The Disability Insurance “trust gap” Part 1: Causes

[The following notes background and discussion points from a series of sessions Disability Management undergraduates completing a 4^th year course on Workplace Insurance and Benefits.  Part 1 explores the reasons for the lack of trust in disability insurance.  Part 2 provides five practice priorities individual case managers and disability management professionals can use to narrow the trust gap they face in their day-to-day work. ]

Many of you are currently working or will go on to work  as Disability Management professionals for a workplace insurance organization.  Whether you work as a Case Manager for  workers’ compensation system, a client services representative for a transport-accident personal-injury insurance, a claims administrator for a non-occupational disability insurance plan, or a return-to-work specialist for a third-party administrator, you will face the disability insurance “trust gap”. 

You know the primary concerns of your clients; after health and care needs, “How will I support myself (and my family)?” is the priority.  

Injury, illness, and disability have significant costs and impacts on earnings.   According to recent media report, "More than half of Canadians $200 away or less from not being able to pay all of their bills" [see CTV News, More than half of Canadians $200 away or less from not being able to pay all of their bills, at  https://www.ctvnews.ca/business/more-than-half-of-canadians-200-away-or-less-from-not-being-able-to-pay-all-of-their-bills-1.6473939 ] .  Without the financial protections of work-related, group, and non-occupational disability insurance, many would quickly reach insolvency.

Complicating interactions are pervasive attitudes and beliefs about insurance.  Whether it’s property, casualty, disability, motor vehicle or workers’ compensation, trust in insurance is low.  Skepticism and misconceptions about insurance are pervasive.  Getting beyond this starting point will always be a challenge for those who play a role in the process.  We’ll get to what you can do later.  For now, let’s examine why the disability insurance trust gap exists in the first place. 

Lack of Trust in Insurance

Most people participating in the workforce have some sense that disability insurance plans are necessary and valuable.  Most understand the basic idea of insurance; in exchange for a specified premium, the insurer assumes the financial risk associated with certain (rare but costly) defined events.  Most working people trust in the premise of disability insurance, but doubt the promise that insurers actually pay in the event of a qualifying loss. 

The trust gap is not unique to the disability insurance sector.  According to one recent report,   less than 30% of people surveyed had a positive opinion of the insurance industry, with 53% having had a negative experience. [See Peter Littlejohns,   New survey from The Geneva Association shows underinsurance is fuelled by mistrust, NS Insurance, 26 June 2019 available at https://www.nsinsurance.com/analysis/the-geneva-association-survey/  ]

This level of trust in insurance is reflective of the broader financial services sector.  The percent trust in the financial services sectors (57) has repeatedly trailed the trust index listing of fifteen industries, well behind other sectors including healthcare (67),  education (70), and technology (78). [See  2019 EDELMAN TRUST BAROMETER Global Report available at https://www.edelman.com/sites/g/files/aatuss191/files/2019-02/2019_Edelman_Trust_Barometer_Global_Report.pdf ]

The challenge of insuring disability

Disability insurance plans are big—an attribute rarely associated with trust.    “Big tobacco”, “big government”, and “big oil” are almost pejorative terms echoing generalized distrust of big institutions. 

Disability insurance plans must be big, at least big enough to accurately assess the risk of and actuarily determine the costs of covering rare, costly events.  Each of us faces the risk of a disabling injury, condition, or disease; quantifying and insuring risk is only possible when those individual risks are pooled across larger groups or population.  That ability to quantify risk and price the cost of coverage is the important “value add” of all disability insurance.

Being big does carry real challenges.   Monopolistic disability insurance providers (particularly national, jurisdictional, and state social insurance plans) lack competitive pressures of free market models.  Even where the provision of disability insurance is competitive, the market is dominated by a few, very large insurers.  The economies of scale and efficiency of being big do not eliminate the risk of market failures; without objective, transparent disclosure and oversight, the perception of distance and unresponsiveness tends to accumulate over time.

A “Big” institution of any sort is often painted as uncaring, impersonal, and even dehumanizing.  Public social insurance plans like US Social Security Disability Insurance (SSDI) and Canada Pension Plan Disability (CPP-D) are often singled out in this regard [For example, see American Progress, How Dehumanizing Administrative Burdens Harm Disabled People, 5 December 2022 available at https://www.americanprogress.org/article/how-dehumanizing-administrative-burdens-harm-disabled-people/ ]. 

As noted, disability insurance plans and programs must be large to be actuarially viable. When disability insurance plans are working as designed, funds to cover losses and administration will be there when they are needed. And that’s exactly what happens, most of the time.  Disability insurers collect a lot of money and earn a lot of return on investments, but nearly all those funds collected and gains earned are  paid out in entitlements, benefits, and administration.

Those big dollar amounts often make headlines.  Unfunded liabilities or surpluses attract public scrutiny and media criticism. Outrage at necessary increases in premiums or demands for refunds to insurance payers or increased to beneficiaries often dominate the public discourse.  Current and future beneficiaries worry about sustainability of the disability payments on which they depend.  Some of this lack of trust is rooted in a lack of understanding of disability insurance financing. 

Big public and private disability insurers tend to be financially stable over time.  Periods of excess claim costs, lower premium income, and inadequate investment revenue can result in occasional imbalances—where the funds on hand are not sufficient to meet needs.  Unfunded liability and surplus positions may persist for some time but tend to return to a balanced, sustainable level over the long run.

