Best's Review

AM BEST'S MONTHLY INSURANCE MAGAZINE



Risk Adviser
A Reawakened Economy: What It Means for Workers’ Comp

The U.S. labor shortage is causing lower hiring standards, creating an unseasoned and undertrained labor force that poses many risks.
  • Richard W. Lavey
  • March 2022

During the pandemic, certain industries struggled while others flourished. Now, we're seeing more economic stabilization as we enter a period of reawakening and a return to something closer to normal. This new phase certainly brings challenges for workers' compensation clients. Fortunately, independent agents have the experience necessary to help them.

The data is clear. New employees are far more likely to be injured than tenured employees. With the labor market experiencing an unprecedented migration, many companies are being forced to lower hiring standards—sacrificing educational qualifications, training, prior experience and more. Consequently, this unseasoned and undertrained labor force poses a big risk, especially in industry sectors like manufacturing, construction, and commercial auto.

In addition, in response to the labor shortage, many companies are asking employees to assume broader responsibilities and longer hours, increasing fatigue and stress. Much like unseasoned labor, employees with expanded roles and hours, without the appropriate training, represent an increased risk.

Related: AM Best: US Market Outlook Stable Despite COVID-19, Inflation, Catastrophe Pressures

At the same time, many companies are paying higher wages to attract or retain talent, which means higher premiums. California, for example, has seen a significant increase in its statewide average weekly wage and maximum compensation rate. Nationwide, benefit dollars have increased by 50% to 100% between 2000 and 2018, according to the National Council on Compensation Insurance. Historically, workers' compensation has been a profitable line for agents. Margins may get compressed, however, as the lack of skilled labor combines with increases in payroll and benefits.

With evolving risks on the workers' comp horizon, experienced agents offer great value, taking proactive measures to help their clients.

First, they are working even harder to understand clients' operations. Turnover, job openings, use of temporary labor and average tenure can help agents and carriers better understand and manage workforce hazards. With the changes in classifications caused by the pandemic, agents are validating class codes to help ensure they reflect new operations, such as “hybrid” workforces.

Related: AmTrust: Among Artisan Contractors, Plumbers Account for Most Workers’ Comp Claims

Second, agents are emphasizing hiring and training discipline. Businesses are at a significant disadvantage if they cannot invest in training. A safety-first culture, combined with updated policies, manuals and procedures, job descriptions, and hiring practices, along with formal training programs, effective communication, and strong return-to-work programs, can go a long way in protecting businesses.

Third, experienced agents are taking full advantage of carrier resources. Carriers offer various risk management information and programs for insureds—understanding what each provides can help reveal the true value proposition. Top agents partner with carriers that offer top-tier workers' comp capabilities, including online resources, consultation and customized plans developed with claims and risk management experts. For example, some carriers offer AI-assisted ergonomics which apply AI to recorded footage of work and prioritize corrective measures to reduce risk. Similarly, carrier-provided wearables can improve ergonomic safety by alerting the wearer to incorrect postures and movements.

The dynamic workers' compensation market presents challenges, but agents are a valuable resource for clients looking to navigate the economic reawakening and enhance their risk management practices. Combined with the right carrier partnerships, insureds can feel confident they have great protection for their needs.


Best’s Review columnist Richard W. Lavey is president of Hanover Agency Markets at The Hanover Insurance Group Inc. He can be reached at bestreviewcomment@ambest.com.



There’s So Much to Cover—Don’t Miss the Latest

Get more news stories like this delivered to your inbox by signing up for our article spotlights.

Subscribe

Back to Home