Legal Trends

Workers’ Comp: Rulings, Regulations and Reform

A recent webinar offered an outline of legal and regulatory changes that employers should be aware of.
By: | July 20, 2017 • 5 min read

Workers’ compensation rulings are starting to see trends, which is why Marsh & McLennan Companies urges employers to stay on top of the evolving legal decisions being made. Court rulings and changes to workers’ comp law not only affect employers but can also affect the workers’ compensation program itself.

During the July 19 webinar “Workers’ Compensation’s Evolving Legal and Regulatory Landscape,” Marsh’s Workers’ Compensation Center of Excellence hosted a panel of risk experts keen on discussing the recent legal and regulatory changes seen on the workers’ comp front, from unconstitutional practices to OSHA regulations.

Legal Rulings and Workers’ Comp Reform

Dennis Tierney, director of workers’ compensation claims at Marsh, and Scott Lefkowitz, a partner at Oliver Wyman Actuarial Consulting, spoke on the effects recent court cases may have on workers’ comp nationally.

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Florida, Alabama, Kentucky and Pennsylvania have all seen rulings that could spark a trend for other states, noted Tierney. He said that in these recent cases, each state’s justice system ruled pieces of its existing workers’ comp law unconstitutional.

In Florida, the Supreme Court found it unconstitutional to cut off disability benefits after 104 weeks to a worker who is totally disabled yet has not reached maximum medical improvement. Alabama ruled that the $220 a week cap in compensation was unconstitutional. Kentucky now requires all permanent partial disability income benefits be paid a full 425 or 520 weeks regardless of an employee’s age at time of injury, and Pennsylvania removed employer access to impairment ratings evaluations.

So, what does this mean for employers?

In Florida, companies have already seen a 14.5 percent rate increase in workers’ comp. Tierney said that while Alabama’s impact is still pending, Kentucky’s decision could be a game changer. Now, employees near social security retirement age are entitled to the full 425 or 520 weeks of permanent partial disability.

So far, the state has seen a 5 percent increase in claims costs. In Pennsylvania, the panel suggested employers seek an alternative practice to modify claimants’ statuses.

Tierney said these rulings show that judges are looking at workers’ comp programs and are listening to what other states say. Employers could see workers’ comp costs increase, he added, so it’s a good idea to work with claims adjusters, brokers, TPAs, attorneys and everyone involved to keep workers’ comp plans up-to-date and in compliance with state regulations.

As for reform bills, Tierney and Lefkowitz point to a few decisions of interest to employers:

  • New York State Senate Bill S4520: Any difference in compensation rate paid during a period of temporary disability and the rate of payment after classification of permanent disability will be paid by the employer in weekly installments.
  • Virginia Workers’ Compensation Commission: To create a more even payment plan, Virginia split its state into six unique medical communities in order to set up a medical fee schedule. The schedule outlines maximum fees for health care services for injured workers.
  • Iowa House File 518: Six major changes were made to the Iowa workers’ comp laws. Most notably, late fees have been minimized for employers who fail to pay benefits on time, limitations were placed on how much an attorney makes in legal fees, PPD payments are not made until the employee reached MMI, and more.
  • New Mexico Senate Bill 155: This bill limits workers’ comp temporary total disability and permanent partial disability benefits for injured workers who leave their current employers or fail to accept a job offer.
  • California Senate Bill 1160: All liens in the state of California have added requirements to verify that each lien is legitimate, filed only by the lien holder and the liens owned by providers who have been indicted or charged with crimes be held until the disposition of criminal proceedings.

Tierney added that it is important for employers to know about any changes to workers’ comp laws and how they could potentially affect their workers’ comp programs. Be flexible to implement new changes, he said.

OSHA Rulings and Regulations

When it comes to worker safety and OSHA, Allen Gilley, managing director at Marsh, said the focus and priorities have not changed within the organization since inauguration day six months ago.