As an industry, property and casualty insurance is profitable for shareholders (private insurance) or financially balanced for stakeholders (public, mutual, state funds).  The disability insurance line of workers’ compensation insurance in the US, for example, has had eight years of underwriting profitability. [see Donna Glenn (chief actuary), State of the Line Report,  NCCI Insights, 18 May 2023 available at https://www.ncci.com/Articles/Pages/Insights-AIS2023-SOTL.aspx ]

Denial rates in  Disability Insurance reinforce low trust perception

Apprehensions about disability insurance are often reinforced by press reports accentuating insurer errors, social media stories amplifying egregious cases, and disability lawyers asserting disability insurers deny benefits just to maximize profits.

Behind the hyperbole and exaggeration, legitimate concerns underpin insurance apprehensions. Initial applications for disability are not always accepted.  The “acceptance” and “denial” rates vary with the disability insurance type; however, criticisms tend to be categorical, citing or implying high denial rates across all disability insurance plans (including workers’ compensation, social insurance, group and individual plans, and transportation accident disability insurance).

To be clear, the denial rates for initial applications for many disability insurance types are high.    US Social Security Disability Insurance (SSDI) applications from workers are often denied.  The final award rate for SSDI averaged just 31% (2010-2019) [See Social Security Administration,  Annual Statistical Report on the Social Security Disability Insurance Program, 2020, Chart 11 at https://www.ssa.gov/policy/docs/statcomps/di_asr/2020/ ] 

Canada Pension Plan Disability (CPP-D) has a similarly low acceptance rate with the national average was 43 percent for the 2014–15 fiscal year. [See Auditor General for Canada, Report 6—Canada Pension Plan Disability Program, 2015, available at https://www.oag-bvg.gc.ca/internet/English/parl_oag_201602_06_e_41063.html]   

Workers’ compensation denial rates are not consistently defined, similarly calculated, or widely reported.  Oregon reports its jurisdiction’s workers' compensation “Disabling Claim Denial Rate” at 10% (2022), down steadily from a high of 18.8% (1992). [See Oregon Department of Consumer and Business Services, Workers’ Compensation System, Workers’ Compensation Claims Administration table available at https://www.oregon.gov/dcbs/reports/compensation/pages/wc-claims.aspx]

WorkSafeBC reports a different but related statistic based on claims “Disallowed” as a proportion of claims reported.  At 6.3%(2022) this measure sits near the low end of a ten-year range that has been as high as 8.7%(2015). [See WorkSafeBC, 2022 Ten-year summary of consolidated financial statements — Smoothed or funding basis, available at https://www.worksafebc.com/en/resources/about-us/annual-report-statistics/2022-annual-report/2022-ten-year-summary-consolidated-financial-statements ]

Research has shown a relationship between denial rates and claims-filing behavior in workers’ compensation cases. Higher denial rates were found to be associated with lower claim-filing rates for some injuries. This was particularly true for back injuries where the relationship was statistically strong and significant.  [see Jeff Biddle, Do High Claim-Denial Rates Discourage Claiming? Evidence from Workers Compensation Insurance, The Journal of Risk and Insurance, Vol. 68, No. 4 (Dec., 2001), pp. 631-658]

Reasons for denials

Insurers must make certain they live up to their specific side of the insurance promise.  Coverage is for specified perils only.  Disability Insurers must be certain every applicant meets qualifying and coverage criteria before determining entitlement.  In the case of workers’ compensation, for example, the applicant must be an insured worker within the definition of the law or policy in force; because workers’ compensation insurance covers work-related injury and disease, the nexus between work and the harm leading to disability must be established.  If these criteria are met, the workers’ compensation insurer can then assess the extent of the loss, if any, and compensate the loss accordingly. 

It would be incorrect to simply view denied claims as either a reflection of heartless bureaucracies or a reasonable outcome of attempts by social insurance or workers’ compensation to guard against fraud, abuse or misuse.  The most common reasons for claims being rejected, denied or disallowed relate to issues of coverage, qualification and eligibility. 

Insurers do deny some claims wrongly.  Errors are made; we know that cases are overturned on appeal due to errors in law or judgement.  We also know that decisions take time; we also know that long delays are harmful.  Headlines about disability insurance denials are often sensational but the reasons are not always clearly explained; media reports often omit key facts or over-simplify the issues while privacy rules prevent full-throated clarification by insurers explaining their actions. 

The language of insurance

The trust gap is even reinforced by insurance terminology.  The technical language of disability insurance itself perpetuates negative perceptions. While “claimant” is a neutral term to insurers, in common parlance it has a negative connotation. “Claimant” implies a person has a contestable position and an onus to substantiate their “claim”.  It’s not just cynicism.  In everyday interactions, we learn to treat those “making a claim”  with caution and their “claim” with skepticism. 

In everyday conversations,  we typically ask a person making a claim to provide some evidence.  In disability terms, that ask is really an onus—typically placed on the disabled applicant.  That legal-sounding language is inherent in all disability insurance types.

All disability insurance demand evidence to consider in any application for benefits.  For insurance where causation is important, the  standard of proof may be as low.  For many workers’ compensation systems, the “work-relatedness”  need only meet the “balance of probabilities” standard; others require a higher standard such as work having been the “predominant cause”. 

For most group-LTD and social insurance, the question is less focused on  “causation” and more on  “disability”.  The onus for providing proof of disability typically rests with the applicant but is often mediated by the healthcare profession.  Questions of access to healthcare and the challenges of timely diagnosis and treatment are major barriers that can impede access to disability benefits.  Failure to provide required evidence may result in applications for benefits being suspended or denied. 

Why do disability insurers insist on applications to other disability insurers?

“Why bother claiming benefits from X when they will just reduce what I get from Y?”  Many disabled employees face this question.  The existence of multiple and sometimes overlapping disability insurance types drives the apparent high denial rates in social insurance and likely in some workers’ compensation systems as well.

