The Australian Chambers of Commerce and Industry (ACCI) expects a huge wave of claims to hit Workers Compensation (WC) insurers in Australia due to COVID-19.

The Insurance Council of Australia (ICA) has declared the current COVID-19 situation a catastrophe. Like a tsunami, this will not only wreak immediate damage, it may also hurt long-term profitability of insurers; in some cases, small businesses might face existential threats. This comes at a time when many insurers are already struggling to stay afloat in the WC product line (loss ratio at 113% for the industry ). Prolonged economic stress can be devastating.


The major factors impacting both employees and healthcare workers are expected to include:

1. Modifications or proposed changes to existing laws due to COVID-19, such as:

  • Exemption on pre-approval from insurers
  • Modifications in allocating Independent Medical Examination (IME)
  • Other changes proposed in SA, NT and VIC to expand the provisions of workers and working situations (details in the appendix)

2. Medical health professionals who have worked long hours during the pandemic might start presenting the effects of weariness and fatigue that can make them more vulnerable to:

  • Workplace injuries
  • Mental stress
  • Post-traumatic stress (in extreme cases)

3. The new working environment and enablement of social distancing measures might lead to the emergence of new risks and potentially higher severity of claims:

  • The new work environment will have implications for insurers. In a recent survey conducted by ABS, close to 50% of workers were enabled to work from home. While this number will level out and may decrease, the overall trend is likely to continue. In the same survey, 22% of Australians said that the most commonly experienced stress factor was loneliness.
  • Social distancing measures leading to the new working environment have made people more prone to commit mistakes and cause workplace injuries (e.g., maintaining a six-foot distance at construction and manufacturing sites could force movement plans that lead to new worksite hazards). Unless coronavirus is completely eradicated, getting accustomed to the new working environment will take time; businesses would have to evolve workable arrangements until then.

The above factors, coupled with bushfire claims that are still open, will stretch the claims department, which might lead to errors and delays.

Impact on Insurers

Since these changes are occurring fast, it gives insurers very little time to adjust and make arrangements to deal with the “tsunami of claims” coming their way.

Insurers need to be more agile, flexible and innovative to come up with ways to absorb this increased volume of claims and, at the same time, maintain claims cycle-times, keep costs in checks and sustain the customer experience.

We anticipate that claims will require the most attention in the short-run (3-6 months); pricing changes must be factored in according to the evolving working environment.

1. First Notice of Loss:

Expectation:
  • The increased number of claims will lead to delays in claims registration (indexing), triaging and allocation
  • A longer queue of claims will have to be triaged at the same time, maintaining the accuracy and consistency of the triaging rules
  • Most insurers’ capacities will come under stress due to reduce turnaround times
  • The accuracy and consistency of the application of ICDs might be suspect
  • Incoming call traffic for insurers will increase, causing longer wait times for customers
  • Work hours for a staff that has recently battled bushfires, along with COVID-19-related stress, may be extended
  • Cyclical effects such as latency, errors and omissions, and capacity constraints may lead to re-work and further delays

2. Recovery time:

Expectation:
  • Telehealth consultation might cause procedural workarounds, resulting in non-compliance with routine check-ups compared to a physical examination
  • Delay in diagnosis or worsening of conditions that could have been treated much faster during physical examination and check-up
  • Adverse effect on IMEs due to the remote evaluation process taking longer than usual, leading to higher recovery times

3. Investigation and Fraud:

Expectation:
  • Nurses, emergency workers and first-line responders have been given immunity to prove that they caught the disease while on the job
  • There might be a lot of other cases where the virus was contracted on the job, but will be difficult to prove or disprove
  • Closer evaluation of each claim before denying or accepting it
  • A high chance of genuine fraud cases slipping through the cracks, due to blanket approvals, as well as an increased volume of investigative claims

4. Pricing Changes: Insurers will have to revisit pricing models and strategize to:

  • Engage with regulators to consider more factors in risk pricing (especially for WC)
  • Demand more independence in setting up premiums so that insurers do not underprice risk and expose themselves to high-severity claims

How Can Insurers Respond?

While facing these tough challenges, insurers will be under much scrutiny from regulators. Although some of their existing processes and teams might be equipped to handle the situation, it will require the entire claims eco-system to work together. Insurers can benefit from the following options:

Capacity Augmentation:

a. People:
  • Add capacity and resources to work on the increasing claims
  • Re-purpose the internal workforce to cover part of the added demand and hire external resources to handle claims volume, being careful to allow for timing and scale
  • Partner with vendors who have complementary skills at scale on a temporary basis
b. Robots:
  • Deploy bots to take up the bulk of the existing work and free-up internal capacity to handle more complicated cases

Digital Analytics Solutions:

a. Information Ingestion: Owing to the increased volume of digital transactions, there is an increasing need to enable ingestion, parsing, cleansing and interpretation of unstructured information through digital means. The ability to extract information from machine readable documents, emails, images, etc. will not only give insurers an edge in the short-run, but will also help them to become a next-generation insurer.

b. Data and Analytics: While capacity augmentation might be able to solve non-core workforce demand, it cannot act as a solution for core work activities. An insurer will have a limited number of adjusters, handlers and investigators, and it becomes even more important that they spend their time on the cases they really need to work on. Therefore, deploying the following analytics suites in the claims management process might help in handling the increasing claims volume.

