Risk Managers Try to Make Sense of Pandemic-related Numbers

Nancy Grover

Sarasota, FL (WorkersCompensation.com) – Collaborate, re-evaluate your risk indicators, and challenge your own assumptions. That’s the advice of a panel of risk management experts as the workers’ compensation system begins to look to the post-COVID-19 world.

For actuaries and other metrics’ analysts, the past year has made benchmarking nearly impossible. Stakeholders and organizations that rely on these for predictability need to figure out the impact of COVID-19 and how and whether that will affect their decisions going forward.

Importance of Benchmarking

“You need predictability. You want your claims to play out as you thought they would,” said David Stills, SVP of Carrier and Risk Practice for Sedgwick. Typical closing ratios, average costs and other factors are needed to make sure claims are developing as predicted. “Why is this important to risk management? Because significant business and financial decisions are made on these predictions.”

Risk managers, Stills explained, rely heavily on benchmarking that is based on historical data to predict and record the ultimate exposure over a financial reporting period. These are then used by businesses to make decisions on things such as pricing products, and new products to introduce.

Stills was among the panelists during an Out Front Ideas with Kimberly and Mark webinar yesterday. The speakers said that benchmarking is necessary for any successful risk management program.

“You need to know where you are and [how you are] compared to others before you know where you want to go,” said Tamika Burgos Puckett, risk manager for Corporate Security of Zoom Video Communications. ”What are those new risks that have not impacted us? [You need to be] identifying those key risk indicators and other metrics we can use to measure the performance of our risk management programs.”

Burgos Puckett pointed to cyber risk, something that was not on anyone’s radar screen until several years ago. That has become a major risk “as we’ve morphed into this remote working.”

The pandemic has affected many areas of risk management, both directly and indirectly as well as short-term and long term. “Just measuring performance is difficult with regard to the impacts that have occurred,” said Ron Schuler, head actuary for Property & Casualty Broking North America, and head of Collateral Solutions for Willis Towers Watson. “Weird dynamics are happening within a risk program…”

Benchmarking is challenging even during the best of times. There are a multitude of aspects of an insurance program that can be benchmarked.

“Data is king,” said Richard Frese, principal & consulting actuary for Milliman. “Every conference you attend, especially if there are sessions on benchmarking, there is not a seat to be found. Everybody is always looking for more and more and more data. The question is, can people interpret the data properly?”

When gathering data, Frese said it’s important to analyze it and work with business partners to get their interpretation of what is going on and identify areas for improvement. Then, there should be a solid action plan to help you improve your costs over time.

Pandemic-Related Impacts

Even though the pandemic is more than a year old, it’s still very unclear what the ultimate impacts will be on risk management programs. It’s important to look at many different elements and work with any number of partners.

“Keep your friends close and your actuaries closer; I think that really applies here. And your peers,” Stills said. “You can’t spend enough time with your peers to understand what is going on in your business.”

What makes the impact of COVID-19 unique is that it impacts every business differently, depending on the type of industry, the geography, whether businesses were under restrictions or closures.

“Permanent changes are going to vary by client type,” Shuler said. “Business models might have permanently changed.”

For businesses that operate in multiple locations, risk managers need to understand where there have been shifts in workers’ compensation resources that have been allocated, as that changes the risk profile. An example is mandates in some areas that forced companies to completely shut down.

“The exposure was moved to other jurisdictions,” Shuler said. “Being able to recognize the differences in those jurisdictions and the influence it has on risk profiles is very important in terms of estimating costs.”

“The most important point is to watch the metrics of your business, and particularly the mix of type of claims you have. And challenge your own assumptions,” Stills added. “I found some of mine did not play out.”

Stills’ said he had assumed that the pandemic would result in delayed medical care leading to longer timeframes for claims closures; however recent data from WCRI and NCCI have shown that was not necessarily the case. There may also have been assumptions about exposures and exposure types.

“In retail there was a shift from in-person to online shopping,” Stills said. “Maybe that sounds good, but you’ve had a change in the mix. With increased distribution center activity, you can have more serious injuries,” such as over exertion and repetitive motion.

Among the most important benchmarking items is the development of claims, such as how they are being paid over time, case reserves on claims, and reporting of claims. “That’s been impacted quite significantly,” Frese said. “COVID-19 claims themselves develop much differently compared to a standard workers’ compensation claim. It’s important to take that into consideration — especially when doing the actuarial analysis.”

The year 2020 saw a decrease in claim frequency for some organizations, Frese said. For some, it was about half what would normally be expected. “As an actuary that became a little bit of a challenge because ‘how much credit do we give up front to what we’re seeing in the current data’ compared to ‘do we still want to go ahead and hold a significant provision going forward for when claims might revert back to normal’…or perhaps it’s just going to develop downward given the current data,” Frese said. “Risk profile changes are very significant. The thing to keep in mind with actuarial analysis is it’s based on long-term averages. We’re looking at what’s happened in the past and expect it going forward.. with COVID-19 more than ever you’re becoming more and more unique. So I’d have those conversations with all your partners.”

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