The largest group LTD insurer in the US is Cigna.    The Group Long Term Disability application form [500469 Rev. 11/14 available at  https://www.cigna.com/static/www-cigna-com/docs/individuals-families/5004692.pdf ] for benefits includes the following:

Have you applied for Social Security Benefits?  Yes   No

If yes, please attach a copy of your Social Security notice for you and your dependents or a copy of your Social Security Denial.  If you have not applied, please do so as soon as possible.

Cigna also asks if the applicant is receiving or eligible for workers’ compensation, veterans’ benefits, no fault auto and other benefit plans.  In many cases, an affirmative response may reduce the amount payable under the group LTD coverage.

Where the benefits from a social insurance plan or workers’ compensation payment “offset” group LTD benefits, there is no advantage to the worker to claim both and no incentive to appeal a negative decision.  There is, however, a very clear advantage to the insurer if some other insurer is the “first payer”.  Where there is some stacking (partial integration or offsetting) of benefits, there is a clear financial incentive for disability insurance to press applicants to pursue coverage from all possible insurers.  Insurance principles generally preclude a person from being better off financially on disability insurance benefits than if working.

What can be done about this trust gap?

The reality of the disability insurance trust gap makes the job of case managers and other disability management professionals more difficult.  The attitudes and beliefs applicants bring with them may not be easily ameliorated; how benefit and rehabilitation people interact on an individual basis can overcome the trust deficit.  That’s the focus of Part 2.

10 ways AI will impact workers’ compensation and personal injury insurance

The mainstream advent of Artificial Intelligence (AI) and Artificial General Intelligence (AGI or AutoAI such as AutoGPT) dominates on-line and traditional news feeds with examples and extrapolations of impacts both positive and negative.  

Capabilities and Cautions

Educational institutions are struggling with what to do about the sudden availability of this technology in academic settings. I tell participants in the university and professional courses I instruct that AI chatbots such as Google Bard, ChatGPT, and Microsoft Bing Chat are not prohibited within my courses; these tools are helpful in exploring new ideas in prevention, analyzing claim decisions, and generating return-to-work strategies or vocational alternatives for disabled workers.  Learning to use them appropriately is an important real-world skill.  Simply banning their use in academics makes little sense.  

Informal discussions with executives and professional working in workers’ compensation, prevention, and personal injury insurance, reveal widespread if informal use of these tools along with anecdotal accounts of both positive and cautionary experiences.  From my own testing and published reports, AI chatbots may make up data, cite non-existent sources, and even attribute direct quotes that were never authored by the attributed source.  I asked several chatbots to create a table comparing specific legislated provisions of state and provincial workers’ compensation laws.  None provided correct data.  When corrected, the chatbots politely apologized and made the necessary corrections in an amended table.  When queried in another session, the original errors and omissions returned.  

AI applications in sectors and industries

The public-facing chatbots available today are illustrative of AI capabilities (despite current limitations).  AI applications just entering public awareness include text-to-image and text-to-video representations that are difficult to differentiate from images captured by any digital or analogue camera.  Specialized AI applications are already being marketed to many professional fields including medicine, manufacturing, finance, and legal services. Those AI applications are about to impact many industries and occupations.  [For example, see Arianna Johnson, “Which Jobs Will AI Replace? These 4 Industries Will Be Heavily Impacted”, Forbes, Mar 30, 2023 and “16 Industries And Functions That Will Benefit From AI In 2022 And Beyond”, Forbes, Jan 13, 2022].  

Workers’ compensation, personal injury insurance and AI

In workers’ compensation and other personal injury insurance organizations, AI-assisted tools are the next generation of resources to facilitate diagnosis, treatment and early, safe return-to-work outcomes.  AI’s impacts in these fields are going to be fundamental and disruptive.  Here’s what to expect in the near to medium term: 

1. Most claims will be automatically adjudicated--quickly, accurately, consistently, efficiently.

AI is already being applied in personal injury insurance and will be the dominant adjudicative and processing modality for claims.  Pareto optimization and segmentation will allow fewer but more highly trained, specialized resources to be focused on more complex cases to achieve better outcomes while providing rapid, accurate, consistent service for most other cases [ see Clara Analytics, “Six ways to reduce workers’ compensation costs using AI” at https://claraanalytics.com/blog/six-ways-to-reduce-workers-comp-costs-using-ai] / The human resource challenge of competing for, developing and retaining those resources will be significant.

2. Medical cost-containment will be AI driven. 

Ai works well with large data sources and will more effectively track patterns, spot anomalies, and detect issues once the purview of manual audit and review processes. Machine learning and advanced analytics will eliminate the need for manual processes (such as medical bill reviews) and allow for highly focused, real-time control by fewer but more highly trained human agents.  AutoAI will handle most but not all results.  For the (fewer) cost-containment specialists, the intensity of work will actually increase as a consequence of AI managing much of the routine, lower complexity issues.  This “adverse selection” will intensify the complexity of the residual cases.

3. Organizational structures will change significantly 

Smaller organizational establishments and facilities for the human resources will be required to support the AI driven systems and highly specialized human adjudicative/claims, prevention, rehabilitation, and administrative processes.  In terms of Henry Mintzberg’s organizational structure theory, AI implementations will reduce establishment size (number of staff) of the operating core and middle line components of an organization.  Many (but not all) support and oversight functions will be absorbed by AI systems.  This does not eliminate the need for all support functions; AI will change the scope of a smaller cohort with additional skills and responsibilities beyond traditional support functions.  This will be particularly true in line and technical support areas where knowledge requirements at what was considered support or assistant levels will increase.  Professionalization and upskilling in both the use of AI technologies and extra-organizational human interactions that facilitate line functions will be essential for professional and executive assistant roles. While more routine work will flow through AI systems, higher functions including many “middle management” functions such as monitoring, budgeting, contract administration, and deployment tasks will cascade directly from executive levels to AI and human executive assistant and analyst levels.  Governance will need to expand or create roles for Chief Technology, Chief Data, and Chief Risk Officers. 

