Workers’ Comp Forecast for 2014
1. Predictive Analytics.
Using predictive analytics effectively is the holy grail for any large company.
If you are a staffing company, oil field service operation, or retailer working on tight margins, getting this right can mean the difference between a profitable year or needing to increase liability accruals to account for ever-increasing long tail development.
There is a need to not only develop models for making predictions but to be able to provide actionable information that can be used to quantify the cost/benefit of taking very specific actions. If this could be accomplished, insurers and large self-insured companies could efficiently allocate resources to the areas likely to provide the most meaningful benefit.
2. TRIA is Non-Renewed.
The Terrorism Risk Insurance Act (TRIA) or Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) is scheduled to expire on Dec. 31. Even now, as we are without a decision, insurers are being exposed to unlimited terrorism-related workers’ compensation liability (based on an annual policy period).
TRIA has been in place since 2002, when Congress acted to ensure that there was a market-based solution for insurance losses arising out of terrorist acts. It is generally agreed that the sponsors of that Act suggested that it could one day be phased out, and throughout its life, the protection has been diminished. However, what remains are clear limits that comfort investors and others in the financial community.
While the Act remains unrenewed, it is the witching hour for insurers. Consequently, insurers are in the process of preparing their position with respect to the issue.
3. Loss Costs in California Deteriorate.
When California Gov. Edmund “Jerry” Brown signed the workers’ compensation reform legislation into law Sept. 18, he said that it would reverse a four-year trend of rate increases. According to the data made available to us, the insurance market clearly disagrees.
As a matter of fact, California is the state producing the highest rate increases. Possibly, the reform medicine is slow acting and good news for employers in California is on its way.
The problem in California is not a new one. At one point, the state insurance fund was writing more than 50 percent of the workers’ compensation market. That
is the fund that was created to be the market of last resort as it is a government enterprise.
What is clear is it is becoming more common for insurers to place limitations on the amount of California workers’ compensation they will write. The concern is that in the current environment it is simply impossible to be profitable. It is a subtle movement to avoid a head-on clash with regulators.
4. IRS Focuses on Insurers and Captives.
The uniqueness and secret to success for the insurance industry is its favorable tax treatment. Money comes in, expected future losses are deducted and cash is available for investment and growth. The big difference is that expenses do not need to be paid but only accrued to reduce taxable income. That leaves more cash for investment.
There has been discussion about scrutiny of taxation for insurance companies and captives, the alternative risk tool of choice. Captives are on the short list for IRS auditors and if captives are not properly structured, there is more risk that those captives will now be challenged.
5. Trial Attorneys to Target Non-Subscription.
Approximately one-third of the employers in Texas are non-subscribers. Why? Because it makes sense. It saves on frictional costs, quickly provides benefits to employees who are injured and eliminates much of the soft fraud. It has been so successful that Oklahoma enacted its own reform effort, and Tennessee is considering legislative initiatives to enhance opportunities for non-subscription.
Even without a survey, we can safely assume that the majority of plaintiff’s attorneys are not big fans of non-subscription. Benefits for non-subscription are paid out via the Employee Retirement Income Security Act. There is no need for a legal process. There is no waiting period. There are clear definitions that are subject to arbitration.
In contrast, workers’ compensation commonly requires a legal process. Should an attorney become involved in a case where there is an injury within the course of employment, the attorney’s share, although not as large as in a tort case, is for all intents and purposes no-fault. For legal firms, workers’ compensation is high volume, low risk and considerable reward.
Consequently, we would think that should non-subscription become popular in Oklahoma and be signed into law in Tennessee that it may become a target of the bar.
6. Medicare Set Asides Become Increasingly Difficult.
MSAs, as they are called, are a complicated thing. In general, money is set aside to pay benefits for costs that otherwise would be funded by Medicare. It applies only to certain classes of individuals. With an aging workforce, it has become a big and expensive issue for insurance companies.
The problem is that claims can’t be settled quickly and efficiently as government sign-off is required. The impact has been a substantial increase in large claims severity. Further, it has helped to create longer tail development. What this means is that all companies will end up with longer periods of loss development in the form of greater IBNR (Incurred but not reported losses). It translates into more collateral, higher costs and higher liability accruals.
