Workers’ Comp Mega Claims Rise Across Industries

Workers' compensation claims greater than $2 million surge in frequency and cost, despite representing less than 0.1% of total claims, study finds.

By: R&I Editorial Team | December 16, 2024

Topics: News | Workers' Comp

Despite making up less than 0.1% of total claims, workers’ compensation mega claims, those exceeding $2 million, represent over 2% of total loss dollars, surpassing $1 billion annually, according to a recent collaborative study by multiple workers’ comp rating bureaus.

The frequency of these high-impact claims has been on a steady upward trajectory since 2013, according to the study, which analyzed the period from 2001 through 2021. According to industry data, the estimated ultimate frequency of mega claims per 100,000 indemnity claims has shown a consistent increase from 2013 onward.

However, this trend appears less pronounced when the number of mega claims is compared to premium volumes, the report noted. As a ratio to premium, for example, the estimated frequency for claims between $2M and $3M decreases when accident year 2021 is compared to 2001.

The rise in mega claims is not confined to a single business sector, the report found. The frequency increase has been observed across all industries, suggesting a broader shift in the workers’ comp landscape.

However, the construction industry has experienced the largest increase in mega claim frequency, highlighting the heightened risks faced by construction workers and the potential for catastrophic injuries in this field. The frequency of construction mega claims is roughly twice that of manufacturing, stores and dealers, transportation, and all other industries throughout the study period, the report noted.

Characteristics of Mega Claims

A closer look at the distribution of mega workers’ comp claims reveals that 53% fall between $2 million and $3 million, 27% between $3 million and $5 million, 15% between $5 million and $10 million, and 4% exceed $10 million.

Certain industries and injury types are more prone to these higher-value claims. Construction, head and brain injuries, and motor vehicle accidents show a disproportionately higher share of claims over $5 million compared to the $2 million to $5 million range. These categories also represent a larger portion of total losses exceeding $2 million, highlighting their significant impact on overall claim costs.

The recognition of mega claims has been evolving, with a trend toward earlier identification, the report stated. This shift has complicated the estimation of ultimate claim frequency, as the emergence of mega claims more than 18 months after policy inception has slowed down. However, the speed of emergence varies significantly across different claim types.

Burn and electric shock claims stand out as the fastest to emerge, with almost all such mega claims recognized within the first 18 months of policy inception. On the other end of the spectrum, office and clerical injuries, lower back issues, and strain injuries show the slowest emergence patterns. Despite their slow emergence, these categories continue to represent a relatively small share of claims exceeding $2 million at ultimate valuation, according to the report.

Interestingly, claims take longer to exceed the $2 million threshold compared to higher thresholds. Historical data shows that around 40% of mega claims reach the $2 million mark by 18 months from policy inception, with 82% reaching this threshold by 126 months. Emergence patterns remain similar at higher thresholds of $3 million, $5 million, and $10 million.

Factors Influencing Mega Claim Costs

Several factors contribute to the rising costs associated with mega claims, the report found. Medical advances, while improving patient outcomes and providing life-saving measures, can also drive up expenses. Innovative rehabilitation technologies, such as robotics and virtual reality, offer new treatment options but come with hefty price tags.

The increasing cost of home health care is another significant factor, as many severe injuries require long-term care outside of traditional medical settings. Extended recovery times for complex cases further contribute to mounting expenses. Additionally, inflationary trends on services not explicitly included in state medical fee schedules can lead to unexpected cost increases.

Opportunities for Risk Mitigation

Despite the presented challenges, there are promising opportunities for risk mitigation in the workers’ compensation landscape, the report found. Workplace safety technology and automation present potential avenues for reducing the occurrence of mega claims. Innovative solutions could help prevent severe injuries that typically result in prolonged recovery times and significant medical expenses.

Access the full report here. &

The R&I Editorial Team can be reached at [email protected].

Principles of Corporate Resilience

How an accelerating risk environment is raising the stakes for risk managers — and how carriers are responding.

By: Liberty Mutual Insurance | December 4, 2024

The nature of risk is evolving. It has become more volatile, interconnected, and intense, as reflected in the heightened frequency and severity of losses experienced by businesses and their insurance carrier partners.

2023 was the warmest year on record. Cybercrime is escalating at the same time that generative A.I. has begun transforming our economy. All this amidst two kinetic wars, persistent economic inflation, and rising legal system abuse.

“We’re all facing a future that is more uncertain than we have previously faced,” said Wesley Hyatt, Chief Client Officer, Global Risk Solutions, Liberty Mutual. “What I continuously learn from our clients is that they are equally focused on protecting their businesses today, and building partnerships, programs and a risk-taking culture that will endure,”.

Geopolitical, economic, and legal systems are being challenged at a rate most risk professionals haven’t seen in their lifetimes, all while we’re experiencing the impacts of climate change.

Against this backdrop, the role of today’s risk managers has shifted significantly, and it has prompted a reimagining of the way insurance carriers provide value to clients and brokers, according to Hyatt and Elizabeth Geary, President, Insurance Solutions, Global Risk Solutions, Liberty Mutual.

“Today’s risk environment demands resilience. That means anticipating, responding to, and adapting amidst rapid change,” explained Geary. “The concept of building resilience is central to the way we’re supporting clients and brokers, but it’s also foundational to how we think about evolving our own solutions and how we deliver them,” she added.

The Changing Role of Today’s Risk Managers

Wesley Hyatt, Chief Client Officer, Global Risk Solutions, Liberty Mutual

When considering today’s accelerating risk environment, organizations’ senior business leaders are looking to risk managers to take a more proactive role in shaping a resilient strategy. In this way, the practice of risk management today differs from what it has been in the past, according to Geary and Hyatt, making the role of risk managers:

More visible. The increased cost of insurance is being reflected in premiums and losses. As a result, business leaders want to know the contingency plans, projected costs, and impact on an organization’s long-term goals.