4. Policy development and legal analysis cycles will shorten.

As noted in the introduction, AI tools are already preparing legal documents, synthesizing decisions, analyzing rulings, and drafting policies.  For workers’ compensation and other insurance, AI will facilitate more rapid development and allow greater attention to communication.  AI will also facilitate the “use case” analysis and financial impact modeling needed for legislative and policy consultations.  I recently took the proposed WorkSafeBC guideline for G7.19(5) Exposure to non-ionizing radiation – Ultraviolet radiation [see https://www.worksafebc.com/en/resources/law-policy/discussion-papers/guidelines-preliminary-posting/g7-19-5-exposure-to-non-ionizing-radiation-ultraviolet-radiation] and asked a chatbot for a review including strengths and weaknesses.  The response lauded its structure, informative nature, and up-to-date information but suggested several possible improvements in the form of expansions, using UV germicidal lights that have become more widely used for disinfection purposes in hospitals and hotels.  

5. AI will detect risk and injury patterns creating opportunities for injury and disability prevention.

AI works with data.  Workers’ compensation and personal injury insurance work with people, specifically their hearts, minds, attitudes, and beliefs. While AI can detect patterns of cause and suggest opportunities for better prevention of injury and disability, interventions in populations will require emotional intelligence, operational agility, and creativity mediated by capable human agents.  AI will help prevention (loss prevention departments) more effectively target their primary prevention activities and initiatives.  For inspectorates (regulatory agencies), AI will allow for faster action and more effective targeted compliance interventions.  Disability management (DM) and vocational rehabilitation (VR) specialists will be aided by AI in their secondary and tertiary prevention roles.  Upskilling prevention staff, workplace inspectors and DM/VR professionals to use AI effectively will be a challenge.

6. Appeals against decisions will become fewer but more complex.

Better initial decision-making by AI or AI-assisted adjudication will result in fewer errors in law or application of policy.  This will adversely select for more complex cases involving the weighing of evidence and the exercise of discretion.  I recently took the summary of a publicly available noteworthy decision from the Workers’ Compensation Appeal Tribunal of British Columbia (WCAT) and asked an AI chatbot to determine weaknesses in the decision.  The analysis was instant and provided several weaknesses.  While this test was based on an appellate level decision, it illustrates how AI allows initial, review, and appeal decisions to be examined to find weaknesses and facilitate grounds for further appellate action.  It also suggests how AI may be applied in the decision drafting stage to identify weaknesses that may be addressed before the final decision is released (weaknesses addressed or decision reconsidered).  If this improves decision making, the result will be improved reasoning in the ultimate decision and potentially fewer appeals. 

7. AI supported fraud and cyber attacks will increase and become more difficult to detect.

AI can craft stories that are pure fiction from a few facts and suggestions.  It can model scenarios that are indistinguishable from those insurers receive to insure and compensate employers, workers, and others.  With graphical AI applications, even photographic and video evidence may be misleading.  AI can find vulnerabilities in systems and codes and create scenarios that may open workers’ compensation and personal injury insurers to fraud.  This issue is not limited to claims or supplier attempts to exploit systems.  This threat includes internal fraud and external exploits on financial and other systems.  

8. AI will be visible… until it is not

At the moment, the public awareness of AI and its potentials is heightened.  Insurers in workers’ comp and personal injury will be under scrutiny for how they implement AI technology.  Public filings and disclosure rules may even be imposed.  This demand for transparency will be significant, persistent, but will fade over time.    Just as the public-facing ChatBots will fade away as a novelty and  “AI enhanced search” functions will simply be considered integral to the “search” function, AI will be seamless incorporated across all components of the insurance value chain.  No one will demand transparency over the AI that controls the traffic flow on our streets or optimizes the energy use in our homes;  the same will be true for most personal injury and workers’ compensation claims decisions, it will become just part of environment in which we live and operate. 

9. AI will become trusted despite making (a few) spectacular errors

AI is improving at astounding rates.  Already, AI has reportedly passed business, law and medical exams.  That does not mean to say I’m ready to trust my medical care or the drafting of my contracts to a chatbot.  On the other hand, I am reaching the point where I may be less assured by a physician or lawyer who refuses to use AI in their work.  AI will increasingly be trusted despite errors.  As those errors decline, that trust will become implicit… mostly.  Widely reported errors in any AI application in any industry will impact trust in all sectors using the technology. 

10. AI will not eliminate bias

AI works from existing data.  Most language-based AI systems will reflect the bias inherent the language and data they access.  There is a risk that AI implementations will be bias towards the weight of data available historically, making it more difficult for newer, more accurate data to be reported and presented in AI enabled systems with the appropriate weight or prominence.  For example, AI can’t correct the inherent lack of female representation in past medical studies or correct gender bias that may lead to underestimation of impacts on women.  I warn my students to not consider AI chatbot outputs as authorities or their responses as definitive.  While the AI chatbots I’ve tested will admit errors, omissions, they only do so when challenged.  While factual errors may be reduced, AI will continue to reflect bias—and that will be hard to identify.