7. Bond Yields Plummet.
Nothing has had a greater impact on the insurance market than the change in bond yields post-2008. It required underwriters to make a profit underwriting. That changed the dynamics of the marketplace and the way the big insurers look at their business.
While it is hard to imagine, it is possible that rates of return on bonds could get much lower. Should there be a European meltdown, recession in Asia or the refusal of China and others to continue to fund our deficits, rates will fall. Should this happen there will be no escaping the need for rate adjustments across all lines of insurance as the dynamics of the current market will be left smoldering once again.
What Is ‘Off Work’?
Last week, I sat through a lovely presentation on FMLA processing. At one point, it was from the occupational health clinic perspective, which stated that stay at work and return to work are the first priority.
I was thinking, “Great, we’re all on the same page!” Then I realized that it was the same clinic we use. From experience, I know that’s not their past practice.
My first thought was “Why does an occupational health clinic even have a box that says ‘off work’ on the return to work slip?”
I’m a firm believer in the premise that we all have a part to play in the average workers’ compensation claim. The employee reports the injury and makes every effort toward recovery.
The employer files the claim and manages the employment relationship. The adjuster decides if the injury or accident is compensable under that specific jurisdiction with the facts as reported. Lastly, the clinic and doctors provide evaluation and treatment to get the employee to maximum medical improvement (MMI).
The hope is always that MMI is their pre-injury status, in all ways —medically, financially and emotionally the same as before the incident. This becomes difficult in the face of an ‘off work’ slip, which happens more often than it should.
This got me thinking about the nature of ‘work’ and how it impacts the employee’s ability to return to full function. The employees I’ve worked with have very specific tasks associated with their work, usually outlined by detailed work instructions. (Thank you, Quality!)
So when we get an ‘off work’ we are both surprised and dismayed. The employee now has a more difficult return to work process due to the financial burden of not being paid for the waiting period, a reduced salary and perhaps some discouragement about continuing to work for the employer. Making matters worse, the ‘off work’ slip gives no direction for what the employee should be doing to recover.
My first thought was “Why does an occupational health clinic even have a box that says ‘off work’ on the return to work slip?”
The employee goes home to heal or get treatment or use narcotics (that always keeps them off work).
What do employees do while ‘off work’? I have seen some video of employees that are not ‘working’ and they seem to perform all normal life activities. As a vocational counselor, I know that most tasks we do in everyday life are also things that other people do as an occupation.
For example, cook, fast food (DOT 313.374-010), chauffer, domestic service (DOT 359.673.010), maid (DOT 323.687-014) or laundry, domestic (DOT 302.685-010). By the way, I have just described my holiday weekend for you. I was not working but I did every one of those jobs in rotation.
It seems the only difference between work and activities of daily life is the pay. I conclude that ‘off work’ means ‘cannot do anything for pay.’
That limitation does not promote stay at work/return to work for anyone. If we can just convince doctors that ‘off work’ is a limitation that neither promotes recovery nor describes what the employee does while not working, we will all be better off.
RIMS Recap: Tech Trends that Could Change Everything
Last month, Gordon Clemons, CEO and Chairman of CorVel Corporation, presented at the RIMS Conference in New Orleans, La. about emerging technology and how it is impacting risk management and workers’ compensation. The discussion served as a springboard for new insights on how technology will change the industry, and reaffirmed the need for integrated systems and human interaction for the best results.
The presentation noted the future is here – and technology is constantly evolving in hopes of outpacing tomorrow’s needs. As these technology platforms become more inherent in daily life, the gap in translating their utilization to workers’ compensation will begin to close.
Technology in Healthcare
While many consumer-based technology advancements exist in other industries, perhaps most notably in the retail space helping vendors to reduce various delays in the sales experience, people may forget that healthcare, too, is a consumer industry. And as such, healthcare also experiences workflow lags, which can be collapsed.
While patients and claims may not lend themselves as freely to mobile applications and technology that subscribes to the “Internet of Things” philosophy, the rapid rate of development foretells the not-too-far-off arrival of the “a-ha,” “wow factor”-type application that consumers are seeking in the healthcare industry.
