INFLATION & WORKERS ' COMP
FACTORS INFLUENCING WORKERS ’ COMPENSATION INSURANCE COSTS
Although medical inflation is the main factor impacting the workers ’ compensation insurance segment , there are other elements currently influencing coverage costs . Specifically , the NCCI identified the following trends as key contributors to coverage expenses :
• Labor shifts — Over the past year , many employees have begun leaving their jobs in search of positions that offer greater work-life balance , flexibility and benefits , coining a new employment trend known as the “ Great Reshuffle .” This trend has led to a surge in short-tenured employees and increased labor shifts between industries . According to the NCCI , short-tenured employees have significantly higher injury frequency rates than their longtenured counterparts , contributing to additional workers ’ compensation claims and driving up coverage costs . The proportion of older employees is also on the rise , with those over the age of 55 predicted to account for nearly one-quarter of the workforce by 2024 , according to BLS data . Similar to short-tenured employees , older workers are more prone to occupational injuries . What ’ s worse , such workers ’ injuries are also usually more serious in nature , affecting claim frequency and severity and elevating coverage expenses .
• Wage growth concerns — In efforts to attract and retain employees amid the Great Reshuffle , many businesses have increased their workers ’ pay . Although this trend is happening across industry lines , it has been most prevalent in sectors with a large proportion of lowerwage positions ( e . g ., leisure and hospitality ), according to the NCCI . Because payroll is leveraged as an exposure base to calculate workers ’ compensation premiums , wage inflation could prompt increased rates . After all , higher wages are tied to greater benefits , and it ’ s crucial for benefits and premiums to remain in balance to ensure workers are adequately reimbursed for lost income following occupational illnesses or injuries . The NCCI also reported that the surge in employees receiving raises and moving from lower-wage positions to higher-paying roles could increase the risk of payroll miscalculations and create short-term disconnects between wages , benefits and workers ’ compensation premiums . Most states have an index for wage inflation to make sure premiums and benefits keep up with each other , but it ’ s still possible for errors to occur .
• Health care technology advancements — As previously mentioned , the full impacts of rising medical inflation issues within the workers ’ compensation insurance segment are still on the horizon , with elevated claim and coverage costs predicted in the year ahead . Compounding concerns , various advancements in health care technology have led to growing treatment costs . These increased costs have the potential to further exacerbate overall claim severity .
• Rate adequacy challenges — The initial onset of the COVID-19 pandemic and subsequent shift in the proportion of remote employees resulted in major fluctuations in the number of workers ’ compensation claims and their associated costs . While these fluctuations have led to reduced claim frequency and severity in recent years , insurance experts are unsure how long such trends will last — making it more difficult to accurately determine businesses ’ workers ’ compensation exposures and ensure rate adequacy .
STEPS BUSINESSES CAN TAKE
Amid growing inflation concerns in the workers ’ compensation insurance segment , there are measures that businesses can implement to help mitigate their coverage costs . Here are some best practices for businesses to consider :
ENSURE ACCURATE PAYROLL PROJECTIONS .
Having correct wage information is critical for conducting accurate premium calculations . Errors in payroll projections could present serious consequences , such as inadequate rates , insufficient benefits or a lack of ample coverage following costly claims . As wage inflation concerns continue , it may be beneficial to consult a trusted insurance professional for further assistance with payroll projections .
PROMOTE A SAFE WORK ENVIRONMENT
To reduce the risk of potential claims and related workers ’ compensation costs , it ’ s important to utilize effective health and safety initiatives on-site ( e . g ., employee training and personal protective equipment ). Additionally , having a return-to-work program in place can help employees safely and successfully resume their job duties following occupational illnesses or injuries , therefore keeping claim costs at bay and limiting the likelihood of further incidents .
MANAGE CLAIMS EFFECTIVELY
Lastly , it ’ s vital to have clear processes established for handling workers ’ compensation claims as diligently and efficiently as possible . Effective claim management protocols can often help mitigate claim severity and prevent similar losses from occurring in the future .
CONCLUSION
Overall , it ’ s evident that inflation is a rising issue within the workers ’ compensation insurance sector . By gaining a better understanding of inflation trends and implementing measures to mitigate coverage costs , businesses can maintain effective workers ’ compensation programs amid this shifting risk landscape . +
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