The truth about workers’ compensation mega claims: Four key takeaways from our recent large loss study

Woman doctor wearing a lab coat and stethoscope holding a clip board while having a discussion with a man in a dress shirt

One of the most significant concerns for workers’ compensation insurance underwriters is a potential surge in claim costs stemming from the increased use of advanced medical technology. As treatments become more complex, more effective and more expensive, there is concern workers’ compensation claim costs will rapidly escalate.

Intuitively, many in the industry felt the market was already experiencing a significant increase in mega claims. But was this really happening?
To find out, Willis Re’s Risk and Reinsurance practice recently conducted a large loss study that reviewed claims in excess of $1 million over a 10-year period, spanning from 2007 to 2016 accident years. The study included 30 insurers and self-insurers, representing more than 30% of the U.S. workers’ compensation market.

Here are four of the study’s key takeaways:

  1. Workers’ compensation mega claims are on the rise, but the frequency increase is not as great as you might think: While we saw a slight uptick in loss trends over the last decade,1  the increase was consistent with overall medical inflation — and didn’t reflect the strong frequency increase we intuitively expected to see.
  2. Larger companies report more claims. When we compared companies with workers’ compensation premiums of $1 billion or more to those with $1 billion or less, we found those with higher premiums reported more claims in excess of $10 million, which accounted for 2.89% of their claims greater than $1 million. This compares with the 0.55% reported by companies with lower premiums. Larger companies also had more claims in excess of $2 million, which accounted for 35.71% of their $1 million+ claims, compared to the 30.39% reported by smaller companies.
  3. Most claims of $10 million or more were triggered by motor vehicle accidents and trips, slips and falls. Each type of accident accounted for 29% of those that triggered large claims, followed by being struck by an object or machine, burns/scalding and electrocution and strain caused by lifting heavy objects.
  4. Many of the claimants were younger than 40. Nearly 75% of claims in excess of $10 million involved injuries to employees younger than 40, with these claimants facing a lifetime of complicated and costly medical interventions.

Final thoughts:

While there’s been an increase in mega claims over the last decade, our study revealed that it’s consistent with overall inflation. As for what the future holds in terms of new medical treatments and techniques, their costs and how that will impact mega claims remains to be seen and will require close attention and further study.

¹ Ranges from less than $2M from 2007 to 2016 and greater than $2M from that same timeframe.


 

Sam Dutcher head shotSam Dutcher is a Senior Broker with Willis Re, part of Willis Towers Watson.

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