So Much for 0.0% Workers’ Compensation Claim Frequency…
Since at least as far back as the 1990’s, workers’ compensation (WC) claim frequency has been on the decline year after year. To paraphrase one of my wisest actuarial mentors, it looked as if we stuck around long enough, with these trends, soon one day we would have no claims at all as it appeared to be trending to 0.
The exact cause of this favorable frequency trend has been debated over the years. There are many factors that are reasonable to assume to have had some causal impact, such as improvement in workplace safety, job training, ergonomic advances, advances in fraud detection, etc.
At Merlinos, we review WC liabilities for a wide range of clients, including insurance and reinsurance companies, funds and corporate self-insurers. We have observed the same favorable trends in our clients experience as seen in the industry. But evidence is now emerging to support the idea that the downward trend has flattened or even is turning upwards. We are seeing this in our own client’s data and we are also hearing and reading corroborative information from others in the industry. It appears that this began in late 2009 and continued on into 2010. Early evidence indicates that this is not just related to particular industry groups, employer size, or geographic regions, but is rather widespread across a broad spectrum of characteristics.
Many questions are left to speculation. Is this simply an interruption of the favorable trend (a “blip”), or will this the beginning of a reversal of the trend? If it persists, will the future trend line be flat or will it begin to turn upwards? Without a clear understanding of the new influences driving this shift, much uncertainty remains.
This issue is extremely important since the favorable frequency trends have historically served to offset increasing claim severity, particularly with regards to medical costs. Without the declining number of claims to temper the upward pressure of the severity trends, we may soon be entering an era of substantial increases in WC costs.
Some see a silver lining in all of this, that perhaps the increase in claims activity is a sign of a strengthening job market and an improving economy. What do you think?
Tony Alfieri, ACAS, MAAA, is a consulting actuary at Merlinos & Associates.
