Posted by: Robert Wisniewski on Feb 18, 2021

It should come as no surprise that the COVID-19 pandemic has led to a dramatic decrease in unemployment rates in Arizona and the rest of the country.

Since the COVID-19 outbreak, over 600,000 Arizonans have filed for unemployment thus far. That amounts to roughly 17 percent of the total state workforce.

What may be more of a surprise is that with higher unemployment comes a lower rate of workers’ compensation claims. This finding is based on data from multiple studies.

NCCI research on workers’ compensation claim frequency

One such study from the National Council on Compensation Insurance (NCCI) determined that the Great Recession of 2007-2009, widely considered to be the most serious and long lasting economic contraction since the Great Depression (at least prior to the pandemic), had a considerable influence on claim frequency.

Several factors are believed to have contributed to this impact—one being the decline in the construction industry (commonly a source of many workers’ compensation claims) resulting from the recession.

Another factor listed in the report suggested by insurance experts was “that workers, fearful of losing their jobs, may have postponed filing workers compensation claims.”

WCIRB findings

Another study that supports these findings comes from the Workers’ Compensation Insurance Rating Bureau (WCIRB) of California, which has spent the last few decades compiling data about the state’s workers’ compensation trends.

The WCIRB has a formula for workers’ compensation claims based on the cost estimates of presumptions that estimate the frequency increase caused by COVID-19. According to this formula, the increase of workers’ comp claims ranges from 14 percent to 42 percent across the annual period for essential workers.

Early on in the pandemic, the WCIRB released estimates on what it would cost to provide the state’s workforce with workers’ comp benefits for COVID-19 without virus exposure at their jobs: approximately $10 billion. In late May, the WCIRB revisited this estimate; they now range from $600 million to $2.0 billion, with the median estimate coming in at $1.2 billion.

Many factors can influence the frequency of workers’ comp claims. But the WCIRB report revealed that the number of claims decreased modestly when the economy was recessed, and a decrease in claims was more significant when the economy was expanding.

Since 2012, the rate of post-termination workers’ comp claims is 25 per every 1,000 jobs lost. If we calculate that only half of the post-termination claims are received of the 4.3 million jobs lost in California, then we should expect roughly 54,000 post-termination claims over the next year.

What does all this mean?

The WCIRB’s lower estimates indicate that workers’ compensation claims should be fewer than originally expected. This belief falls in line with previous times of recession in the country’s history. The 2 past recessions that led to the industry impacts were the 2001 Recession and the Great Recession.

In short:

Economic recession affects workers’ compensation because employment and payroll both fall, which reduces premiums and the number of claims that need to be paid out.

When an economy goes through a recession, there is typically more unemployment, which means there are fewer people who are able to be injured while on the job and file workers’ compensation claims.

While it remains to be seen how the coronavirus pandemic will impact the economy and its subsequent impact on workers’ compensation claims, these studies can help paint a picture of what to expect in the months and years ahead in terms of economic impacts, rates of employment and workers’ compensation claims.

With so many people out of work, it can be expected that the overall number of workers’ comp claims will also be down until the economy can rebound and the employment rate increases.

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