Steven Bell, Vice President of Underwriting & Sales, Lovell Safety Management
For the last seven years, Workers’ Compensation (WC) Insurance has been one of the few bright spots in the insurance landscape. Unlike other coverages, rates for WC have been falling. More importantly, insurance carriers have had an appetite for WC risk, and market competition has benefited employers throughout the state. As 2024 approaches, the landscape is changing ever so slightly as carriers appear to be becoming more selective. What does that mean for the typical construction company? When the market begins to turn, it first starts to affect businesses with higher losses. At this point, your WC costs should not be rising unless you have had adverse loss experience or payroll growth.
Several key trends that are expected to shape the WC market in the coming year:
1. Loss Costs, Experience Rating and Rates: Effective October 1, 2023, WC loss costs/rates on average will decrease another -2.6%. Since 2017, WC loss costs/rates have decreased approximately 45% in New York. There are many factors that have been driving the loss cost/rate decreases, such as loss experience and development; loss frequency, severity, and wage trend factors; loss adjustment expenses; benefit levels; catastrophe and disaster premium; and industry differentials. While all these factors play a role, the future wage trend had the most impact on loss costs. All other factors being equal, as more wages are paid, more premium is generated and, if losses remain the same, then loss costs/rates will go down.
Experience Rating is designed to modify the loss cost to better fit an individual employer’s loss experience. You may have seen a larger credit or debit on your most recent renewal due to the New York Compensation Insurance Rating Bureau (NYCIRB) changing the methodology and formula for determining your experience modification. To temper the change, NYCIRB used the lowest of either the new formula, a claim-capping procedure, or the old formula plus 30 points. Effective 10/01/23, the new formula will use the lowest of either the new formula or claim capping procedure, which may further impact these changes.
Since 2022, we have seen a steady increase in interest rates. While higher interest rates can stagnate economic growth, they may extend the competitive workers’ compensation market as improved investment returns may offset the need to increase pricing if losses and frequency deteriorate.
2. Regulatory Revisions: In 2023, the legislature passed two bills that may impact system costs: the Minimum Weekly Rate A.2034-A/S1161-A and the Mandatory Initial Hearings A.6208/S.5867. The Minimum Weekly Rate legislation establishes a new minimum weekly indemnity rate of compensation that would be indexed to not less than 1/5 of the State Average Weekly Wage (SAWW) or the employee’s full wages if equal to or less than 1/5 of the SAWW. The Mandatory Hearing legislation will require the Workers Compensation Board to index a claim upon receipt of a medical report, hold a hearing within 60 days, or 45 days upon request, hire stenographers to record hearing minutes and send all notice decisions to claimants in their native tongue. All businesses should be concerned about the potential financial impact of these bills.
3. Technology: The latest technological trend is Artificial Intelligence (AI). Carriers are actively deploying AI to improve claim processing, early intervention, diagnosis, treatment, fraud detection, pricing, and loss prevention. In terms of occupational safety, you will see the rise of AI tools such as wearable technology that can monitor employee vital statistics and monitor things like air quality and warn workers instantly of unsafe air quality. Other technology includes video monitoring where AI monitors video of employee activity identifying unsafe behavior and actions and instantly sends out notices to address them. While these potential advancements may be able to impact safety, they raise concerns about privacy.
4. Labor, Subcontractors, Independent Contractors, and Gig Contractors: The shortage of labor has employers expanding the use of subcontractors, independent and gig contractors. New York has clear rules such as the Fair Play Act, that distinguish an independent contractor from an employee and additional rules that define who is chargeable for the premium. The Fair Play Act rules can be difficult to understand but as a simple rule of thumb, if you hire someone to do work for you and they don’t have valid WC coverage it is likely you will be charged premium for a portion of that work. In summary, it is likely the New York State’s WC market in 2024 will remain competitive for most employers. Political and Regulatory reforms have the potential to increase system costs, but only if signed into law by the governor. AI technology is poised to significantly impact carriers, employers, and workers as its use continues to evolve. Finally, the use of subcontractors needs to be closely monitored to ensure proper coverage, and avoid premium charges.
For more information on workers’ compensation, please contact the professionals at Lovell at 1-800-5-LOVELL or visit online at www.LovellSafety.com.