Stress Linked to Workers’ Comp Claims
Reducing employee stress levels could help organizations reduce workers’ compensation claims, according to a new study from the Center for Health, Work & Environment at the Colorado School of Public Health.
The study, which analyzed claims occurrence and cost from nearly 17,000 employees at 314 organizations of various sizes across multiple industries, found that stress at work increased the likelihood of workers getting injured, while the source of stress was found to influence claims cost.
“Stress at work is predictive of workplace accidents — if you want to prevent workers’ comp claims, you need to look at causes of stress in the work environment,” said Dr. Natalie Schwatka, lead author of the report, entitled “Health Risk Factors as Predictors of Workers’ Compensation Claim Occurrence and Cost.”
The U.S. Bureau of Labor Statistics data suggests the frequency of occupational injuries and illnesses is gradually declining in line with improving health and safety measures, but the cost per workers’ compensation claim is rising. Overall, workers’ compensation claims cost employers around $250 billion annually.
In 2013, more than three million non-fatal workplace injuries and more than 4,000 fatal injuries occurred. Of the non-fatal injuries, around one-third resulted in lost work time, with an average absence of eight days.
“With the exception of PTSD (post-traumatic stress disorder) among first responders, stress is not covered under a workers’ comp policy, but stress can manifest itself as a physical claim that would fall under workers’ comp,” said Karen Curran, director of worksite wellness for Colorado WC insurer Pinnacol Assurance.
“There are a number of health risk factors that are predictive of frequency and severity of industrial injuries, but when that data is modified to take into account demographics and work environments, stress keeps rising to the top,” she said.
“Businesses these days have robust safety programs but the next step is to introduce worksite wellness programs to tie safety and wellness together.”
According to Schwatka, the majority of claims analyzed in the study concerned injuries such as strains, sprains, lacerations and contusions. While several health risk factors — such as obesity and smoking — were commonly found among claimants, stress was the only factor to display a consistent relationship with claims occurrence and cost when researchers factored in demographics and workplace variables such as employment type, occupation, income and company size.
“The first thing you have to do as an employer is take the taboo out of the workplace. Depression is a clinical diagnosis, not a character flaw.” — Karen Curran, Karen Curran, director of worksite wellness, Pinnacol Assurance
One notable finding was that claims made by workers experiencing stress at home were typically more expensive, while those made by workers perceiving stress over their finances were less costly.
Schwatka said it appears workers who don’t get enough support at home struggle more with recovery than workers who worry about financial risk and thus get back to work as soon as they can.
Holistic Approach to Work Safety
The study called for organizations to implement a “total worker health” approach, including heightened focus on mental well-being, which may reduce both the occurrence and cost of workplace injuries.
“Our findings strengthen the argument that businesses should address stress management as part of their safety programs and also focus on the systemic factors in their business that may cause stress, such as poor leadership, poor social support, lack of control over work demands and lack of work/life balance,” said Schwatka.
“If you are an employer with limited resources, there are simple things that can be done to help employees identify and manage stress,” said Curran.
Measures organizations could take to reduce workplace stress include flexible working hours and the inclusion of dedicated breaks for deep breathing or meditation during the working day to help keep workers minds’ “in the present,” she said.
Schwatka added that companies should also consider incorporating stress management into return-to-work programs.
However, Curran noted, many male-driven industries still struggle to overcome cultural stigma associated with mental health issues.
“Industries with high suicide rates such as construction, and oil and gas are also the ones that have the hardest time wrapping their arms around workplace stress, which is seen as a touchy-feely subject,” she said.
“The first thing you have to do as an employer is take the taboo out of the workplace. Depression is a clinical diagnosis, not a character flaw. Leaders have to acknowledge it is OK to talk about stress.” &
Private Label Coverage
In an increasingly interconnected business environment, it is no wonder many companies are taking a closer look at the changing nature of their liabilities — and seeking tailored coverages to ensure none of their unique exposures slip through the cracks.
Growing demand from clients and brokers in a tough environment is forcing underwriters to innovate in order to win business and squeeze extra margin from their books. The result is a proliferation of specialist professional liability policies that runs the full gamut of industry sectors, from health care to construction.
The move towards specialization has developed to the extent that now it is possible for various stakeholders within the supply chain of the same industry to each enjoy their own tailored coverages. There are no doubt more niche products to come.
