The Residual Market and COVID-19 - An Early Look


With the significant impact that the COVID-19 pandemic has had on the US workforce, this article focuses on potential COVID-19-related impacts to the NCCI-managed Residual Market Pools.

In NCCI’s 2019 article titled “Insuring the Uninsurable—Workers Compensation's Residual Market,”1 NCCI described the structure of the residual market, including NCCI’s role as the Plan and Pool Administrator, and presented countrywide summary statistics. At that time, countrywide Residual Market Pool premium volume remained stable at approximately $1 billion, combined ratios were close to the break-even point,2 and after five consecutive years of decline, the residual market share was about 7%. These are indications of a healthy WC system—one in which employers can readily find coverage in the competitive voluntary marketplace.

What happens when an unprecedented event such as the COVID-19 pandemic occurs?

Approximately a year into the pandemic, we are still in the early stages of understanding the full impact that COVID-19 may have on the WC industry and its residual market. There are a number of indirect COVID-19-related factors that may affect NCCI’s analysis for the Pools we manage, including delayed medical treatments and the ability for injured workers to return to work. Unfortunately, we may not know the full impact of these and other indirect factors for many years. At this point, though, we are beginning to see some of the direct impacts that COVID-19 claims are having on the Pools.

The 2020 quarterly reserves and the Statement of Actuarial Opinion (available annually by January 31) required consideration of the estimated impact that the COVID-19 pandemic may have on the Pools. Various factors impacted the COVID-19 analysis, such as the mix of policies in the residual market and actual COVID-19 claims experience. A first look at the pandemic’s direct impacts on the Pools is provided below along with a discussion of some of the associated contributing factors.

The Mix of Policies in the Residual Market

Did the share of small residual market policies change during 2020? To date, we have not seen any notable changes. More than 85% of residual market policies have premium less than $5,000—which is consistent with that observed in prior years. The table below3 shows the distribution of residual market policies by premium size for Policy Year 2020, valued as of year-end 2020.


A significant portion of these smaller policies are construction-based companies. Compared with about 25% in the voluntary market, 40% of all residual market policy premium is in the contracting industry. In addition, although COVID-19 directly impacted many frontline workers,4 the residual market currently provides only a small percentage of that coverage.

While we have not seen a significant shift in the residual market’s mix of business to date, there has been an overall decrease in the number of applications bound. Many state-imposed moratoriums on policy non-renewals and cancellations that occurred during the first few months of the pandemic may partly explain this decrease. While the number of new applications decreased from 2019 to 2020, preliminary 2020-reported residual market Policy data5 suggests that COVID-19 did not noticeably impact the residual market policy-size distribution. Further, although it is possible that some of the observed decrease in residual market policy counts and premium between 2019 and 2020 could be due to pandemic-related economic pressures, the decline to date is consistent with the year-over-year residual market depopulation seen in prior years. NCCI will continue to monitor the impact of COVID-19 to ensure that we appropriately incorporate its impact on residual market programs and loss reserve analyses.

As mentioned earlier, the residual market is generally comprised of small policies—a significant number of which are in the construction industry. Although it is still too early to have a full understanding of COVID-19’s effect on the residual market, the preliminary indications appear encouraging:

  • Small businesses: Since small businesses account for more than 85% of the residual market premium volume, a close review of COVID-19’s impact to small businesses is necessary. Many small businesses struggled to remain open during the pandemic—with the restaurant, retail, and healthcare sectors being hit the hardest.6 Monitoring the types of policies migrating into the residual market will help us better assess future pricing and reserving needs.
  • Construction industry: Anecdotal feedback from industry stakeholders and NCCI’s analysis of employment data6 show that the construction industry has been less affected by pandemic-related shutdowns than service sectors. Nevertheless, the impact of COVID-19 on premium audits and the collectability of policy premium remains top of mind.
  • Frontline workers: Currently, frontline workers account for a relatively small percentage of the residual market. Carriers have many tools to write these policies in the voluntary market. As such, it is likely these policies will remain in the voluntary market but monitoring shifts in this industry sector is prudent.

Impact of COVID-19 Claims on the Residual Market

To date, healthcare workers and first responders have accounted for a majority of COVID-19 WC claims. NCCI recently surveyed residual market servicing carriers to better understand the possible impact that COVID-19 may have on the residual market. The following statistics apply to COVID-19 claims in NCCI-managed Residual Market Pools and are based on Accident Year 2020 data reported to NCCI as of year-end 2020:

  • These claims account for approximately 2.2% of all residual market claims and 1.1% of total incurred losses
  • To date, 80% of the COVID-19 claims are under $10,000, with a total average incurred severity of $13,000—although a few claims have exceeded $100,000, with the largest COVID claim at $630,000
  • There were no reported COVID-19 claims in about one-third of the NCCI-managed Pool states
  • Approximately half of the reported COVID-19 claims have been associated with a few residual market policies, and most of the benefits paid to date have been indemnity

Although still early, this provides an initial glimpse of the reported COVID-19 claims in the residual market. Overall, even after adjusting for exposure change, there is a general decrease in the number of total reported NCCI-managed Residual Market Pool claims from Accident Year 2019 to 2020. We will continue to monitor the impact of the pandemic on the residual market going forward.


COVID-19 was declared a pandemic a year ago, and there is still no clear end in sight. Going forward, pandemic-related uncertainty, the timing of the vaccine rollout, and the long-term effects of the disease will continue to pose loss-reserving challenges.

  • Will the residual market composition change?
  • Will COVID-19 residual market claims continue to account for a small percentage of all claims?
  • How will audit premium and collectability of premium impact residual market results?

Only time will help us respond to these questions. In our efforts to monitor and foster a healthy WC system, NCCI will continue to analyze potential residual market changes and provide timely updates as appropriate.


The residual market page on is a great resource for residual market information, including the Residual Market Forum 2021 presentations.

​This article is provided solely as a reference tool to be used for informational purposes only. The information in this article shall not be construed or interpreted as providing legal or any other advice. Use of this article for any purpose other than as set forth herein is strictly prohibited.

1Nadege Bernard-Ahrendts, “Insuring the Uninsurable—Workers Compensation’s Residual Market,” Insights, Regulatory & Legislative,, November 4, 2019.
2The break-even point is described as a combined ratio of 100%, where the sum of losses and expenses equal the policy premium.
3Values are based on residual market Policy data valued as of 12/31/2020, including the following states: AK, AL, AR, AZ, CT, DC, GA, IA, ID, IL, IN, KS, MS, NH, NM, NV, OR, SC, SD, TN, VA, VT, and WV.
4In this context, frontline workers are generally defined as healthcare workers and first responders.
5Based on NCCI’s 2020 Policy data. This data is estimated and not audited.
6Leonard F. Herk, “The COVID-19 Recession at Year-End: Perils and Prospects for 2021,” Quarterly Economics Briefing—Q4 2020,, January 19, 2021.