Mega claims, with reported losses above $2 million ($2M), represent less than 0.1% of total workers’ compensation (WC) claims but account for over 2% of total loss dollars, in excess of $1 billion each year.
These claims typically have significant medical expenses, stemming from severe injuries with prolonged recovery and time away from work. In response to stakeholder concerns about the relative frequency of these claims, several WC rating bureaus, the Workers’ Compensation Insurance Rating Bureau of California, Delaware Compensation Rating Bureau, Indiana Compensation Rating Bureau, Compensation Advisory Organization of Michigan, Minnesota Workers’ Compensation Insurers Association, National Council on Compensation Insurance, New Jersey Compensation Rating and Inspection Bureau, New York Compensation Insurance Rating Board, North Carolina Rate Bureau and Pennsylvania Compensation Rating Bureau produced a countrywide analysis of mega claims in 2020. These same bureaus have collaborated again to conduct an updated and enhanced analysis of the trends in frequency, characteristics, loss size, and emergence of countrywide mega claims.
Some drivers related to the cost of these mega claims include medical advances which improve patient outcomes and provide life-saving measures. Mega claim costs could be influenced by innovative rehabilitation technology, such as robotics and virtual reality, rising home health care costs, extended recovery times, and inflationary trends on services not explicitly included in a state’s medical fee schedule. Other innovations in the workplace, like safety technology and automation, may reduce the number of mega claims.
With four additional accident years, the research team revisits some questions from the previous study, such as whether mega claims are becoming more common or being recognized more quickly than in the past.
The study analyzes the emergence of mega claims, defined as claims with incurred loss at 2022 cost levels of at least $2M, unless a different threshold of $3M, $5M or $10M is specified. The updated analysis includes more granular industry group and claim characteristics for claims above $2M and calculates frequency relative to premium and ground-up claims. A section on severity is also included, analyzing patterns for mega claims above $2M.
Key Findings
- A total of 11,330 claims from accident years 2001 through 2021 were reported as of December 31, 2022, with incurred loss in excess of $2M at 2022 cost levels, which is approximately one out of every 1,295 reported indemnity claims. Of those, 53% were between $2M and $3M, 27% were between $3M and $5M, 15% were between $5M and $10M, and 4% were in excess of $10M.
- Since 2013, the estimated ultimate frequency of mega claims per 100,000 indemnity claims has been steadily increasing. This trend is less pronounced when counts of mega claims are compared to premium. Earlier recognition of mega claims has complicated the estimation of ultimate frequency as emergence of mega claims more than 18 months after policy inception has slowed down, consistent with the hypothesis of earlier recognition of mega claims.
- Frequency has increased across all industries with the largest increase in construction. Mega claims are being recognized earlier across industries.
- The share of claims greater than $5M is higher than those in the $2M to $5M range for injuries in Construction to the head and brain and from motor vehicles. Claims with these characteristics also represent a larger share of loss in excess of $2M.
- Claims in the highest severity categories are also the fastest to emerge. The categories with slowest emergence are office and clerical, lower back, and strain or injury by (strains). Despite emerging slowly, office and clerical, lower back, and strains continue to represent a relatively small share of claims in excess of $2M at ultimate.
- Burn and electric shock mega claims have the fastest emergence. Almost all burn and electric shock mega claims are recognized within the first 18 months of policy inception.
- Claims take longer to exceed the $2M threshold than higher thresholds. Based on historic emergence, around 40% of mega claims reach the $2M threshold by 18 months from policy inception and 82% of mega claims reach that threshold by 126 months from policy inception. Emergence patterns are similar at the $3M, $5M, and $10M thresholds. Emergence is speeding up across all mega claims thresholds.
- Since 2017, the share of reported loss over $2Mat 18 months after policy inception has increased. This is consistent with both faster emergence of mega claims and an increase in the relative frequency of mega claims. The share has increased across all industry groups.
- As in the rest of the country, the ultimate frequency of claims greater than $2M from construction workers is increasing in California. This is concentrated in claims from falls and slips. The share of loss greater than $2M has also increased for fall and slip claims.
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