“The trend is being driven by both a willingness from underwriters to look for margin where they can, and also demand from insureds,” said James McPartland, class underwriter, professional indemnity, at ArgoGlobal.
“We now live in a much faster-paced world than even 10 to 15 years ago. The way businesses interact and bring products to market is very different now, and companies can significantly change from month to month.”
Uniquely positioned with their fingers on the pulse of their clients’ evolving risk profiles, brokers play a huge role in identifying coverage needs and driving the development of bespoke wordings.
“Agent feedback is crucial; they are the catalysts of change,” said Greg Leffard, president of professional liability at the Hanover Insurance Group.
“As businesses change, exposures change, and so should our coverage.”
He added that brokers see the development of new products as a way to differentiate themselves from their competitors just as carriers do.
“It is easy to compete on price, but agents want more than that. They want private label coverages, available only to them.”
“It starts as one client with a specific need, then before long three have asked the same question in a different way and we know there is a trend and we have to find a solution,” said Elisabeth Case, commercial E&O product leader for Marsh, who added that newcomers to the PL space are often the underwriters willing to concede the most ground in the design of new products.
“We have carriers we know are willing to go the extra mile, both in the U.S. and London. It really does come down to individuals at certain organizations trying to keep their companies at the forefront, or trying to build a book. There are new entrants in the PL and cyber liability space coming into the marketplace all the time, so they often have to offer something unique to get their foot in the door.”
According to Cynthia Evanko Olinger, senior vice president of construction at JLT Specialty USA, modifications to standard PL coverage can often be obtained from underwriters “for little or no premium.”
Whereas a decade ago a $2.5 million PL line for accounts “meant you were a player,” now it is common for insurers to put down $5 million or $10 million. — Brian Braden, vice president, professional risk, Crum & Forster
“We argue, for example, that the technology services are part of the core business that the underwriter is insuring, and our request to affirm coverages for these services should have no premium impact,” she said.
Brian Braden, vice president, professional risk, at mid-market underwriter Crum & Forster, noted, however, that the most flexibility is often likely to be given on larger risks due to the negotiating power of big brokers who control a lot of premium dollars.
“Those changes are usually advantageous to the client and a little adverse to the carrier. Sometimes we follow those changes on an excess basis, but if we’re writing primary we won’t,” he said.
He added that underwriters are offering bigger lines. Whereas a decade ago a $2.5 million PL line for accounts “meant you were a player,” now it is common for insurers to put down $5 million or $10 million, he said.
“Plus there are many more players, which drives the price down.”
Hanover’s miscellaneous PL group writes over 100 different classes of business, each with its own unique exposure.
“This creates challenges to ensure we provide appropriate protection for all the various sectors, as well as competitive coverage in the marketplace at a reasonable price,” said Leffard, while McPartland noted that the cost of doing business is increasing and pricing new bespoke coverages can be “haphazard” due to the lack of historical data.
As McPartland pointed out, not all clients are interested in a new bespoke PL product, as such products are often purchased out of regulatory or contractual obligation.
“When you strip a PL policy back, 99 percent of all claims would be covered under the negligence clause. Add-ons enhance the product to make it more attractive, but the fundamental driver of purchase is price, and people are prepared to move business around a lot quicker nowadays,” he said.
McPartland added that while brokers could until recently rely on existing clients to remain loyal at renewal, clients are now more interested in what the broker can do for them going forward than what they’ve done for them in the past.
“We are having to work harder to retain our business. The book churns quicker and as a result our modeling becomes more volatile and pricing gets more difficult.”
Nevertheless, said Leffard, many professionals are becoming more knowledgeable on the benefits of insurance and the true cost of a claim.
“Mature businesses are willing to pay more for a solid form compared to a basic form that just meets contractual business requirements,” he said.
“Established marketing firms, advertising and public relations agencies, technology firms and home inspectors are also good examples of sophisticated, educated insureds. They are more likely to understand their professional liability exposures and ask for the right coverages.”
The health care sector is ripe for specialist PL covers. According to Faye Chapman, medical malpractice underwriter at ArgoGlobal, quasi-medical practitioners including beauticians and masseurs are seeking PL cover due to the increasingly invasive nature of treatments (such as injectables and laser treatments), which goes beyond the scope of some general liability underwriters’ appetites.