Closing thoughts

AI has changed the operating and threat environment for workers’ compensation and personal injury insurance.  Its impacts can be perilous for the sector.  Workers’ compensation and personal injury insurance organizations need explicit and comprehensive strategies in place now to manage the threats and capitalize on the opportunities created by the present and rapidly evolving AI technology landscape. Yes, the impacts will be disruptive and varied.  Failing to act now may hurt jeopardize those these systems were designed to protect. 

An Environmental Scan for Workers’ Compensation - 2023

Environmental Scanning is a critical exercise for workers’ compensation and other personal injury insurers.  Identifying developments, trends and projections in the operating environment help policy makers prepare for and adapt to the threats and opportunities.  Here is a thumbnail environmental scan to stimulate thinking about the emerging challenges for workers’ compensation (and personal injury insurers) from five perspectives.

Social/Societal Challenges:

Workers’ compensation is a form of social insurance; changes in society from its structure to its norms create challenges.  I’ve noted many societal changes in past blogs but here are four challenges that should be in every scan:

1.        Demographic change.  The structure of our national populations is changing.  The causes are diverse:  refugee population displacements caused by civil conflict, natural disaster, climate change and economic crisis; the decline in the proportion of labour-forced age population in Canada, the US and Australia; and the rise in the number of older workers.  Workers’ compensation organizations (WCOs) can’t alter these impacts but have to adapt to the consequences of these changes: Older workers getting injured, greater co-morbidities, increases in complication and recover times, poor health, limited personal resources, language and culture differences among those new to the jurisdiction, etc. 
2.        Mental Health.  Greater recognition and acceptance of mental health is both a challenge and an opportunity for WCOs.  On the challenge side is finally accepting that mental injuries can arise directly from work or can be exacerbated by work.  Adjusting policies to reflect this recognition is not trivial.  On the policy side, there is wide variation in the standard of proof and onus of proof required to establish a mental injury.   Costs that flow from treatment and compensation can be huge.  The opportunity for prevention, fostering acceptance, building resilience, and supporting return-to-work/ stay-at-work strategies must be developed.  That takes commitments in terms of time and resources outside the typically meager research investments and general prevention awareness campaigns.
3.        The changing nature of work itself.  The Gig economy, remote work, and hybrid employment are among the challenges that change our concept of employment.  Are gig workers employees or contractors? What workplace protections and compensation ought they be entitled to? Where is the workplace for a remote worker (and is their payroll assessable out of jurisdiction)? What rules apply to multi-job holders or extra-national employees?  Are the wages of workers living just across the jurisdictional boundary to be included in payroll estimates?  Are workers in the course of employment when travelling from their home office where they work remotely to the corporate workplace or in-person meeting?  These are not just questions for each jurisdiction to decide; interjurisdictional agreement and consistency may be required to minimize gaps and overlaps in coverage.
4.        Amplification in social media/Rising distrust:  I’ve often said one bad workers’ compensation story (true or not) repeated a hundred times creates as many bad impressions as a hundred individual stories, each reported once.  Social media allows and even rewards negative stories that create outrage and can rapidly erode the social capital of WCOs and personal injury insurers more broadly.  Arguably, this phenomenon is not limited to workers’ compensation.  Trust in government has declined in many jurisdiction [see OECD, “Building Trust to Reinforce Democracy: Key Findings from the 2021 OECD Survey on Drivers of Trust in Public Institutions”,   https://www.oecd.org/governance/trust-in-government/ ],amplification has eroded trust in authorities, politicians, and insurers generally.  Countering this trend isn’t easy particularly because of privacy and confidentiality rules that create an asymmetry between what can be said in social media and released corporately.

Environmental Challenges:

WCOs and occupational safety and health professionals often ignore climate change and its consequences as a risk to their own operations.  Weather extremes such as prolonged winter storms, lengthy heat domes, and persistent atmospheric rivers are becoming more frequent and linked to climate change and are increasing [see .US EPA, “Climate Change Indicators: Weather and Climate”  https://www.epa.gov/climate-indicators/weather-climate for examples]. Often ignored are the follow-on impacts including changes in the distribution and risk of viral and bacterial diseases, changes in intensity and duration of fire seasons, and degradation of air quality.   Some things to focus planning on include:

1.         Hardening infrastructure:  you can’t operate if your systems are vulnerable to environmental issues.  The once in a hundred-year flood, power outages that last a week and heat events that overwhelm data centres can crash all an organization’s ability to serve its customers and protect its resources and reputation.
2.        Preparing workers and employers:  It is fine to say you have to have a plan but few organizations actually prepare for and test plans for events and conditions in this domain.  As the Covid-19 pandemic revealed, acquiring protective gear and educating populations at the last minute is not a plan.
3.           Changes in the frequency and severity of resulting claims:  Just-in-time information does have a place.  Warnings about shade and hydration in advance of a heat event can limit work injuries and disabilities.  Anticipating the changing road conditions in advance of floods or fires is an opportunity to mitigate claims risk. When surges in claim activity occur, the ubiquitous “We are expecting higher than anticipated volume…” will not only further harm the victims but also diminish any reservoir of social capital built through other actions.
4.       New jobs, new risks: Changing sector size:  Environmental change has consequences for the types of businesses requiring workers’ compensation coverage, regulation and prevention initiatives. Wind generation towers off shore, increased solar installations and unique conservation methods involve new jobs and innovative technologies with different risks than the traditional job set.  Regulation of materials and mandated recycling can add to the challenges and change the safety and health risks of existing jobs.  Whole sectors may fade  or expand due to climate change (hard to have a ski season if there is no snow). Impacts are not only on policy holders and those injured but also on the organizations that service them.  Changes to rate groups and risk categories can disrupt funding models.   

 Political/Regulatory Challenges

Workers’ compensation (and other personal injury insurers) are subject to regulation.  The degree of regulation and the extent of its swings is a political matter.  The level of regulation, prescribed coverage mandates, and levels of benefit may all become the subject of political debate or regulatory reform.  Often driven by public sentiment around the need for change, several trends are emerging.

1. Increased cost containment initiatives:  Fee schedules are being mandated and adjusted in several jurisdictions.  Drug formulary introduction and expansion is another emerging trend.  These generally favourable to cost control but can increase friction and monitoring costs, particularly in a time of high medical cost inflation and rapid change in pharmacological science.  Conflicts are likely at the margins, and this can quickly escalate and result in poorer outcomes and degradation of public confidence in the system.
2. Mental health:  The growing acceptance of mental injury as note above is making it into legislation with amendments to health and safety laws, expansion of coverage for PTSD and other mental injuries for certain classes of workers (often, first responders).
3. Presumptions:  Faced with the difficulty of proving causation to the legislative requirement, the use of presumptions is becoming more common.  We see Covid-19 being added to the list of presumptions for workers’ compensation in some jurisdiction for certain front-line workers.  While often rebuttable (or inoperative once community spread exceeds a certain level in the case of Covid-19), the pressure to expand presumptions is evident.  
4. Changes in Eligibility Requirements/ Expansion of coverage:  Generally, the long-term trend to increasing the scope of who is covered in workers’ compensation and what is covered (nature of injury or disease, treatments accepted, reduction or elimination of waiting periods, and level of benefits) have been on the rise.  Even where there is no change, the actions in other jurisdictions are often widely reported and frequently raised for consideration in other jurisdictions.  Monitoring, tracking, and developing positions need to be an expanded part of ongoing corporate planning for WCOs and personal injury insurers.

 

Economic Challenges:

 The Great Financial Crisis, Covid-19, the war in Ukraine… it seems the interconnected economic life of the planet is suffering a new calamity every few years.  For insurers in the work disability space where claim liabilities are incurred then paid out over what can be extended times, these cyclical hits to the economy can upend assumptions.  Reserve policies, asset allocation and growth assumptions may all need revisiting.  Here are some economic perspectives deserving particular attention. 

1.  Medical cost inflation:  According to recent Milliman study (https://www.milliman.com/en/insight/medical-inflation-drivers-and-patterns), medical inflation tends to outpace general inflation over time.  To the extent that medical costs are part of the cost of work and personal injury claims, this pattern can have a big impact on overall claim costs.  The most recent NASI study pegs medical costs at about 47% of workers’ compensation benefit costs based on 2020 claim data.  That’s down from its pea at over 50% in 2014 (see https://www.nasi.org/research/workers-compensation/workers-compensation-benefits-costs-and-coverage/). With aging populations, healthcare professional shortages and increasing drug costs, this perspective deserves attention.
2. Inflation, investment, and interest rate volatility:  WCOs face administration cost increases due to inflation including the upward pressure on wages, facilities and energy.  Not all systems offer cost-of-living protection for beneficiaries but those that do are facing significantly larger increases than the 2%-3% assumptions that may have been in place.   Where such protection is not in place, the political pressure to increase benefits will be significant.  The cost and return assumptions to cover the  “long tail” of claims costs in personal injury claims are highly susceptible to economic assumptions.  Serious and continuous monitoring of assumed inflation costs, discount rates and reserve levels are critical.
3. Policy-holder disruptions:  The book of policy holders remains relatively constant from year to year, at least that was true in the past.  Economic pressures including supply chain issues, inflationary pressure, and labour shortages are causing more business to shutter.  Bankruptcies and insolvency rates are rising.  Other disruptions (including technological innovations) are drastically altering the business landscape.  The resulting shifts can upset risk models and the credibility of rate groups, the basis for rate setting. 
4. Stakeholder financial education:  Insurance financing is a mystery to most people.  Personal injury insurance including workers’ compensation requires complex financial considerations.  Overcoming the “math is hard” mindset is a necessary if difficult task.  Insurers must be transparent about their financial position but have a responsibility to communicate that simply and effectively to wider audiences.  Beyond timely annual financial statements, employers need to understand how their premiums are established and the consequences of their performance.  Unfunded liabilities, unjustified reserve levels or over-funded positions need to be explained and understood if systems are to be sustainable.

 

 

Technological Challenges:

 

WCOs are big users of technology.  Increasingly, automation is taking over the routine claims administration.  Actuarial, finance and statistics roles are all heavily reliant on technology.  The benefits and vulnerabilities of that reliance are changing at an accelerating rate with big implications for WCOs.  Advances in medical technology that may impact the cost of claim, telemedicine can speed access to care, wearable technologies can improve protection for individual workers, and artificial intelligence can assume a greater role in claims processing, freeing resources for more direct care and attention.  On the prevention front, new tech will better protect workers, although the potential for over-reliance on systems and latent errors will undoubtedly occur. Those are all positives to be included in any environmental scan, but there are potential negatives to be considered. 

1. Cybercrime/Security:  Denial of service attacks may have declined but ransomware and data breaches have exploded.  Securing personal data, health records and financial transactions is critical.  Testing and probing exercises have to be stepped up and active monitoring of breaches elsewhere is critical.  What lessons are we learning from the Chubb, Axa and CNA Financial attacks?  
2. Artificial Intelligence:  As these tools emerge and are integrated into claims processes, they will also be used to design new ways to exploit weaknesses in security, claims processes and even appeal processes.  Already Zurich insurance is using an AI robot to process claims in seconds [ See Jacob Maslow,  “How Automation Will Change the Business of Personal Injury”, LegalScoops.com, 21 Feb 2021, https://www.legalscoops.com/how-automation-will-change-the-business-of-personal-injury/ ].  Many aspects of insurance from underwriting, to adjudication, claims management, and even appeals are already benefiting from machine learning. [See Eray Eliaçık,  “The insurance of insurers”, Dataconomy.com, 22 September 2022 https://dataconomy.com/2022/09/artificial-intelligence-in-insurance]. One additional note under this heading.  Public facing AI programs are fledgling and sometimes very inaccurate or misleading on specifics in workers’ compensation law, policy and benefit parameters.  This can contribute to inappropriate conclusions causing some to question decisions or avoid filing claims that would otherwise be advisable. 
3. Quantum computing:  The promise of quantum computing includes security but getting there will take time and a lot of resources.  My fear is that many will put off recognizing this until it is too late. All that security and protective procedures you have in place may become vulnerable soon than later.  A recent SwissRe report identifies this emerging risk with examples that could include internal failures and delays, external direct threats to security and indirect threats such as supplier, partner or infrastructure failures that could arise because of the threat.  [See  Maren Bodenschatz et al, SONAR 2022: New emerging risk insights – 10th anniversary edition, 16 June 2022, https://www.swissre.com/institute/research/sonar/sonar2022.html] 
4. Medical diagnosis and treatment:  Advances here hold great promise.  We will be able to link more cancers to their work or environmental causes; new treatment will emerge to battle the multitude of disease; Immunological and genetic treatments will extend life and health.  For insurers, these will add significant costs, at least initially.  As new treatment modalities arise for physical injury and disability, demand for access to them will accelerate.  Exoskeletons for paraplegia, neuron transplants to reverse paralysis and restore degrees of function, implants that replace organs, regulate body systems, and even enhance functionality will become standard treatment, potentially contributing to increased medical costs. 

Environmental scans are starting points for discussion and consideration.  Your list of examples will likely differ from mine but there will likely be common themes.  It is too easy to put off discussion of issues from these perspectives.   Doing so only increases the potential risks and diminishes potential opportunities to preserve and improve workers’ compensation protections for workers, employers and all of us who benefit from well run systems that are as prepared as they can be for what is coming next. 

How do we make Workers’ Compensation organizations better?

 

The pandemic disrupted the operations and planning of many workers’ compensation organizations (WCO).  Researching and planning had to shift from strategic initiatives to tactical priorities of protecting staff and serving the workers and employers reliant on workers’ compensation.  As we transition to the post-pandemic era, planning for the longer term must gain in priority. 

The international consulting firm, Deloitte, published a study on the future of workers’ compensation organizations in 2020, just as the COVID-19 crisis was impacting services across the sector.  The timing of its release meant that many policy makers, boards of directors, and planners may have missed the analysis.  A link to the study at the end of this post.

The study is based on surveys of 18 workers compensation organizations in the US, Canada, and Australia.  It identifies five “levers” that workers’ compensation organization can use to shape the future of service delivery and outcomes.  The five levers are:

• Risk-based segmentation
• Standardized plans
• Case management team structures
• Focus on prevention
• Leveraging behavioural economics

The study focuses the work and structure of WCOs on return to work (RTW) and recovery.   For many WCOs, this means a functional shift from internal processes focus of claims inventory management to better outcomes for workers in terms of health, safety, recover, and RTW. 

Risk-based Segmentation:

The majority of workplace injuries result in little or no time away from work.  Workers are often back on the job before a claim is fully established.  Identifying these cases as low risk in terms of difficulty in recovery, rehabilitation and return-to-work can streamline operations, improve customer service and focus resources where they are most needed. 

Many organizations are adopting “auto-adjudication” methods for more routine cases.  What is often missing from the system is segmentation based on the risk of failing to return to work or the difficulty of returning to work.  The study suggests that up to 80% of cases may be handled fully or mostly by automated systems.  This meets service expectations of injured workers wanting timely decision-making and payment of claims.  It also frees resources to focus on more complex cases including, shoulder, back, traumatic stress, occupational cancers, and fatalities. This is not just Pareto principle, example, but a practical imperative.

Organizations that stream or triage cases into specialty areas from the start of the claim are already well on their way towards fully risk-based segmentation.  I have seen specialty units set up for hand injuries where treatments are arranged and commenced before the claim is fully adjudicated and accepted.  Some agencies have experimented with sensitive and mental injury claims groups to adjudicate and case manage injuries related to harassment, assault and stress—claims with a high risk of lengthy recovery, recurrent disability, and difficulty in sustained, safe return to work.  Risk-based segmentation has the potential to make workers’ compensation organizations more efficient and better at optimizing worker outcomes.

Standardized plans:

The Deloitte study emphasizes the use of standardized plans.  This strategy follows from segmentation and takes different forms in different workers’ compensation organizations.  Case managers, treating physicians, and therapists can use standardized treatment, rehabilitation and recovery protocols as the basis for planning, setting expectation, and more quickly identifying cases issues that may jeopardize outcomes. 

Standardized treatment plans are not cookie cutters but starting points for taking those medium and higher complexity cases toward the objective of RTW and recovery.  These are not the old medical yardstick tools of the past.  Treatment and rehabilitation guidelines (See as an example, WorkSafeBC, Ankle Ligament Reconstruction Post-op Rehabilitation Guidelines,  available at https://www.worksafebc.com/en/resources/health-care-providers/guides/ankle-ligament-reconstruction ) provide the worker, case manager, and treating professionals with common understanding, expectations,  and roadmaps to RTW and recovery.  This standardization does not obviate the need for customization and active case management but does lead to consistent treatment, fewer delays and ultimately better outcomes.   Besides the transparency and predictability standardized plans offer, they also allow greater time for providing support to workers and their families.

