This article is adapted from “Workers' Compensation in Two Hours: The Business Owners Guide to an Exceptional Workers' Compensation Program" by Nancy Germond.

This is the book that you wish you had read before you hired your first team member. Germond breaks down the complexity of workers compensation, why you need it, why you need to pay attention to it, and how doing it well will make your team better and improve your bottom line.

2020 threw the world a curveball. Almost overnight, COVID-19 changed the face of businesses, schools, governments and industries. The workers compensation system is vital to the smooth functioning of U.S. businesses. Yet employers and workers compensation insurance companies face major challenges.

Challenges pose problems, but they also open opportunities to improve the workers compensation system. Here are seven of the immediate challenges and opportunities faced by today's business owners and insurers:

1) COVID-19 and increasing claims compensability may impact rates. Insurers reported a decline of between 12.5% and 25% in workers compensation premiums collected in 2020. This means insurers have less premium to pay claims currently on the books. Insurers are also experiencing emerging losses due to COVID-19 claims. Clearly, there is increasing pressure on rates.

Workers compensation laws are evolving quickly. States are passing laws that increase the number of diseases or conditions covered by workers compensation. These laws or statutes are known as “presumptions." These include COVID-19 claims and coverage for more types of firefighter cancers.

COVID-19 “long haulers" are those who continue to have symptoms 28 or more days after they were first infected. Workers compensation-covered employees who are long haulers face chronic illnesses or increased disabilities. These will pose challenges for workers compensation insurers as they seek the most informed medical providers to deliver care.

2) Gig work and work from home will create challenges and opportunities. The gig and the work-from-home economy will create new challenges in claims management. The gig economy is a labor market made up mostly of those who work at home, perform freelance work or work under short-term contracts. Many companies report that at least some of their workforce will remain at home. Less money spent on employee benefits and commercial real estate may mean more investment into a company's growth.

3) Technology will continue to play a significant role in claims and underwriting. Health technology models, such as telemedicine and artificial intelligence (AI) tools, will continue to increase in workers compensation claims management.

Technology has brought many improvements in claims handling. Here are two:

1. Social media investigations of injured claimants. A number of companies have sprung up that specialize in mining social media to verify the injured employee's activity level.
2. Data mining to indicate which employees might be more likely to malinger.

Additionally, insurers increasingly rely on predictive modeling to set rates and determine which accounts they can write profitably. Predictive analytics takes statistical and analytical information to develop models that predict future outcomes.

To set their rates, today's underwriters use sophisticated predictive models built on big data. Using modeling, underwriters quickly know how much premium they need to charge to make a profit on your business.

Underwriters still use your experience rating modification factor (emod), and it still appears on your information page. However, “the emod no longer has a direct influence on premiums. Basically, the insurer's model tells underwriters how much to charge, and then they work backward to accommodate the emod," says Frank Pennachio, former principal of ReSource Pro.

That is not to say your emod isn't important; it is. It helps organizations track their loss experience, and it is critical for contractors who must meet emod requirements to bid on contracts.

However, “the emod formula is 100 years old," Pennachio re­minds us. Today's predictive modeling, driven by big data and the large data sets now readily available to insurers, can provide underwriters with a quicker and more impersonal approach to rate decisions.

4) Improved safety and loss prevention practices will decrease losses while claims costs will rise. Improved safety and loss prevention practices, such as better personal protective equipment and programs that monitor driver behavior, will continue to reduce losses, but claim costs will increase.

Medical inflation continues to outstrip general inflation, with no end in sight. Managing care from the first report of injury through claim conclusion can help insurers reduce lost time and decrease medical costs. Some states do not allow medical management. The employee or their attorney directs the care. Obtaining the best-in-class medical treatment for employees saves costs by preventing permanent total disability and reducing lost workdays.

5) An evolving population will create more claims challenges. An aging population and a population with more mental health challenges will make claims management more difficult. Aging workers incur injuries less frequently than younger employees. However, they tend to take longer to heal and incur higher medical costs.

Injuries, when a worker's condition ranges from depression to suicide attempts, may require highly skilled handling. Depression from long-term unemployment or the use of opioids can delay a worker's recovery. Insurance professionals must take particular care in these cases, as well.

Racial minorities face more challenges in managing health care, including in the workers compensation system. A 2019 study revealed a difference in treatment standards for people of color, longer delays in wage reimbursement and poorer health outcomes. Insurers can overcome these challenges by assigning nurse case managers who can prevent these disparities.

6) The employee advocacy model will increase among insurers. Effective communication with injured workers will become the standard in managing workers compensation claims. The social determinants of health (SDoH) model, also referred to as psychosocial factors, will increase among enlightened insurers. Some important SDoH factors are an employee's financial stability; access to transportation and food; home needs, such as an uncluttered environment; and community or familial support.

These SDoH variables, among others, greatly impact one's health. While these improvements may initially increase claims payments, better claims outcomes occur when employees feel valued and respected. They get well more quickly if the insurer can help address their quality-of-life needs.

7) Brain drain is here. Every organization in America will be affected. The lack of incoming talent in the insurance industry will impact hiring and promotions. Brain drain in the insurance industry is a big problem, increasing the need for better training and improved communication skills. New employees may not receive adequate training. Additionally, carriers may promote adjusters into management positions before they are ready to deal with complicated claims. When I see claim denials appealed and overturned, I wonder where the supervision was on the original claim. As the old saying goes, common sense is not so common.

Recapping the Steps to a Sound Program

While we never expect injuries, we know they can and do happen. But we want to do everything in our power to prevent injuries. We especially want to ensure they do not repeat. And we want to professionally manage the fallout from injuries, which can include lowered morale, required medical care and a delayed return to work.

Amid today's challenges, here is a summary of the steps you can take to ensure a top-notch workers compensation program:

1. Understand the benefits payable under your workers compensation policy.
2. Know the coverage under the key sections of your workers compensation policy.
3.  Choose an agent or broker well-versed in servicing workers compensation coverage for your type of business.
4.  Develop a strong safety culture where everyone in your organization, from senior management to front-line workers, works safely. Hold all employees accountable for safety.
5.  Bulletproof your hiring practices with thorough background checks and in-depth testing.
6.  Budget for safety and workforce wellness training. Training will pay dividends if you target your efforts.
7. Investigate every injury and near-miss that occurs in your organization.
8. Develop a loss-prevention committee to investigate accidents and near misses and remedy unsafe conditions.
9. Promptly report all injuries to your insurance carrier, even those that appear minor.
10. Develop strong relationships with your claims adjusters. This means prompt, two-way communication.
11. Utilize nurse case managers to improve medical outcomes in serious or stalled claims. When one of your claims stall, suggest the insurer add a nurse to the team.
12. Institute a stay-at-work/return-to-work (SAW/RTW) program that ensures your injured workers return to work as soon as possible.
13. Understand your emod. Work with your agent to ensure the National Council on Compensation Insurance (NCCI) or your rating bureau correctly calculates your emod to manage your premiums.
    
14.  Apply the tips on audit response to survive your yearly premium audit.
15. Scan the environment for emerging risks. Don't let the future blindside you.

These tips can help you manage the most important parts of your workers compensation program. It will mean fewer injuries, lower premiums and a more profitable future for your business.

Nancy Germond is Big “I" executive director of risk management and education.

“Workers' Compensation in Two Hours: The Business Owners Guide to an Exceptional Workers' Compensation Program" is available to order on Amazon.