COVID-19 & the Potential Impacts on the Insurance Market

by Rachael Rodakowski, Assurance

For the last year, most of the talk around the insurance marketplace has centered around the rapidly hardening liability and property markets. That conversation has now rapidly evolved into “what happens to the market when factoring in the possible effects of COVID-19 claims?” And “will COVID-19 claims made against workers compensation be covered?” Or “will that push the now stable workers’ compensation market into a hard market?”

It is too soon to predict anything with certainty, but here are a few considerations regarding the possible impending impact the COVID-19 pandemic may have on the insurance market:

  • Certain industries will see a higher frequency of claims, specifically essential businesses. This is not limited to allegations for COVID-19 work comp claims, but all work comp injury claims as well as third party liability claims. If certain industries are not operating (while essential businesses are), their loss frequency is naturally going to be higher. Essential businesses may also become targets for liability lawsuits (food contamination, improper cleaning, medical malpractice, etc.). It’s imperative to stay up to date on CDC, OSHA, and EEOC guidelines to protect your company from third party claims.
  • Existing and new claims that occur during the pandemic (work comp & liability) will likely incur a greater cost than they previously would have been expected to. With lockdown measures in place, the adjustment of current claims has come to a standstill in some cases. Litigation/mediation is not moving forward, non-emergency medical procedures are being delayed, IME’s are being placed on hold, etc. so claim costs are expected to increase. The longer claims remain open, the higher the ultimate costs are going to be.
  • As the economy takes a hit, so do insurance carriers’ investment portfolios. As they become less profitable from investments and underwriting alike, this will contribute to decreased capacity and increased premiums.

Specific to Workers’ Compensation:

  • COVID-19 related illnesses may or may not be deemed an occupational disease. Causation is contingent upon a medical diagnosis for COVID-19 (not simply symptoms), having exposure to the virus at work, having a greater exposure than the general public and proving that the employee could have only contracted the virus while working.
  • In some respects, if deemed compensable, COVID-19 losses may be less costly than other work-related accidents. Generally, these losses are not expected to result in permanency ratings, except in severe cases and there’s expected to be less need for ongoing treatment (PT, surgeries, surveillance, etc.) in comparison to lingering back injuries or other soft tissue claims; even so, the frequency of claims could be significant.
  • There is expected to be an increase in fraudulent claims as unemployment continues to rise.
  • As businesses remain closed, there is a lack of availability of light duty positions which will increase indemnity costs on claims.
  • As claim costs increase, due to the factors previously noted, the industry will experience greater loss development. Increased loss expenses do not only impact your loss results in the individual year but may impact your carrier’s underwriting analysis at renewal. It is likely loss development factors will increase for the 2020 policy year and beyond, especially in those states with the greatest COVID-19 infection rates. Several of the states that already carry the greatest Loss Development Factors (LDFs), currently have the highest infection rates – New York and California.

The impact and severity of the pandemic on future insurance rates will depend on a number of factors including the duration of the pandemic, thus restricted access to medical services and shuttered court houses, the unemployment rate as it affects fraudulent claim filings, compensability determinations, the courts’ interpretation of virus exclusions on liability and property policies, among others.

The impact on your company will depend on a variety of factors including industry, state mix, loss history, compliance, etc. There are actions that you can take to protect yourself, so be sure to get in touch with your broker to learn more.

Rachael Rodakowski is an Account Executive at Assurance who focuses on the staffing industry. Her main responsibility is to be a client’s resource and trusted partner. She accomplishes this by staying up-to-date on industry trends and providing cost-effective coverage recommendations. With over 10 years of experience, Rachael educates clients on everything from workers’ compensation class codes to loss trends. Rachael graduated with a Bachelor of Interdisciplinary Studies degree from Arizona State University. She currently holds her Chartered Property Casualty Underwriter (CPCU), Associate in Claims (AIC), Associate in Commercial Underwriting (AU) and Associate in General Insurance (AINS) designations.

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