Practitioners offering one-on-one patient treatment may also require abuse of patient cover, she said, though there is some debate within the insurance industry over whether abuse would fall in a liability or medical malpractice policy.
Meanwhile, medical devices including implants present another potential liability exposure as practitioners could find themselves facing a claim if they recommend the use of a substandard or dangerous product.
Chapman noted that insurers are offering extended reporting periods, effectively transforming covers from claims-made to occurrence basis policies, across a number of specialist health sector products.
More broadly, fundamental business themes demand that old coverages be revisited across almost every sector — most notably concerning the proliferation of cyber risk and the evolving use of technology.
“Professionals such as lawyers, accountants and even engineers and architects who are holding personally identifiable information are beginning to realize that negligence could be deemed to be the main trigger for a breach of privacy,” said McPartland, noting that cyber liabilities are increasingly being written into PL, professional indemnity (PI) and errors & omissions (E&O) policies.
Braden said cyber liability risk has “changed the landscape” on a number of products. “Our tech product, for example, used to just be E&O coverage for tech professionals, but over the last four or five years if you don’t offer full first-party coverages including credit monitoring, notification costs, extortion and business interruption, you are dead in the water.”
“It’s an exciting market,” said David Smith, professional indemnity underwriting manager (UK & Ireland) for Lloyd’s underwriter Hiscox, which writes 20 profession-specific PI products.
“In the past it was traditionally professions such as surveyors and architects that bought PI cover, but in recent years we’ve seen the evolution of people being asked to buy PI for their contracts with third parties and interest from a host of new professions — and we see that trend continuing.”
Smith noted that many of Hiscox’s PI products now cover insureds against claims arising from their own websites, such as the unlicensed use of images, in addition to third-party damage.
“Ultimately, what clients will start to want more is an all-in-one E&O and cyber liability policy with potentially some physical loss/damage related to a cyber event if the systems they rely heavily on to deliver their products or services are interconnected to others,” said Case.
Similarly, advances in electronic technology are changing the way many professions operate, and are creating new exposures that need to be written into specialist PL products.
Car parts, for example, increasingly include tech components, which is making auto suppliers seek cover against component malfunctions that could lead to manufacturer recalls, noted Case.
“We are getting lots of requests from various types of manufacturers who have both a manufacturing and design element, who are sometimes confused about what type of cover they should buy.
“People mistakenly think they need an architects and engineers policy if their engineers are designing products, but in fact they need manufacturers’ E&O,” she said.
The tech industry itself is a complex area when it comes to PL. “Tech clients are very specialized and there are sub-sectors of the tech world that need even further differentiating,” said Case, noting that FinTech companies are often unable to find E&O solutions that cover their entire exposures, so Marsh is creating bespoke coverages by aggregating multiple policies in order to obtain adequate coverage.
McPartland predicted the next area for specialist PL cover could be 3D printing.
“This printing will speed up repair processes but it is also an opportunity for people to make mistakes,” he said. “If someone prints the wrong valve for an oil rig, for example, it could result in a significant oil spill. It’s an area to watch over the next 18-24 months.” &
Faced with an aging workforce, operators in the specialty, target/managing general agent (MGA) and wholesaler spheres face an ongoing battle to attract and retain technical underwriting and actuarial talent to meet the demand for niche insurance solutions.
Making matters more pressing is that not just any talent will do.
“Only the best and brightest can tackle complex risks. To have a true specialty focus, you need deep talent and expertise,” said Pat Donnelly, president and deputy CEO of JLT Specialty USA.
“The competition to attract and retain specialist talent is real and a challenge throughout the industry,” said Donnelly, who noted that specialty lines continue to grow as a percentage of all insurance premiums when compared to standard lines.
Earlier this year, a survey by London Market Group (LMG) and Deloitte of the London insurance market — a renowned hub for MGA expertise — identified skill gaps in operations, wordings, underwriting and claims that respondents felt could threaten performance in the long term.
Technology is also contributing to the issue, according to LMG. Indeed, the technical talent pool is being stretched both by competition from outside the insurance sector and the increasing movement of talent within it.
“The days when a majority of workers could expect to spend a career moving up the ladder at one company are over,” LMG and Deloitte stated in the report.