Trump’s proposed budget would not significantly affect OSHA, and Gilley noted that the tone of the organization has not altered since the new administration took office.  He cautioned, however, that employers could see a change in OSHA enforcements when the new Assistant Secretary of Labor is appointed.

In the meantime, Gilley said employers should be focused on the existing expectations from OSHA. A handful of rules and regulations established under the Obama administration are in effect or will be within the next few months, most notably:

The final ruling on crystalline silica dust. Construction sites have until September 23 to comply with OSHA’s ruling on silica dust. The permissible exposure limit was reduced to 50 micrograms per cubic meter of air, which requires employers to use engineering controls to limit exposure, provide respirators, develop a written exposure control plan, offer medical exams to highly exposed workers and increase training on how to avoid silica exposure.

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And, the final ruling on tracking workplace injuries. In its continued effort to improve safety for workers across the nation, OSHA changed the way injury and illness are tracked in the workplace — through electronically submitted records.

Organizations employing more than 250 workers must submit electronic records of onsite OSHA Injury and Illness forms. Though many employers believe this is a breach of employee privacy, OSHA stands firm that the practice will motivate employers to focus on safety in the workplace.

The electronic system is set to go live August 1, with a compliance date of December 1.

Marsh held this third webinar in a four-part series on Wednesday, July 19, 2017. The next webinar in the series will take place Wednesday, November 8, 2017.

Autumn Heisler is a staff writer at Risk & Insurance. She can be reached at [email protected]

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Hidden Risks of Violence

The Las Vegas shooting and other tragedies increase demand for non-physical damage BI coverages. The market is growing, but do new products meet companies’ new needs?
By: | December 14, 2017 • 5 min read

Mass shootings in the United States and the emergence of new forms of terrorism in Europe are boosting demand for insurance against losses caused by business interruption when a policyholder suffers no direct property damage, according to insurers.

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But brokers say coverage for non-physical damage BI (NDBI), needs to evolve to better meet the emerging needs of corporate clients.

For years, manufacturing clients sought a more comprehensive range of NDBI coverages, especially due to the indirect effects of natural catastrophes such as the Thai floods that disrupted global supply chains in 2011.

More recently, however, hospitality and entertainment companies are expressing interest as they strive to adapt to realities such as the mass shootings in tourism hotspots Las Vegas and Orlando and terror attacks in such popular destinations as New York, Paris, Berlin, Barcelona and London.

In addition to loss of life and property, revenue loss is a real risk. Tragedies that cause a high number of fatalities can cause severe financial losses, especially for companies relying on tourism, as visitors shy away from crime scenes.

Precedents already exist. Paris received 1.5 million fewer visitors than expected in 2016, after the French capital was targeted by a series of deadly terror attacks the year before.

More recently, bookings declined in the immediate aftermath of a shooting at the Mandalay Bay Resort and Casino in Las Vegas that took the lives of 58 people on October 1: Bookings at the hotel have since recovered.

Joey Sylvester, national director of operations & planning, Public Sector, Gallagher

“The recent horrific mass shootings in Las Vegas, Nev., and in Sutherland Springs, Texas, raised awareness and concerns about similar events occurring in areas where the public congregates, such as entertainment venues like sporting events, concerts, restaurants, movie theaters, convention centers and more,” said Bob Nusslein, head of Innovative Risk Solutions Americas, Swiss Re CS.

“The second highest NDBI cover to natural catastrophes is terrorism, including active shooter and mass shootings.”

However, products available in the market do not always provide the protection companies would like. Active shooter coverages, for example, focus mostly on third-party liabilities that policyholders may face after a shooting.

Loss-of-attraction policies often define triggering events with a high degree of detail. These events may need to be characterized as a terrorist attack or act of war by authorities. In some cases, access to the venue needs to be officially cut off by police.

It follows that an attack by a 64-year old ex-accountant who shoots hundreds of people for no apparent reason — as was the case in the Mandalay Bay tragedy — isn’t likely to align with a typical policy trigger.

