Economic Stress Tests Workers Comp Plans

With prevailing economic pressures widely expected to persist, more and more businesses will consider different ways to adapt, including the possibility of smaller, less skilled, and/or over-burdened workforces.

These additional stresses could increase the risks of on-the-job injuries and, in some cases, jeopardize the ongoing well-being of the business. The good news for business owners is that those companies willing to proactively refine and manage their workers compensation program can take steps to mitigate losses, thus keeping their workers safe and protecting their business interests.

Economic Uncertainty

The impact of high rates of unemployment on the health of a workers compensation policy is well documented. Regular references to the Great Recession are commonplace in today’s discussions, and it was not that long ago that families looked to unemployment insurance as a lifeboat. Economic turmoil resulted as the number of unemployed Americans doubled from 7.6 million in December 2007 to over 15 million in September 2009.

In April 2020, just months into the COVID-19 pandemic, unemployment numbers went from 15.9 million to 23.1 million, and every state reached unemployment rates greater than their highest unemployment rates realized during the Great Recession. Today, businesses are more prepared, smarter, more innovative, and less afraid of change management. They have learned the art of pivoting, have improved process management, and have made the needs of their employees much more of a focus.

Potential Workforce Impact

While the hope is that the economy will improve in 2021 and after, there is little doubt there will be turmoil that comes from the changing depths of uncertainty and speculation. For example, businesses have reduced employment to some degree across all industries, and there is real exposure in worker turnover. Companies may be using inexperienced or unaccustomed workers to perform tasks, which can result in workers compensation claims.

The decline in employment by industry has shifted away from construction and manufacturing, while the retail, hospitality, restaurant and education industries are seeing significant unemployment variance from where they were prior to the pandemic. The latter industries may be more likely to use temporary or short-term workers as the startup continues or look to potentially hire and retrain full-time and part-time workers. If these new workforces are less experienced in their new field, it stands to reason that there could be a greater number of workers compensation claims for the foreseeable future.

It will also become important to watch for existing workers managing longer hours to compensate for rising service and sales demands. Workers putting in excessive hours or working on tasks they may not be familiar with are most definitely an increased hazard for the business.

Employees are searching to feel security in the workplace. To this end, some may exhibit behaviors such as hiding workers compensation injuries or even creating fraudulent claims. While workers compensation has always possessed elements of fraud, there is no question that late-reported claims or fraudulent claims may be an opportunity to secure wages for the immediate future. It also should be noted the personal stress from a recession and fighting the potential of unemployment have monumental effects on workers. It is common to see anxiety, disorganization, depression, as well as loss of self-esteem. Quite simply, the significant nature of employee distraction puts them at greater risk both on and off the job. A distracted worker in many cases is a dangerous worker.

Then there is the rapid move to telecommuting. While this was a mandatory practice for most businesses during the shutdown period, it is now becoming a more permanent and growing part of the workforce. This creates a need for clear telecommuter policies and detailing the scope of work within the work-from-home structure. Companies may also want to consider the characteristics of a safe home-work environment with a safety checklist and study the Fair Labor Standards Act to understand the stringent requirements that will govern remote work time, especially for hourly wage earners.

A Resilient and Effective Workers Comp Program

All of these factors lead to a change in the status quo when it comes to workers compensation programs. Successfully managing a workers compensation policy requires the business, the broker and the carrier to work in sync to promote workplace safety, claims excellence, loss control expertise and policy accuracy. To survive, and even thrive, during uncertain economic environments, businesses should strive to be flexible and be willing to change their best practices for the safety of the workforce.

A combination of human resources expertise and loss control support is imperative. Policies, procedures, job descriptions and a safety-first culture will promote business success while under the stress of this recessionary environment. These measures are also the best safeguard for a disciplined and compliant hiring process, which will help ensure that businesses hire and retain the best workers for their specific needs. Having the right employees on staff will help offset and combat risks during any environment.

Here are some other tactics businesses can implement to promote success:

Mandate return to work. Getting people back to work is the silver bullet for managing a workers compensation program. It is the humane way to treat injured employees and fulfill their desire to work. In many cases, return-to-work programs reduce employee stress and help minimize the potential for litigation. The leading workers compensation claims teams have specific and actionable return-to-work programs. This not only helps get employees back on the job sooner but also has proven to improve employee retention and lead to future cost savings on insureds’ workers compensation programs.

Communicate clearly and constantly. Employee communication is paramount when your employee is injured. It is imperative that businesses work with carriers that have effective notice of loss procedures and guidance. To best serve injured workers in today’s environment, look for and seek out telemedicine opportunities embedded within the network and the claims process, such as virtual nurse case triage. Services such as telemedicine can quickly establish and promote communication in a convenient and comfortable manner for injured employees.

Study lost-time claim patterns. Learn, correct and document opportunity for changes. Take the time to understand employee turnover and put effort into training and published job descriptions. Plan for operational changes that will no doubt come about in a recessionary environment.

Understand claim frequency and severity. Partner with insurance agents and carriers. Look for opportunities to have claim review meetings to monitor and manage your workers compensation claims. Report new claims quickly and work to understand how better triaging claims during the first report process can change the cost of outcomes. Use these interactions to also help identify potential trends in workers compensation claim fraud.

Use loss control services. Manage the potential for loss rather than the actual loss. Business owners must look beyond the direct cost of a claim and understand both mitigation strategies and the cost of containing or preventing a loss. Safety policies and standards promote a safety culture and opportunities for employees to be educated about sound workplace behaviors. Simply reacting to hazards and accidents is not a long-term answer. Businesses will maximize their opportunities to protect their employees and reduce claims when they anticipate and plan.

There is no question the foundational structure and strength of the business safety culture can help minimize any and all hazards. Building formal programs and policies that are creative and proactive will make a huge difference.

A robust workers compensation program is a basic tenet of any successful risk management effort, and the resulting safe work environment will allow for the continuation of the only true sustainable competitive advantage—employees.

John Lacy is assistant VP of workers compensation at The Hanover.