While analysts continue to debate whether or not the U.S. economy is on the road to recovery, the recession clearly lingers for those involved in the workers’ compensation system (read reports on the recession published by the National Bureau of Economic Research)
Workers’ compensation claims generally tend to drop during tough economic times, and this pattern is holding true in the current recession. This trend generally arises from psychological factors in the workplace rather than an actual drop in worker injuries. Employees concerned with job security are more reluctant to report legitimate injuries and seek workers’ compensation, fearing that if they file a claim, management could target them for dismissal in an upcoming round of layoffs. In their efforts to protect their jobs and be seen by management as a “valuable” part of the workforce, many employees silently endure injuries at work and decline to file workers’ compensation claims.
The psychological impact of our recession is also evident among workers who cannot avoid reporting their claims because of the severity or obviousness of their injuries. Facing the same fears about job security, these employees chose to continue coming into work when they would normally stay home to recover. What would otherwise be a workers’ compensation indemnity claim now becomes a workers’ compensation medical only claim.
The recession’s impact also extends to those who are already out on disability benefits. Many in this situation fear that staying out of work too long will jeopardize their jobs. These workers often try to convince their doctor that they are able to return to work even when injuries persist.
In addition to these impacts, the recession has also caused employers and workers’ compensation insurers to change business practices in ways that adversely affect workers. Since workers’ compensation premiums are based on a company’s payroll, employers looking to cut costs often lay off workers to reduce their insurance premiums. Employers use this tactic to their advantage on more than one level: not only do fewer employees translate into lower premiums, but employees that are retained also tend to be more experienced and have fewer accidents and injuries than their less experienced counterparts. Over time, the experience modification factor improves for a company, producing yet lower workers’ compensation premiums.
With increased layoffs in the current economic climate, fewer premiums are being paid to workers’ compensation insurers. Insurers, in turn, have compensated for falling revenue by raising the workers’ compensation premiums they charge to employers. However, this has not yet translated into a full recovery of losses: according to reports in the Insurance Journal, the loss ratio for workers’ compensation insurers has been steadily on the rise throughout 2008 and 2009. The National Council on Compensation Insurance (NCCI) reports that the economic downturn caused net workers’ compensation insurance premiums to drop by 23% from 2007 to 2009. While there are multiple factors accounting for these losses, downturns in construction and manufacturing have had a significant impact on the bottom line for insurers. Both of these sectors have higher than average workers’ compensation premiums, yet they have been among the hardest hit by the recession.
A steadily growing number of economists are beginning to argue that the recession is coming to a close. Hopefully the next round of assessments by the National Bureau of Economic Research will yield more consensus that we’ve fully entered a recovery stage. Yet even after it officially ends, the impact of the recession may not quickly dissipate among those involved in the workers’ compensation system.
Learn more about workers’ compensation in Washington State: