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Important Trends in Workers’ Compensation: Declines in claim frequency slowing
In its latest research study, the National Council on Compensation Insurance (NCCI) reports that the decline in claim frequency for Workers’ Compensation injuries has continued into 2007, but the magnitude is much smaller than in the previous two years. Preliminary results indicate a modest decline of 2.5% for 2007, compared to 6.7% in 2006 and 6.8% in 2005.
According to the report, while declines in claim frequency are slowing, indemnity and medical severities continue to rise. Medical claims costs in 2007 continued to grow faster than the Consumer Price Index for Medical Care – 6% compared to 4.4%, while indemnity severity outpaced wage inflation – 4.0% to 3.3%.
The report also examined claim frequency changes for permanent total claims, the costliest 1% of lost-time claims and makes the following key findings:
• Permanent total claims have increased significantly over the last three yearsAs NCCI notes, “A key issue facing employers today is whether the large declines in claim frequency that began in the 1990s are likely to continue.” These results suggest that the growth in claim frequency decline is indeed flattening.
• The rise in permanent total claims is evident across industries, regions, and payroll sizes
• From 2004 to 2006, the increase in permanent total claims may have increased lost-time indemnity severities by approximately 1.5% per year and lost-time medical severities by approximately 2.5% to 3% per year.
NCCI indicates that the key drivers of claim frequency include global competition, increased use of robotics, increased use of modular design and construction techniques, increased use of power-assisted processes, advances in ergonomic design, and proliferation of cordless tools. Other factors include the impact of more and better job training, continued emphasis on workplace safety, a down economy where fewer untrained workers are being added to payrolls, older workers who tend to have fewer (although more costly) injuries and fraud deterrents.
While continued progress can be expected in automation and technology, it is possible that we are reaching the inflection point of declining claim frequency. Employers can no longer afford to be complacent and look to declining claim frequencies to help keep rates low. A comprehensive program of injury management is the only way an employer can maintain long-term control.