More strategic. Risk managers increasingly have a seat at the table as part of the strategic decision-making process. Their insight into the breadth of challenges a business could face, beyond traditional risk assessment and mitigation, is critical in assessing the viability and sustainability of any initiative.

More urgent. As risks evolve, the pace at which risk managers need to work has increased, partly due to the globalized nature of business and the speed of communication. The impact of shifts in trade policy or geopolitical factors demand a swift response from companies with global operations or supply chains, which comprise a vast share of contemporary businesses.

More complex. Evolving and emerging risks, along with rising costs, have prompted businesses to transform how they structure their risk management programs. This includes making trade-offs in risk retention, implementing complex tower structures, and placing a greater emphasis on business continuity, cybersecurity, quality assurance, and safety programs.

More tech driven. As the field of risk management continues to evolve, technology has become a critical tool for risk managers wanting to better understand, quantify, and monitor risk. However, as organizations expand their use of technology, cyber risks rise in tandem, further emphasizing the tech-savviness required of risk managers today.

Insurers as a Source of Support

Elizabeth Geary, President, Insurance Solutions, Global Risk Solutions, Liberty Mutual

While the role of the risk manager has changed, so has the role of the insurer — or at least it should, according to Hyatt and Geary.

“The feedback loop that allows us to make continuous improvements or adjustments to products and services has become more sensitive to the changing needs of risk managers and reflective of emerging risks. As a carrier, we need to move at a much faster pace, providing that perspective to clients and collaborating more closely than we have in the past,” explains Geary.

Echoing that sentiment, Hyatt added that “to do this effectively, we must closely understand our clients and their businesses. This means showing up and listening to their priorities and learning their tolerance for risk and the role it plays in meeting their goals.”

Together, Hyatt and Geary are prioritizing three components of what they’re calling “Corporate Resilience” to help risk managers navigate the complexities of the market: information, innovation, and collaboration.

Knowledge is power. According to Hyatt and Geary, building resilience begins with understanding the risks a business may be facing. They believe Liberty Mutual plays a foundational role in helping clients stay abreast of changing risk trends and unlocking the power of advanced data analytics to mutually benefit their businesses.

“Today’s risk managers aren’t just looking for products, services, and risk transfer, they’re looking for expertise and problem-solving. They’re seeking support in thinking through their value chain to identify risks, see around corners, and prepare,” said Hyatt.

“Clients benefit from our ability to understand their businesses at a granular level while also bringing the context of what we’re seeing from a high-level, external perspective across similar companies, in addition to the macro trends, globally,” she added.

Product innovation — a two-way street. At Liberty Mutual, client-centricity remains at the heart of its innovation strategy by cocreating solutions with its clients.

“As partners, we have a responsibility to move along with the risk and respond in a way that helps our clients and brokers, whether that’s creating new solutions or changing our existing products and services,” says Geary. Her team’s priorities in the Global Office of Underwriting include cyber, climate, energy transition, and alternative risk solutions, among others, all with a focus on offering fit-for-purpose solutions, stable capacity, and taking a long-term view.

“It’s not an ‘if we build it, they will come philosophy,’ and it doesn’t happen overnight,” explained Hyatt. Rather, she describes meaningful product innovation as the result of close and enduring partnership and deep understanding on both sides.

“It’s mutually beneficial,” said Hyatt, “and our mutual structure is a strength because it allows us to take a long-term view and affords us flexibility,” she added. “We provide the expertise and security clients need to innovate and grow their businesses. Our mutuality also means we succeed when our clients succeed.”

Partnerships that Extend Beyond RiskTransfer. With the demands on risk managers not relenting anytime soon, clients are increasingly seeking more support.

“As the way we help clients manage risk changes, our business has become less transactional. Our clients are not just transferring risk, they’re building a partnership,” explained Geary.

While industry-leading risk control capabilities, best-in-class service and superior claims handling have always differentiated Liberty Mutual, Hyatt sees clients increasingly seeking the benefits of a robust support network of other risk professionals.

In her role as Chief Client Officer, she’s deliberately incorporating community-building elements into Liberty’s programs to leverage some of those opportunities. The firm’s Corporate Resilience thought leadership series, for example, brings the risk management community together for expert panel discussions to help clients network and learn from each other. Hyatt is also helping support the firm’s public affairs initiatives, which assist clients in understanding legal system abuse and the pivotal role they play in collectively pushing for tort reform.

“Forums like these complement our client engagement strategy, which also includes local and national events, as well as relationship leads who help our largest clients access the expansive, global capabilities of Liberty Mutual that may bring value to the strategic relationship,” Hyatt explained.

These dialogues and the philosophy of continuous improvement through the power of collaboration are increasingly helping the firm drive preference with clients.

Better Together

In reflecting on her focus on building Corporate Resilience, Hyatt shared, “it’s important to keep in mind that we’re all in this together. One of the mantra’s of our leader, Neeti Bhalla Johnson, is ‘our clients’ future is our future’ and we very much believe that.” Geary and Hyatt’s hope is that their commitment to Corporate Resilience pioneers new ways to ensure that the future is bright for Liberty’s clients.

“We’re taking the current unrelenting pace and intensity of today’s industry challenges and using them as triggers for how we can home in on building success for our clients amid uncertainty and providing them with greater security,” says Geary. “All this ties directly to our mission of helping clients embrace today and confidently pursue tomorrow.”

To learn more, visit: lmi.co/corporateresilience

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.

Liberty Mutual Insurance offers a wide range of insurance products and services, including general liability, property, commercial automobile, excess casualty and workers compensation.