“Young people anticipate working for many employers and demand an enriching experience at every stage of their working life, leading to expectations for rapid career progression, as well as a compelling and flexible workplace.”
Bernie Heinze, executive director of the American Association of Managing General Agents, is seeing the same pattern emerging in the U.S.
“The concept of loyalty to one’s employer has gone out of vogue — if you want loyalty, you’re better off getting a dog,” he said.
“We live in an ADHD world. The current mind-set is to maximize one’s talents to the greatest of one’s capabilities. If talent see an opportunity to do so they take advantage, and are more likely to move project to project, or title to title, than to stay in one place.”
Consolidation, as well as fundamental changes in strategy — with many underwriting and brokerage firms choosing to leverage scale and efficiency over expertise and specialization — have also increased movement between companies.
“These strategies and initiatives might be advisable, even necessary, in certain circumstances. But they have without question had an impact on talent dislocation in recent years,” Donnelly said.
MGAs and wholesalers face competition for talent not just from competing outfits and new entrants in the specialty space, but also the standard insurance markets, which are increasingly seeking to establish specialty arms to boost their ailing profit margins and increase product diversity.
“[Standard markets] that recognize that clients don’t think in terms of insurance products, but rather in terms of risk and loss scenarios — and adapt their approach and offerings accordingly — will be more relevant to clients. This, in turn, will make them more attractive to good talent,” he said.
“We’re beginning to see fierce competition for actuaries, data science roles, [and] information technology in addition to competition for specialty underwriting, claims and brokerage talent.”
“Only the best and brightest can tackle complex risks. To have a true specialty focus, you need deep talent and expertise.” — Pat Donnelly, president and deputy CEO, JLT Specialty USA
However, with many mainstream insurers cutting staff following expense reviews, it’s not all one-way traffic, noted Peter Staddon, managing director of the UK’s Managing General Agents Association.
“The nature of many MGA businesses is to develop a more efficient and cost-effective way of providing niche insurance products compared to mainstream insurers. This can be very attractive to underwriters looking to take more control of their business.”
According to Staddon, the cost of technical talent will likely rise, though he believes this will correct itself over time as sectors such as cyber and emerging technology expand, increasing supply.
Yet with retaining talent “vital” to success, “providing equity, additional employee benefits, skills development opportunities and support with professional education all have a role to play” in helping firms keep hold of valued technical staff, he said.
“Ensuring employees are appropriately recognized for what they bring to the party, and that they are able to engage within the management process or growth of that business, is important in the MGA business,” Staddon said.
Donnelly added that creating a desirable workplace “culture,” offering staff performance rewards, career path clarity and flexible working arrangements can all help firms retain valued talent.
Tackling Dynamic Risks
Heinze believes that the insurance industry has historically done a poor job of selling itself as a career path, but that the specialty space has a unique opportunity to appeal to new talent by offering the opportunity to “fashion interesting, dynamic, bespoke insurance products,” compared to the relatively vanilla standard markets.
“This may be difficult to hear, but the insurance industry is tremendously exciting,” he said.
“When we talk to students, we say the E&S of excess and surplus also stands for ‘exciting and sexy’.”
The opportunity to tackle risks, from cyber fraud to power grid outages due to emissions of gamma rays from the sun, is what gets young professionals excited, Heinze said.
“They can have a hand in creating insurance solutions that will fundamentally transform the way in which the old, antiquated insurance model has existed. The promises of the insurance and technological abilities of the future are untold.”
With millennials set to account for around three-quarters of the workforce by 2025, Staddon is optimistic that there is a strong pipeline of technologically savvy talent waiting.
“We are seeing many young people come into the insurance industry from an array of educational and social backgrounds,” he said.
The U.S. has seen an uptick in educational programs in a bid to tackle the talent shortage. The AAMGA has, for example, developed a 40-hour program that allows risk management undergraduates to add an underwriting certificate to their degrees, equipping them with basic underwriting knowledge and reducing the learning curve upon entering the workplace.
But if it is to truly solve the problem, the insurance sector must look beyond its borders. According to Donnelly, JLT has employed 200 people in the last two years from 30 firms, half of which are outside the insurance industry.
“The good news is that we work in a vibrant, challenging, complex industry that is attractive to a large pool of potential employees. The bad news is that competition for that talent will only intensify — both within and outside the industry.” &