In 2020, there will be 10 percent fewer claims than there are today.
In 2023, there will be 20 percent fewer. That’s about 1.2 million fewer claims.
excerpted from NCCI AIS 2017
The workers’ comp industry is shrinking, and while there may be bumps in frequency from time to time, the overall decline is inexorable.
There are immense implications, implications that I’m not sure enough of us are thinking through. For example, fewer claims means the industry needs fewer adjusters, case managers, bill reviewers, UR staff, investigators.
It also means capital investments in technology have to account for the world that will exist when that new tech is up and running. Millions of dollars are at stake here; insurers (primarily) that chronically underinvest in IT have to evaluate whether there will be enough claims and premium to support their required internal rate of return.
HR staff are focused on trying to get young people into the business…how many new workers will a) want to work in a disappearing industry and b) really are needed?
A couple other things to consider:
- regulators – if the business is shrinking, will regulatory staff and their work product decline?
- provider interest in workers’ comp will likely drop, especially because Medicare and Medicaid are likely to grow in importance
I’d be remiss if I didn’t note that automation and artificial intelligence may actually accelerate the drop in frequency as large chunks of the blue-, pink-, and white-collar job market disappear when functions are handled by machines.
This isn’t a bad thing. Fewer injuries and illnesses means fewer hurt people.
But it also means an industry that relies on addressing injuries is being forced to adapt.
What does this mean for you?
This is going to be painful indeed, especially for those people and companies that don’t think this through carefully and intelligently.
Joe – I know we have had this discussion before and I would be remiss if I didn’t remind everyone that Frequency is a Rate (as noted in the NCCI data it is a rate per $1.0M of pure premium). This does not mean that claim volume is declining as rapidly as you are indicating in the article. The are a number of factors that need to be considered when looking at this data:
1. Claim Data – NCCI only includes insured data from NCCI carriers in the states they provide rate making services in (no CA for example). It also does not include self insureds, SIG’s and captives (really any alternative financing arrangements).The trend for many years, similar to the years above, has been to use alternative financing approaches to fiancé WC risk.
2. Pure Premium – it only includes the insured portion of the premium that relates to paying claims. So it would not include the Large Deductible policies in whole which has a significant portion of the losses covered within the deductible.
3. Insurance and Premium Fraud – unfortunately, as insurance expense started to raise, a number of unscrupulous characters started to play games with their WC insurance. Either by not buying insurance at all or under reporting their exposure. I think you even did a blog on the raise of Fraud in WC. There are also a number of agents and insurance companies that have been caught playing with the numbers. I believe that this type of fraud is much more sophisticated and prevalent today that it was 10 years ago. All of those claims would not be included in the numbers.
I think you get the picture. It is not as easy to say claim volume is declining as you have noted above. I would be cautious with those comments based on the data you are using to support your thesis.
Unfortunately, it is very difficult to get actual claim counts because everyone reports the rate or change in rate rather than volume. The only place that I was able to actually see a claim volume number is in a report from the CA Dept. of Labor (CHSWC 2016). For the last year reported, they actually had a claim volume increase in LT claims, even though their rate was declining. As stated above, CA is not part of NCCI so it has no impact on their numbers. I would be the first to admit, it was not a large increase but, it was an increase so, it is counter to your piece above that it is rapidly declining.
I an not saying that claim volume is growing at a tremendous rate but, I would suggest that the data you are using to make your hypothesis is flawed. I would suggest that it may in fact be flat over time or not rising at the same rate as the exposure base.
As to the second part of your discussion about the economy changing, I would agree with you there. I like you suspect that those economic changes and trends will have an impact down the road. It remains to be seen on how those changes will impact WC claim volume based on legislative and legal reactions to things in various states (see the stories on Uber and FEX EX Express as they relate to status of employment and requirements for WC insurance).
My point in all of this is that you should pump the breaks on the “claim volume is falling” based on the NCCI rate data. There is a lot more to it than just that. .
Ken – good to hear from you.
I’d suggest that the data I cited is, in fact appropriate and reliable.
1. OSHA reportables are remarkably consistent with NCCI data, showing declines in occupational injuries and illnesses. These are required in all states for all employers. In fact, the total decline in OSHA reportables is over 40% from 2003 to 2016. https://www.bls.gov/news.release/archives/osh_11092017.pdf
2. Moreover, the key is that NCCI’s frequency is a long term trend. Unless the employers whose data is used by NCCI have fundamentally opposite trends than “non NCCI” employers, then we are seeing a long term, structural decline.
3. I don’t see how the form of insurance, existence of a captive, or other financial mechanism affects the frequency rate – unless the underlying employer risk is fundamentally opposite to NCCI’s data; I have seen nothing to support that possibility.
4. California frequency rates have been declining for decades – http://www.wcirb.com/sites/default/files/documents/wcirb_state_of_the_wc_system_report_2016.pdf The uptick you cite was due solely to aberrant claiming behavior in the LA Basin – as reported in the above cited report (note CWCI has analyzed this and it appears much is due to a big increase in cumulative trauma claims in LA. Here’s the quote
“In the last several years following the post-recession frequency ‘bump’ in 2010, indemnity
claim frequency in the Los Angeles Basin area has continued to climb, while indemnity claim
frequency in other regions of California and in most other states returned to the long-term
pattern of steady modest year-to-year decline.”
5. Fraud works both ways – see 4. above. I haven’t seen credible data that there is more or less claiming fraud today than there were in past years.
6. With all evidence showing frequency is continuing to trend lower, the ONLY way claim volume could be higher is if employment goes up. As we are near “full” employment today, that seems highly unlikely at best.
While I appreciate there are different perspectives, methinks you’re a bit out on a limb here.