Case management team structures

Having effectively and accurately segmented cases and standardized plans, WCO structures and systems need to be aligned to manage cases.  Injured workers with medium to high complexity injuries complain about case manager lack of understanding of their injury, constant hand-offs, and “churn” in personnel.  Injured workers often ask me, “Should it be up to me to training my case manager?” and “Why do I get someone new every time I call?.  They hear about a “team” approach but are never told what that means.  Rarely is the team members identified by name and responsibility.   

It is not just about structure.  It is about training and specialization that can implement the best practices of RTW consistently.  Mental health teams, for example, can be very effective if the teams have the deep understanding that comes with training and experience, often within a specific sector (particularly law enforcement, paramedical services, and healthcare).

Structures need foundations.  The infrastructure to support case management in the future WCO will not be the same as it was in the past.  Analytics and artificial intelligence will facilitate timely actions and flag cases where interventions are necessary.  This is not just about following schedules but integrating information to overcome barriers to RTW or impediments to recovery so they can be acted upon in a timely way.  Ontario’s WSIB, for example, offers the following “Specialty Programs” to:

…provide timely access to expert specialists for people with work-related injuries or illnesses. These programs specialize in recovery and achieving a healthy and safe return to work by conducting an assessment and providing interdisciplinary treatment for more complex injuries and illnesses.

(see WSIB, Specialty Programs, available at https://www.wsib.ca/en/specialtyprograms)

 

Focus on prevention!

Some seek to limit the concept of “prevention” of injury but a more inclusive definition that embraces the prevention of disability is needed.  This is not as clear in the Deloitte study as it should be.  While there is a nod to changes in terminology away from “injury management”  to language and practices consistent with recovery and return to work.

As the Deloitte study points out, the prevention mandate varies widely across WCOs.  About half the Canadian jurisdictions and a few jurisdictions in the US and Australia, the legislative mandate for  occupational health and safety including prevention is embodied in the workers’ compensation legislation or authority.   

Regardless of mandate, the study asserts,  “prevention efforts can support all WCOs in realizing sustained reductions in claims volumes and costs, higher safety literacy rates, and communal ownership of prevention.”  [p.15] 

WCOs can act directly within their mandates.  According to the survey, WCOs are now leveraging a focus on prevention to reduce injuries and prevent through”

• Periodic workplace safety audits are conducted (50%)
• Employer rating/pricing is tied into their implementation of health and safety programs (56%)
• Work with employers to create customized safety programs for them (61%)
• Employers are offered a menu of safety programs that they may implement and adopt as needed (61%)

The Deloitte study flags strategies that focus on cultural change within the workforce, third party collaborations to enable safety and prevention in the workplace and data analytics to support workers and employers in preventing injuries before they occur.  A prime strategy is to focus on industry and partner with employers, industry groups and labour organizations.  Dedicated departments focused on prevention initiatives with the personnel and budgets to initiate, sustain and expand preventions efforts are essential.

Examples such as the collaborative cultural change efforts include

• The Community Against Preventable Injuries in BC  https://www.preventable.ca/join-the-community/,
• WorkWell initiatives in Victoria, Australia,  https://www.worksafe.vic.gov.au/workwell and
• Premium Pricing features in Alberta https://www.wcb.ab.ca/assets/pdfs/employers/pricing_2023.pdfb .

Collaborative initiatives targeting segments of high risk, high complexity at their route are essential to effectiveness of this lever.  WCOs through collaborations and initiatives can bring predictive analytics, the latest research, retrospective data analysis and resources to bear on issues to prevent injury and disability as with  BC First Responders’ Mental Health (see http://conference.bcfirstrespondersmentalhealth.com/).

 

Leveraging behavioural economics

WCOs are learning to reach beyond the traditional disciplines of insurance and enforcement in finding ways to achieve a future state.  The Deloitte study highlights the power and potential of behaviour economics to better understand and influence the way people behave.  

WCOs have employer performance data on injuries, fatalities, inspections, and penalties that are too often hidden from the public, workers, and other employers. Overcoming the organizational inertia or limits of the WCO mandate is essential to bringing about this future state.

One of the  “future” behavioural economic approaches highlighted include publishing employer injury rates online.  A great example of this already exists in Alberta.  With the entry of an employer name, results covering up to five years of data are instantly available.  The data are rich and include person year estimates, disabling injuries, lost-time claims, workplace incident fatalities, occupational disease fatalities and much more.  Injury rates for the firm and the overall industry add to the context.  The database includes summaries of occupational health and safety orders, administrative penalties, and even convictions.  [See https://extern.labour.alberta.ca/ohs-employer-search/occupational-health-safety/employer-records-search.asp] .

The study also highlights research out of New South Wales that used behavioural economics:   

…to personalize support for workers and encourage them to actively participate in the recovery process. Practices included reducing the volume and detail of communications, reframing messaging to focus on recovery and RTW rather than on injuries, and having case managers provide more personalized support that was targeted to workers as individuals. [p 18]

 

 Closing comments

For corporate planners in WCOs, the Deloitte study is a must read.  It is not about the distant future but an emerging one where the ideas presented are actual, real world actions underway that have the potential to further prevent injuries and achieve better outcomes for workers and their families. 

The study “The future of workers’ compensation - How workers’ compensation organizations are improving return-to-work outcomes” is available at:  https://www2.deloitte.com/ca/en/pages/financial-services/articles/the-future-of-workers-compensation.html