returns are expected to remain flat, and insurers may begin seeking riskier investments to generate higher yield. Among Artisan Contractors, Plumbers Account for Most Workers’ Comp Claims The company’s workers’ comp report also found while older workers have a lower frequency of claims, their injuries are more severe. Younger, new employees at contracting firms pose the greatest risk for injury and almost a third of workers’ compensation claims over 10 years came from the plumbing profession, according to a recent report from AmTrust Financial Services. Matt Zender, senior vice president Workers’ Compensation Strategy at AmTrust, discussed the findings of the AmTrust 2021 Contractor Risk Report with AM Best Audio. The report is based on 26,000 workers’ compensation claims over 10 years. AmTrust ranks No. 7 in Best’s Rankings of the top workers’ compensation writers based on 2020 direct premiums written. Following is an edited transcript of the interview.Workers’ Compensation Supplement 8 COPYRIGHT © 2022 A.M. BEST COMPANY, INC. AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. What were some of the other key findings of the report? One of the first things that we noticed that really just kind of jumped right out of the data was the tenure of an employee and the effect that it would have on the frequency of claims. If you look at younger employees, newer employees, those who were employed less than a year made up a full third of the claims that we saw. That was surprising when you just look at the percentage of employees that they make up otherwise. It’s really clear to us that newer employees have more injuries, and it puts a lot of pressure on these contracting businesses to focus on the retention of the employees. Therefore, they can work with them longer and figure out how to work more safely. Also, when they do have open positions they need to fill, onboarding is critical for them as well, and the ability for a business to train new employees right away on how to work most safely. Plumbers are susceptible to awkward work spaces, so there’s a lot of strain injuries that occur. In fact, 31% of our plumbing injuries did involve strains. Were there certain trades in particular where you were more likely to see claims than in others? We went through 26,000 claims over 10 years of history that we have. Our focus was primarily on what we call artisan contractors, so we were looking at carpenters and plumbers and electrician/HVAC, tile work, and stuff like that. Along those areas, we saw that almost a third of our claims were coming from plumbing, and that’s disproportionate versus the percentage of our total book that it is. In other words, we saw more claims coming from plumbers than we did coming from other artisan trades. Any idea why that would be? Plumbers are susceptible to awkward work spaces, so there’s a lot of strain injuries that occur. In fact, 31% of our plumbing injuries did involve strains. There’s also more height involvement in plumbing than a lot of people think. I tend to think of the old plumber reaching underneath the sink, and that whole scenario, but there’s a lot of times when they’re involved in some heights, too. Twenty percent of our claims in plumbing came from falls, which was a little surprising to me. What were the prevalent injuries that artisan contractors are suffering from? Mostly, we saw a lot of multiple body parts as you might imagine, a ton of low back and a ton of knee. There’s also a fair amount involving fingers and the different appendages. Certainly those fingers and wrists and hands are going to be involved in cut claims. There’s a lot of blade activity and sharp tools and things that are going to put those at risk as well. Can you discuss frequency and severity trends? Those tend to, interestingly, run down some age lines, so that the younger employees— they tend to have a higher frequency of claims. Older employees tend to have a much lower frequency of claims, but then when you look at the severity side, when those older workers do suffer an injury, they tend to be much more severe. Workers’ Compensation Supplement 9 COPYRIGHT © 2022 A.M. BEST COMPANY, INC. AND/OR ITS AFFILIATES. ALL RIGHTS RESERVED. The older employees know what to do to avoid a claim, but when they do get injured, it tends to be more difficult for them to bounce back. What should workers’ comp writers be taking away from your report? A couple of things that we saw [involved] looking at some of the seasonal trends. Most of our claims occurred in the summer; August had 11 of our total claims, for example. If you look at why that is, you might look at a state like Arizona, where you’ve got some seasonal workers that are maybe working in the agricultural space, say, in the southern part of Arizona. It’s hotter, and the harvest season is going to be during the winter, while in the summer, maybe they pick up some work in the contracting space. Therefore, you would then look at that and say, “Oh, well then it’s going to fly right in the face of what I told you before about younger employees and their length of tenure,” because these are people that are working, basically, seasonally for you. I think it’s important for anybody who’s looking at this space to pay attention to the trends. By John Weber App Helps Insurers Improve Patient Outcomes After Comp Claims Are Filed The PeerWell app combines clinical expertise with technology to help manage workers’ comp claims, providers say. Insurers seek to improve patient outcomes when in- jured workers file compensation claims. CorVel Corp., a national provider of risk management solutions for payers and employers in the workers’ compensation, auto, health and disability management industries, and PeerWell, a digital recovery platform that treats the root cause of pain and immobility, have partnered to launch an app to help case managers work with insurers as they support injured workers facing an upcoming surgery or experiencing back pain. The PeerWell app combines clinical expertise with technology to help manage workers’ comp claims for musculoskeletal injuries, said Karen Thomas, CorVel’s director of case management innovation, and Manish Shah, co-founder and CEO of PeerWell. Following is an edited transcript of an interview with Thomas and Shah. What inspired you to launch the app? Shah: For me, personally, I saw what happened with my dad when he worked as a commercial painter his whole life and had a lot of wear and tear on his body and then, ultimately, ended up having two knee replacements. Manish Shah Co-founder and CEO, PeerWellNext >