Two experts recently gave their opinions on the future of workers’ comp costs. One expert is pessimistic, the other one is optimistic. What do you think?
Workers’ compensation costs could increase 300 percent by 2030, according to economist Richard Victor, a senior fellow with the Sedgwick Institute, a risk and benefits think tank. Victor has been a keen observer of the forces driving workers’ comp costs for many years since founding the Workers’ Compensation Research Institute (WCRI) in 1983.
Until now, according to Victor, the workers’ comp system has been able to adapt by introducing internal reforms to help lower costs. But today, he says, a number of external factors outside the control of employers and even state governments are threatening workers’ comp.
In remarks he addressed to the annual WCRI conference in Boston in April (as reported in Insurance Journal), he named three principal reasons for concern in the coming years: demographic shifts because of retiring boomers, new immigration policies and changes in health care costs and policies.
Boomers Retiring: Today, more boomers are staying on the job past “normal” retirement age, many out of necessity because they haven’t saved enough for retirement. These people are more prone to injury with longer down time. But this factor only contributes about five percent to increased costs.
“The real impact is the labor shortages that follow as more and more Baby Boomers retire,” said Victor “And these labor shortages, which will be longer and deeper than anything we’ve experienced, will lead to significant increase in workers’ compensation claims and longer durations of disability.” That’s because with labor in short supply, employers tend to lower hiring standards, bringing on board people less skilled and less capable of performing the work safely.
New Immigration Policies: Until now, immigration has been a mitigating factor when demand for labor has exceeded supply. If the current administration’s reduction in immigration flows continues, labor supply will tighten dramatically. Victor cited the healthcare industry in particular as an example of how immigration has helped meet the country’s growing demand for more workers, where overall one in six healthcare workers is foreign-born.
Health Insurance: Now that health insurance deductibles are often $3,000 to $10,000, people tend to often forgo medical care for a non-work-related injury or illness or, especially if the condition worsens, even claim it as work-related. Victor sees the weakening of portions of the Affordable Care Act as making this situation even worse.
“I think it’s tough because these are forces outside the system. Raising the maximum [workers’ compensation] benefit, or putting limits on duration of benefits, that’s something within the normal workers comp process, but a labor shortage, high deductibles in commercial health insurance, I think there are fewer tools [to mitigate problems] within that traditional process, within the state government, in general,” he said.
“You end up with a 300 percent increase in workers’ compensation costs without increasing benefits to injured workers.”
Technology is on the verge of a new era of radically improved risk management, job safety and cost control, according to engineers like Pete Schermerhorn, president and CEO of Triax Technologies.
Technologies like wearables, sensors, drones and other data collection points are allowing managers to harness the data needed to make the workplace more efficient and safe.
At construction sites, for example, says Schermerhorn, “The right construction technology helps managers and crews communicate, identify and report hazards, and learn from past experience for future projects. Crucially, these technologies allow insurers for the first time to see what is happening at client worksites and with their workforce — how long they’re spending on site, for example, or the distance of a fall — so they can more accurately assess risk,
determine coverage, and mitigate losses.”
Internet of Things (IoT) is the network of sensors embedded in vehicles, appliances and other physical devices that collect and exchange information and interpret that information to make programmed decisions. This can be as simple as the room evaluating when to turn lights on when someone enters. Or it can be as complex as a vehicle determining whether the accident it just experienced resulted in bodily injury and if an immediate call for an ambulance should be placed.
In an industrial setting, sensors implanted in buildings, equipment and machinery constantly gather information about hazards such as parts in need of repair or conditions unfavorable to safety. Predictive maintenance such as this could prevent many accidents from ever happening in the first place.
Wearables extend the IoT concept to humans, channeling their experience into data collection points as well. Workers passively or actively report hazards, signal distress and communicate conditions helpful in building analytic models. Not only is the data being communicated predictive and therefore immediately actionable to prevent an injury, if an injury does occur, instant notifications will reduce severity by deploying help immediately.
Big Data can put all this information together and analyze it in ways that are highly predictive for making long-term decisions. This is the real power of the IoT. As data is collected and stored in the cloud to be used — not locked up in paper reports — “advanced data analytics will increasingly predict and mark risky behaviors … helping to prevent incidents.” This will help managers take a proactive, real-time approach to safety and risk management.
“By providing a real-time view into jobsites for the first time, and collecting and sharing key data, technology is driving critical safety and process improvements. And, it allows insurers to more accurately assess risk, determine liability and mitigate fraud, reduce costly claims and improve the overall bottom line,” says Schermerhorn
What do you think? We’d welcome your comments and concerns.