A recently released analysis of workers’ comp claim frequency tells us what we’ve known for years: The percentage of workers who get hurt on the job has been and continues to drop.

Joe Paduda

Yet one major insurer indicates there are warning signs that frequency may be ticking back up, albeit in a tightly defined sector of the economy. More on that below.

There are many theories about why frequency has declined for decades: more automation, more emphasis on safety programs and loss control, less heavy industry here in the U.S., and low investment in infrastructure leading to fewer jobs doing heavy construction. Many theories, but I have yet to see any credible research into exactly why frequency is declining.

This is one of those data points that is enormously important, yet it doesn’t get enough attention. So, here’s the skinny.

Claim frequency is a percentage — the number of injuries compared to premium dollars or full-time equivalent workers. Therefore, the number of work comp claims is driven by the denominator. If premium or employment goes up, that can offset a decline in the percentage of claims.

But employment is about maxed out, so any changes in the percentage of claims will closely mirror the actual number of claims.

Another way to track the number of claims is to compare it to federal data on the actual number of occupational injuries and illnesses.

Frequency dropped almost one-fifth from 2011 to 2016, led by office and clerical job classes.

As we learned in May, the National Council on Compensation Insurance estimated that frequency declined another 6% in 2017; the average decline over the last two decades has been 3.7%.

But The Hartford recently announced that it is seeing early indications of an uptick in claims volume. Chairman and CEO Chris Swift said:

... workers’ compensation 2018 frequency trends are elevated from expectation …

... our frequency in small commercial and middle market has turned positive this year. Based on our business and economic analysis, we view this trend as broader than just our book of business ...

Many businesses are struggling to find qualified employees and beginning to add more new workers to their payroll, generally increasing the risk of workplace injury versus what it would have been, say, a year or two ago.

Additionally, the tightening labor market produces more hours of work for employees, often resulting in fatigue and less training time, compounding the risk of injury for the less experienced workers.

Our uptick in frequency change has been moderate turning positive on a rolling 12-month basis. The actual frequency levels are now comparable to what we experienced in 2016, which is a very manageable shift in a book of business as large as ours.

The frequency increase is more pronounced among less-tenured employees and it can be several times that of experienced workers.

Notably, the Hartford attributed a 3.5% increase in accident year combined ratio for its middle market business to this increase in frequency.

Couple of key points about this.

The Hartford is the largest national seller of work com policies to small employers and thus has the broadest lens. As a major writer, it also has lots of dollars to invest in business analytics, so it knows more, and faster, than many insurers do.

This, from Hartford President Doug Elliot:

We have now installed a new claim platform over our 5,000 desks. And the ability to access what I’ll call structured data and to slice and dice and be on top of it, and to look at your metrics and watch your trends is much advanced from where we were five years ago. And so we have monthly and weekly discussions but we’re sitting on top of trends that, candidly, five years ago were very manual in nature to try to get our arms around, and they were slower than we’d like to them to be.

What does this mean for you?

This is not unexpected. We are close to max employment. Small employers are desperate for workers and don’t have the time/expertise/resources to screen/train/protect those workers.

Time to look at your data — closely.

And it's likely time to dust off those underwriting, safety and loss-prevention manuals.

Joe Paduda is co-owner of CompPharma, a consortium of pharmacy benefit managers. This column is republished with his permission from his Managed Care Matters blog.