Once we get there, we can only expect that the Pangea of resources will yield better outcomes. The potential impact to medical management includes more affordable/accessible healthcare, patient convenience, personal assistance, automatic inputs to claims systems and less administration from both patients and injured workers.
“Healthcare is stubborn about change. There are more data points in healthcare and there is a greater need for high quality and accuracy,” Clemons said.
Tech Trends for the Next Digital Decade
As an industry advocate in all things innovation, CorVel has been keeping tabs on emerging tech trends. As they begin to influence in other industries, it sparks the question – will they eventually change workers’ compensation?
Here are some of the trends on CorVel’s radar:
Smart phones and tablets were the first mobile devices to really start to gain traction across people’s personal lives. Since then, wearables (like Fitbits and smart watches) have been part of the next digital generation to be taken up by consumers.
As these personal devices quickly advance, wearables could offer payors and employers added insight into the wellness of claimants through the extent of their retrievable data.
Beacons are devices that use low-energy Bluetooth connections to communicate messages or triggers directly to a smart device (such as a phone or tablet). Retailers have started using this technology, sending offers to near-by consumers’ phones. Now the concepts of smart mirrors and smart walls offer a one-stop-shop with recommendations related to the preferences of the shopper – making a hyper-efficient business model. It is possible that we could see these devices adapted to being a catalyst for healthcare’s business model by reducing the delays of administrative work.
Formally known as unmanned aerial vehicles (UAV), drones can be remote-controlled or flown autonomously through pre-defined flight plans within their internal systems. Some carriers are testing the use of drones to potentially be used to evaluate property damage and responding to natural disasters.
As most injuries reported in workers’ compensation are musculoskeletal injuries, the industry lends itself well to the benefits of telecommunications and telemedicine. With the rise of electronic capabilities, telemedicine becomes another option to help guide an injured worker through their entire episode of care, reducing time delays.
In order to get to that point in time, implementing these trends (and those that are yet to be launched) will only be as successful as the population willing to accept them. Buy-in will require a commitment to the long-standing pillars of the industry. According to Clemons, “While technology can truly move the needle in workers’ compensation, it will take more than bells and whistles to maximize its impact.”
“People’s feelings are valid. The skepticism surrounding new technology is not misplaced, but neither is the enthusiasm,” Clemons said.
New Trends, Same Priorities
Beyond the buzzwords and hype surrounding the latest apps and devices, for new technology to succeed within the workers’ compensation realm, it boils down to the two primary concepts that drive the industry to begin with – effective infrastructure and a people-first philosophy.
The power of applicable resources and the actionable data that results from them is in the foundation of the systems themselves; that primarily being through the influence of integration. It is not a new concept; however, as technology advances and the reach of analytic capabilities broadens, it is important to find a provider that can harness this data and channel it into effective workflows to increase efficiencies and promote better outcomes.
CorVel’s proprietary claims management system has been developed and supported by an in-house, full-time information systems division to be intuitive and user-friendly. Complex, proprietary algorithms link codified data across the system, facilitating collaboration between services, workflows, customers, and technology and eliminating the risk that a crucial piece of information will be missed. The result is an active “ecosystem” providing customers with actionable data to provide the most accurate, comprehensive picture at any time, while also collapsing inherent delays.
For the injured worker, the critical human touch connection in the workers’ compensation process can never be minimized. By cutting lag time throughout the various inefficiencies underlying the industry’s workflows, CorVel can connect injured workers with quality care sooner. As systems advance, claims and managed care associates do not have to spend as much time on administrative work and will instead be able to devote more time to the injured workers, reviving the human touch aspect that is just as impactful within the industry.
Regardless of the technology that lies ahead, CorVel looks to the future with investments in innovation, while not losing sight of their role and responsibility to clients and patients. Dedicated to constant improvement for the services they provide injured workers and industry payors, CorVel is committed to improving industry services one app, click, drone (or whatever is yet to come) at a time – perhaps something to discuss in San Diego at next year’s RIMS conference.
For more information, visit corvel.com.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with CorVel Corporation. The editorial staff of Risk & Insurance had no role in its preparation.