But insurers say they are trying to adapt to the evolving realities of both mass shootings and terrorism to meet the new needs expressed by clients.

“The active shooting coverage is drawing much interest in the U.S. market right now. In Europe, clients are increasingly inquiring about loss of attraction,” said Chris Parker, head of terrorism and political violence, Beazley.

“What we are doing at the moment is to try and cross these two kinds of products, so that a client can get coverage for the loss of attraction resulting from an active shooting event.”

Loss-of-attraction policies cover revenue loss derived from catastrophic events, and underwriters already offer alternatives that provide coverage, even when no property damage is involved.

To establish the reach of such a policy, buyers can define a trigger radius — a physical area defined in the policy. If a catastrophic event takes place within this radius, coverage will be triggered. This practice is sometimes called “cat in a box.”

Some products specify locations that, if hit by a catastrophic event, will result in lost revenue for the insured. For resorts or large entertainment complexes, for example, attacks on nearby airports could cause significant loss of revenue and could be covered by NDBI insurance.

Measuring losses is a challenge, and underwriters may demand steep retention levels. According to Parker, excess coverage may kick in after a 20 percent to 25 percent revenue drop.

Insurers will also want proof that the drop is related to the catastrophic event rather than economic downturn, seasonal variances or other factors.

“Capacity is very large for direct acts of terrorism but lower for indirect terrorism and violent acts because the exposure is far greater,” said Joey Sylvester, national director of operations & planning, Public Sector, Gallagher.

“Commercial businesses, public entities, religious and nonprofit organizations have various needs for this type of coverage, and the appetite is certainly trending upward.”

It is difficult to foresee which events will cause business disruption. As a result, according to Nusslein, companies generally prefer to purchase all-risk NDBI covers rather than named-perils coverage.

“The main reason is that, if they have coverage for four potential NDBI events and a fifth event occurs, the fifth event is not covered,” he said. “Insurers, new to NDBI covers, still prefer named-perils covers over all-risk cover.”

Current geopolitical tensions are also fueling buyers’ demands.

“Many companies want nuclear, biochemical, chemical and radiological exclusions removed from terrorism NDBI covers. While this is more difficult for insurers, it is not impossible,” Nusslein said.

“War risk NDBI cover is becoming more sought after due to political tensions between the U.S. and North Korea.”

“Many companies want nuclear, biochemical, chemical and radiological exclusions removed from terrorism NDBI covers. While this is more difficult for insurers, it is not impossible.” — Bob Nusslein, head of Innovative Risk Solutions Americas, Swiss Re CS

Natural catastrophes still constitute the largest share of perils underlying NDBI products.  Parametric indexes are increasingly employed to provide uncontroversial triggers to policies, said Duncan Ellis, U.S. property practice leader, Marsh.

These indexes range from rainfall levels and wind speed to the measured intensity of earthquakes. Interest in this kind of NDBI coverage expanded after the recent hurricane season.

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“The benefit of these products is that you do not have to go through the settlement process, which clients hate,” Ellis said.

NDBI policies are often bespoke, which is more common for very large insurance buyers.

“Usually, the market offers bespoke coverages for individual industries or clients, with very significant deductibles,” said Tim Cracknell, partner,  JLT Specialty.

NDBI cover can also help transfer regulatory and product recall risks. The life science sector is expressing interest in this kind of solution for cases where a supplier goes bankrupt or is shut down by a regulator, or a medication needs to be recalled due to perceived flaws in the manufacturing process.

Experts say that concerns still to be addressed are NDBI losses caused by cyber attacks and pandemics.

Capacity is an ongoing concern. According to Swiss Re CS, $50 million to $100 million, or even more, can be achieved through foundation capacity provided by a lead insurer, with syndicated capacity to other insurers and reinsurers, depending on the risk. &

Rodrigo Amaral is a freelance writer specializing in Latin American and European risk management and insurance markets. He can be reached at [email protected]