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COVID-19 Challenges in Workers’ Compensation Claims

Rising insurance costs have driven many companies to explore alternatives, including self-insured or captive insurance models. In the wake of the coronavirus pandemic, costs associated with workers’ compensation claims have generated increased interest in captives. Captives have evolved over time to insure a variety of employee coverages, including workers’ compensation. Still, businesses face many challenges related to COVID-19, and emerging risks caused by the pandemic highlight the need for robust insurance coverages. Captive insurance may be the solution for managing risks, managing costs, and providing superior benefits for employees affected by the coronavirus.

Healthcare and Rising Workers’ Comp Insurance Expenses

According to the U.S. Centers for Disease Control and Prevention (CDC), the per-person expenditure for healthcare averaged around $10,000 in 2015; this figure has only grown in more recent years. To put the per-person average into perspective, total health expenditures in 2015 exceeded $3 trillion, or about 17% of the United States’ gross domestic product (GDP). 

Business owners know that medical costs are the most significant workers’ compensation expense for most companies. These costs have skyrocketed in the wake of COVID-19, with workers deemed essential filing illness claims at dramatically higher levels than annual averages. Essential employees, including first responders, healthcare professionals, retail and delivery service personnel, and custodial employees have been groups most affected by COVID-19. Claims activity is spiraling upward. Dustin Partlow, senior vice president at Caitlin Morgan Insurance Services and an expert in captive insurance solutions, says that managing workers’ comp expenses is essential. “With medical costs continuing to rise, the most significant dynamic in terms of any company controlling their workers’ compensation costs and claims is ensuring that there are adequate tools in place to help mitigate medical costs for claimants under their workers’ compensation,” says Partlow

Mounting Challenges in the Business Sector

Over recent years, workers’ comp claims and associated costs have trended downward across business sectors, owing largely to a strengthening economy. The COVID-19 pandemic effectively reversed those trends, and since the start of the pandemic, catastrophic job losses and skyrocketing claims volume have been experienced across industries. Challenges for business owners include:

  • Pressure for essential workers to work through pandemic conditions.
  • Economic downturns causing higher losses and increasing insurance rates.
  • High rates of coronavirus infection among workers, driving up claim rates.

Perhaps the biggest concern for both business owners and the workers’ comp insurance industry is that there is a significant challenge associated with whether a worker became infected on the job or not. It can be difficult to pinpoint an infection vector; some states are forcing insurers to accept compensability for virus infection claims. Affected businesses may face steep losses as a result, regardless of where or how a worker became ill. 

Finally, the issue of remote work has created obstacles for workers’ compensation coverage. If a worker is at home, but also becomes injured on the job, will workers’ comp cover the medical expenses and lost wages associated with the injuries? For the traditional insurance market, the answer to this question is unclear.

Captive Insurance Solutions: Managing Risks and Expenses

Captive insurance entities have advantages for business owners that traditional insurers cannot offer. Regarding claims coverage for a remote employee becoming injured on the job, even if that worker is at home, a captive can make the distinction to cover an injury or not. More and more companies are turning to captives for cost-saving benefits and tax advantages, but in the wake of the COVID-19 crisis, captives’ flexibility and enhanced coverage potential makes them extremely appealing for business owners. A captive that offers workers’ compensation coverage is better able to manage claims through transparency, risk management practices, and risk pooling. 

The availability of healthcare-related coverages is another important factor. According to Caitlin Morgan’s Dustin Partlow, “certain carriers are no longer writing healthcare business, and those that are, have significantly increased pricing and minimum premiums.” In other words, as businesses face excessively high costs in the traditional insurance market, or complete unavailability of suitable policies, captives serve as a valid solution to maintain required workers’ compensation protection. Industry analysts suggest that captives will continue to gain acceptance across the business world.

About Caitlin Morgan Captive Services

Caitlin Morgan Captive Services provides clients with captive insurance solutions supported by years of experience in establishing the successful formation and implementation of a wide range of captives. To learn more about how we can help you, please contact us at (855) 975-4949.