|Copyright:||(c) 2011 A.M. Best Company, Inc.|
|Source:||A.M. Best Company, Inc.|
For the first time in five years, the frequency of workers’ compensation claims increased due in part to a confluence of factors stemming from the ongoing economic recession, according to a report released by NCCI Holdings Inc.NCCI is the largest U.S. provider of workers’ compensation data.
The report found claim frequency for workers’ compensation injuries increased by 3% in 2010, marking the first increase since 1997. Prior to this year’s uptick, claim frequency had been declining at an average rate of 4.3% per year since 1990, with only 1994 and 1997 seeing increases.
But while claims frequency was up, the increase in average indemnity and medical costs per claim decreased in 2010.
NCCI attributed the increase in claim frequency to three key factors tied to the recession.
The first factor cited by the report was a shift away from the construction industry in 2010, which was significant because the construction industry generally has a lower frequency per premium collected when compared with other industries, the report said.
The recession also set off an increase in the average number of hours worked per week for the first time since 2008. After a two-year period that saw decreases in the average number of hours worked, that figure went up by 0.6% in 2010. An increase in hours worked per week is expected to generate an increase in claims, which, without a corresponding increase in number of workers, will put upward pressure on frequency, the report said.
NCCI estimated those two factors combined to increase claim frequency by just 1%.
The real reason for the increase in claim frequency was attributed to overstatements in final payroll estimates, which resulted in an increased number of audits and returned premiums.
“This change in the direction of premium audits had a significant impact on the calendar year earned premiums used in the denominator of the NCCI accident year frequency calculation. NCCI estimates that the calendar year 2010 premium understated the premium on actual exposures earned by 3%. In contrast, the calendar year 2009 premium overstated the premium on actual exposures earned by 2%. These distortions combined to produce a five-percentage-point overstatement in the claim frequency change for 2010, as measured using calendar year earned premium,” the report said.