  • A claims analytics-triaging suite can help insurers create the right value by routing claims to handlers in the most efficient and accurate way
  • Application of a fraud analytics-prioritization and triaging suite can aid investigators to focus on highly likely fraud cases
  • Audit and surveys of work places can be prioritized using predictive analytics models to make efficient use of the audit workforce
  • Building pricing models through software, such as Emblem or Earnix, and supporting the needs of actuaries to identify new data-driven factors to consider during the underwriting and pricing process, can support pricing structures

Conclusion

We see many challenges mushrooming in the WC insurance space over the coming months. Hence, the time is ideal for insurers to start dealing with these challenges and building their organization with an eye on the future. We leave insurers to ponder the following questions as they formulate their response to the evolving COVID-19 and related economic situation:

  • Are you equipped to deal with an increase in mental stress claims, as well as provide cover for injuries sustained at home, as more employees adopt the new workplace regime?
  • Will new and changing conditions at work lead to higher than normal claims related to injuries and stress? What can your firm do to accommodate changes to existing and new policies at covered work locations?
  • Do you have the right data and analytical tools at your disposal to create a data-driven strategy for dealing with these problems?

As Albert Einstein once said, “In the middle of difficulty lies opportunity.” Now is the time to seize the moment.

Appendix

Modifications or proposed changes to existing laws due to COVID-19

As per the Australian Census, health care and social assistance employs one of the largest number of workers (~11.5%) in the Australian economy, second only to retail. Any changes to laws affecting employees working in this sector will have a significant impact on WC insurance providers.

As per the high court of Australia, any contraction of viral infection entering the worker’s body due to an external cause was a “personal injury” within comparative provisions of the Workers’ Compensation Act of 1926 (NSW). Therefore, the coronavirus infection is most likely to be considered a “personal injury” or “disease.”

Due to the high severity of the infection rate of coronavirus, legal and regulatory bodies have started making amendments to their laws to ensure protection of “emergency services” employees, thus making it easier for them to file for claims without getting into a lengthy process of having to prove where they contracted the virus.

The insurance industry should brace themselves, as changes to these laws can have long-term implications and also mean widening the net for contraction of diseases that can be claimed under WC insurance. Below is the summary of changes to existing laws listed in the document.

1. Relaxation for essential services:

  • NSW Parliament has recently passed an amendment to its workers compensation laws that nurses, paramedics, teachers and other essential workers don’t need to prove that they were infected with the virus at the time of rendering the services.
  • These changes are applicable for all workers across industries including hospitality, health, education, entertainment, construction and retail.
  • These amendments will provide medical assistance and wage coverage for workers who are unable to continue work due to COVID-19 infection and also provide death benefits to worker’s dependents in case of their death.

2. Exemption on pre-approval from insurers:

  • SIRA has made an amendment to remove the requirement of obtaining necessary pre-approval from insurers for treatments and services.
  • Telehealth consultation services on injuries are exempted from prior approvals.

3. Changes in work capacity assessment:

  • When requesting workers to attend work capacity assessments, SIRA mandated insurers to provide a written notice to workers for the appointment.
  • Additionally, insurers should consider local law amendments and public health orders before advising workers for assessment.

4. Modifications in allocating Independent Medical Examination (IME):

  • SIRA has amended their guidelines that during a pandemic, such as the outbreak of COVID-19 in Australia, special circumstances may be considered eligible for video consultation.
  • Insurers should consider local law amendments and public health orders before advising workers for independent medical examination to leave their place of residence and travel to an appointment during the pandemic.

5. Changes to medical examination process in Victoria:

  • As the process of exhaling during spirometry testing may discharge harmful droplets into the air, Workcover VIC has recommended to postpone spirometric testing until COVID-19 is controlled.

6. Relaxation to produce original documents:

  • The mandatory requirement to produce original documents lodged with Conciliation and Arbitration Services has been waived temporarily during the COVID-19 pandemic.

7. Significant changes proposed to Northern Territory’s Return to Work Legislation:

The Return to Work Legislation Amendment Bill of 2020 was introduced into the Northern Territory Legislative Assembly on 19 February 2020. Key changes include:

  • Definition of a worker is not confined to a person who is contracted or paid directly by the employer and is to be considered on a case-by-case basis.
  • “Out of or in the course of employment” now extends to journey claims (journey between workplace and home or between workplaces).
  • Clarifies that the employers’ liability does extend to proposed medical, surgical and rehabilitation treatments, not only to costs already incurred.
  • In circumstances where a worker has been overpaid due to an incorrect calculation of the insurer or employer, a mechanism has been put in place to recover it from worker
  • Reasonable costs of childcare must be paid in circumstances where a worker does not have family members able to provide care and is either in the hospital due to the work injury or having surgery related to the work injury.

8. Amendments to South Australia Return to Work Act 2014:

  • Any worker diagnosed with COVID-19 as a result of approved testing for return to work will be taken to have suffered an injury arisen from the worker’s employment and does not require any proof.
  • Any person employed in a prescribed workplace or occupation when diagnosed with COVID-19 will be presumed to have contracted it from the employment or occupation and does not require any proof.

References

1. https://www.abs.gov.au/ausstats/abs@.nsf/0/48791677FF5B2814CA256A1D0001FECD?Opendocument

2. https://www.finity.com.au/publication/optimalite-2019

3. https://www.abs.gov.au/ausstats/abs@.nsf/mf/4940.0

4. https://www.afr.com/companies/financial-services/businesses-fear-flood-of-workers-comp-claims-20200312-p549bv

5. https://www.sparke.com.au/insights/significant-changesproposed-to-nts-return-to-work-legislation/

Authors

Neeraj Sibal
Engagement Manager, EXL

Periyasamy Selvaraj
Project Manager, EXL

Contributor:

Richa Upadhyay
Senior Consultant, EXL

 

Reviewer

Rajnil Mallik
Analytics Head, Australia & APAC, EXL

 

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