Jobs reports released in early February underscore a growing challenge risk managers face: managing workers’ compensation losses in the midst of layoffs that can exacerbate claim frequency and severity.
Employees off the job due to a legitimate injury now may be more motivated to extend the life of their workers’ comp benefits if their jobs may soon be eliminated or already have been downsized.
Despite economic conditions, though, most employees will resolve their claims as soon as is medically possible if employers treat them fairly and with respect, said Dave Dolnick, risk manager for La Mesa, California, construction company The Brady Cos.
But job losses also are pressing workers, and some may be motivated to extend a claim, Dolnick and others agree.
“What we have observed, both somewhat with our own [limited] claims and also in chatting with ... peers, is that claims that are otherwise legitimate become much more difficult to resolve in this kind of a market, when the injured worker doesn’t have the option of a job to go back to,” Dolnick said.
Some employees with diminished employment prospects will be less responsive to return-to-work efforts that otherwise would help render them fit for their old job or capable of working for a new employer if a job were available, several observers agree.
“There is a [claims] cost,” said Darrell Brown, workers’ comp practice lead for Sedgwick Claims Management Services Inc. in Long Beach, California. “If someone knows that their job is going away, or has been eliminated, the motivation to return to work is much less.”
Other laid-off employees may reopen old claims or file new ones for soft-tissue injuries, back pain and other ailments as an alternative income source, depending on state statutes of limitation for bringing claims, said Pam Ferrandino, executive vice president and casualty practice leader for Willis HRH in New York.
New and reopened claims could be a particular issue as unemployment benefits expire in regions where several employers have shut down factories and alternate employment opportunities no longer exist, Ferrandino and others said.
Data compiled by the New York-based Insurance Information Institute and released last week show that during the past four recessions, workplace injury incidence rates actually have declined.
But today’s recession is the longest since 1981, and risk managers, brokers and third-party administrators say a more severe downturn is likely to include more workers’ comp claimants among the employees losing their jobs.
A risk manager in the construction industry said that for the first time in two decades, her company has terminated workers’ comp claimants. They were among a substantial portion of her company’s nationwide workforce let go, said the risk manager, who asked not to be identified.
Close to 600,000 jobs were lost in January, raising the unemployment rate to 7.6 percent, the highest level in more than 16 years.
So far, workers’ comp claims have not spiked at Fleetwood Enterprises, although the recreational vehicle and manufactured home builder has closed several plants, said Bill McMahon, the Riverside, California-based company’s risk manager.
Fleetwood’s programs for reducing claims severity and frequency are paying off. But if the recession continues, McMahon said he expects that costs for open claims will climb, especially in regions where Fleetwood and other employers have closed plants and few jobs are available.
The potential for new claims and workers’ comp cost increases when jobs disappear from an entire community can be substantial enough that risk managers will need to collaborate with the corporation’s CFO to include those expenses in the overall charge for shuttering operations, said Mark J. Noonan, managing director and workers’ compensation practice leader at Marsh Inc. in New York.
“You have to put all that into the pot,” along with other expenses such as severance benefits, Noonan said. “You don’t want to surprise your CFO with, ‘Oh, by the way, we need to book another $20 million for potential comp claims.’ ”
Meanwhile, risk managers—even as some of their own staff may be facing termination under corporate budget cuts—are being more vigilant than usual for claims that are not legitimate or can be terminated if medically appropriate, several sources said.
“There is definitely an ‘on-alert’ kind of behavior [along with] the application of greater investigation” into claims, said Betsy Robinson, vice president of product management and market analysis for Intracorp, a Philadelphia-based unit of Cigna Corp.
Employers are undertaking more descriptive documentation of job functions, said Kimberly George, vice president and managed care practice lead for Sedgwick in Chicago. The documentation can help show physicians that an employee is physically capable of returning to his or her job, even if that job now may have to be with another employer.
“It’s probably a more important practice today as we work on those claims that are impacted by not having a job to return to and making sure the physician has a good understanding of what that job is,” George said.