Joe –
I am not arguing the point on frequency, I agree with you – Frequency is down and has been trending down for years. My point was that you can not convert that into a decline in Claim Volume.
From your points above:
1. OSHA – this direct quote from the report you cited is my exact point “There were 892,270 occupational injuries and illnesses in 2016 that resulted in days away from work in private industry, essentially unchanged from the number reported for 2015” The volume of incidents is essentially unchanged, in other words flat. Yes, the frequency declined due to the math. However, the volume is unchanged
2. NCCI – yes, the people who go to alternative financing are different which is why they choose alternative financing. They feel that insurance rate calculations bias them based on how their experience mod is calculated – which is based on number of claims. They feel they are better off using alternatives because alternatives work more directly with loss expense. So, the people left in NCCI calculations do have lower frequency.
3. Form of Insurance – to the point above they are different and that is why they are using alternative financing. It does have an impact on the numbers individually and collectively.
4. CA Report – your back to your frequency argument which I agree with. But the report shows that Claim Volume has stayed the same or risen slightly over the last few years.
Again, my point remains the same. Claim Volume and Frequency are two different things and a decline in Frequency can not be directly tied to a decline in Claim Volume as you have commented. You need to look at Claim Volume and the Exposure Base used in the calculation to understand the dynamic between the two.
My limb is solid.
Ken – I don’t understand why you are disconnecting frequency and volume, nor do I understand why you are ignoring OSHA reportable trends over the last few decades.
Frequency and volume are directly related – if frequency goes down, claims will too – unless employment increases. Employment is at a peak, so that’s not going to happen.
You selectively cite OSHA 2015 data when the real trend in the number of reportables is down dramatically over the last 40 years. This is a structural trend; citing a blip from one year or another does not refute the overall trend. As I noted, “In fact, the total decline in OSHA reportables is over 40% from 2003 to 2016.” THAT IS PRIMA FACIE PROOF THAT CLAIMS VOLUMES ARE TRENDING DOWN.
You also ignore the WCIRB data showing claims volumes down last year except in the LA basin, which as I noted is likely due to aberrant provider/attorney behavior and therefore distorts the real trend. Claim volumes per 1000 employees are down from 49.6 in 2003 to 16.1 in 2015. Unless employment today is more than 3 times higher than it was in 2003, claim numbers are lower.
I have looked – very closely – at claim volume using OSHA reportables, NCCI data, and individual payer data. The consensus is clear – claims volumes are down appreciably.
Joe –
To your point, lets go to the OSHA reportable data which you state I selectively cite for 2016.
What does the 2015 report say:“In 2015, there were 1,153,490 days-away-from-work cases in private industry, state government, and local government—essentially unchanged from the number of cases reported in 2014”
What does the 2014 report say:“In 2014, there were 1,157,410 days-away-from work cases in private industry, state government, and local government—essentially unchanged from the number of cases reported in 2013.”
What does the 2013 report say::“In 2013, there were 1,162,210 days-away-from work cases in private industry, state government, and local government, essentially the same number of reported injuries and illnesses as in 2012.”
I am not selectively citing anything. For the last 5 years the OSHA reportable data is “essentially unchanged”. Those are OSHA words directly from their reports not mine. If you go back to the beginning of the discussion, I never said that claim volume was not down from 40 years ago, I have been stating my case that Claim Volume over the last 5 years has been flat but, the rates are going down because the exposure base has been increasing. The data as noted above is PRIMA FACIA PROOF that volume has been unchanged over the last 5 years.
As for CA; here is the quote from the 2016 report which is the latest available
“As shown in Figure 72, the number of recordable cases for occupational injury and illness, lost-work-time, and days-away-from-work declined from 2005 to 2011, and then increased overall by 7 percent, 12 percent, and 7 percent respectively from 2011 to 2015.”
Again this has nothing to do with Rate which you cite above, just volume. The report says over the last 5 years claim volume is flat or even up slightly. Again, those are not my words, it is theirs. I hear what you are saying about volume in CA being driven by the LA Basin but, when hasn’t the CA claim volume been driven by the unusual claim propensity in the LA Basin? Do you expect that to change?
Again, my point is that claim volume is flat for the last 5 years and rate is dropping due to a change in exposure over that period – not a drop in claim volume. I think the above data does make that case pretty clearly.
I think we are going to have to agree to disagree on this one.
Merry Christmas. .
Ken – good discussion here and well worth having.
1. You cite OSHA data on “lost time” reportables but total reportables for the CA data which is a different metric. Methinks it is best to use a consistent metric – total reportables.
2. I have consistently been referring to long term structural declines; I see you’re focused on the last five years. As we are now at full employment, which most economists believe, the rate and the number of incidents will closely mirror each other. That is the key; employment steadily increased over the last 5 years and without an unprecedented change in employment rates, we won’t see much of an increase in employment, thus “exposure”.
3. A deep dive into CA data does show the LA basin rate has changed appreciably over the last few years, due, as I noted, to much higher cumulative trauma claim numbers. And yes, I do expect this to decline significantly.
So, we will indeed have to agree to disagree.
I am going to agree with Ken, the sky may be falling (employers are finding ways to avoid the WC insurance market place) and while the data is of interest, the trend shown by the graft appears to be more or less stable.
How does the size of the work force, type of work, and hours worked effect premium volume.
How do workers respond to a work place injury when jobs are hard to find. While the U.S. Department of labor reports low un-employment I have seen reports that the U.S. labor force participation rate has been at a 30 years for many years.
One should be very cautious when interpreting what statistical data is telling us. What is the anchoring bias associated with this data. Is it true?
Hi Gary – welcome to MCM.
You can look at OSHA reportable trends over the last two decades and see the decrease in occupational injuries. While there are changes in specific years up or down, those bumps don’t affect the overall downward slope.