(CompNewsNetwork) - Many factors indicate the US is either in a recession or about to be.
If that comes about, what does that mean for workers' comp?
Broadly speaking, there are no studies that indicate WC costs decline as a result of
recessions; in general costs tend to increase. An analysis of Minnesota data published in 2002
indicated that costs rise during recessions for two reasons - claims rates (by far the most
important factor) increase as does disability duration.
Frequency Common knowledge holds that claims frequency increases as
workers fearing layoffs 'incur' injuries that keep them out of work, and receiving
But 'common knowledge' is not entirely supported by solid research - while injury
rates rose during the 'recession' in the early nineties, they usually decline.
In addition to the Minnesota study, there is also anecdotal evidence
that specific layoffs are preceded by 'flurries' of claims (free reg req). I
experienced this first hand while working on a project at a McDonnell-Douglas airplane
manufacturing plant in Fort Worth Texas. The Air Force had decided to stop buying the
plant's product, the F-16 fighter, and the injury rate among the workers (typically male,
mid-forties, high school educated making very high wages compared to the region)
Anecdotes do not a trend make, and while workers fearing for their jobs may try to go
out on WC, others may well do whatever they can to stay in the good graces of their
employers. It may well be that injury rates continue their decline during this recession,
both for factors unrelated to the recession, and because the production rate will slow and
the workforce still employed will be more experienced than those laid off.
Indemnity expense Expect indemnity costs to increase at a faster rate than
wages, as recessions are marked by flat or even declining incomes. Research (May 2002 bulletin) conducted by
Minnesota's Department of Labor and Industry showed that "declines in employment appear
to have caused modest, temporary increases in workers compensation payments. The data
suggests a decline in hours worked in an industry will lead to a nearly proportionate
increase in the next month's workers compensation costs in that industry."
The net There are other factors that may well have a larger impact
on WC than the recession - rising drug costs; cost-shifting by providers hammered by
reductions in Medicare and Medicaid reimbursement; higher facility costs; a de-emphasis on
loss prevention; the soft market; and declining investment returns; the 15-year decline in
frequency; WC reforms in NY and TX.
That said, payers would do well to carefully monitor policyholders teetering on the edge
of layoffs, as the evidence suggests claims may spike, and during a recession it is tougher
to place workers.