Workers’ compensation mega claims – those that cost $3 million or more at 2018 cost levels – are on the rise, according to a recent study by a group of 10 U.S. rating agencies.
About 4,500 claims with incurred loss in excess of $3 million were reported from 2001 to 2017 as of Dec. 31, 2018, which is about one out of every 2,500 indemnity claims reported, a report based on the study states.
Of those claims coming in at $3 million and above:
- 57% were between $3 million and $5 million
- 33% were between $5 million and $10 million, and
- 10% were in excess of $10 million.
Mega claims don’t happen nearly as often as more typical claims, but “with costs comprising between $1 billion and $2 billion each year, these claims are a highly unpredictable component of most workers’ compensation systems,” according to the report.
However, mega claims are occurring with more frequency because of:
- medical advances
- improving mortality patterns for those with serious injuries
- increasing prevalence and cost of home healthcare, and
- reform-related cost reductions in some states that have less impact on mega claims compared to other claims.
The data also shows:
- The rate of reported mega claims dropped sharply during the Great Recession as construction employment plummeted across the U.S., but the share of such claims began to increase steadily in 2013.
- Mega claims for 2016 and 2017 were up significantly compared to previous years, but this may be due to insurers being able to identify them earlier.
- The construction sector had about 40% of the mega claims that occurred during the study period while having less than 20% of all indemnity claims.
- Brain and head injuries made up 30% of claims in excess of $10 million and 17% of those between $3 million and $5 million. Such claims fall well below 5% of all indemnity claims in most states.
- Vehicle crashes gave rise to more than 20% of mega claims, but are at 5% of all indemnity claims in most states.
- Claims take some time to become mega claims with less than half of them reaching the $3 million threshold by 18 months from policy inception. Less than 90% reach that threshold by 126 months. But they’re reaching the $3 million mark more quickly than in the past.
- Mega claims from the construction sector reach the $3 million mark more quickly than those from the office/clerical sector. Those arising from vehicle crashes, struck-by injuries and head/brain injuries also reach the threshold faster than other claims.
- Claims in California and New York take longer on average to reach $3 million than in other states.