Emil Metropoulos, Workers Compensation and Terrorism Specialty Practice Leader
The advent of connected devices and the Internet of Things (IoT) is opening exciting new doors in the insurance industry. The auto liability market has transformed from one in which underwriting relied on proxy variables such as driving history, demographics and credit scores to one in which telematics and real-time, personalized driving statistics inform risk assessment.
As a result it is estimated that when compared to non-telematics policies, telematics policies result in 50 percent fewer claims on average, and that insurers who employ the innovative technology see improvements in underwriting profits of about 4 percent. Yet workers compensation loss trends have not yet benefited from this technology. According to the National Safety Council (NSA), work-related transportation incidents remained the most common fatal event cause, totaling 2,083 deaths in 2016. Now, as workers compensation (re)insurers face increasing regulatory pressures, greater competition and limited premium growth, they must take the next leap in risk reduction and mitigation by fully adapting lessons learned by auto carriers to leverage telematics, wearables and other IoT technologies to enhance existing safety and wellness programs.
Workers compensation carriers have long understood that proper safety training, health incentives and medical services prevent or reduce claim costs. Reductions in loss frequency and loss ratios since the early 2010’s have been largely attributed by the National Council on Compensation Insurance (NCCI) to such initiatives. For example, 2015 frequency decreased 3 percent over 2014 according to NCCI, and an August 2011 brief noted carriers with over USD 100 million in payroll enjoyed larger frequency declines because they “might be better equipped to implement loss control and safety programs”.. The latest data from the Bureau of Labor Statistics indicates there were 48,500 fewer nonfatal workplace injuries and illnesses among private employers in 2016 than in 2015, and employers with wellness programs, which “can be valuable for older workers, who tend to have issues with flexibility and co-morbidities,” are reportedly experiencing lower workers compensation losses.
Carriers are also in the process of rapidly adopting technologies like drones to improve results in high-hazard and height-related losses. Claims adjusters are using drone-related technology devices for remote access to challenging claims targets such as roof tops, boilers or hazardous material sites to improve both the speed and safety of the adjustment process, while also saving the time and expense of manual inspection.
Now, as workers compensation carriers look to further differentiate, the second wave of disruptive innovation is featuring telematics, wearables and other IoT devices.
From 2009 to 2011 workers compensation carriers experienced a brief spike in loss ratios. In the immediate years following, rate increases contributed to improvements in accident and calendar year results. However, more recently the sustained success in this line has been driven by favorable reserve development and reduced severity trends (see Graph 1) driven by safety and wellness programs, resulting in improving loss ratios. As of 2017, Guy Carpenter Risk Benchmarks research shows that accident years 2013 to 2016 saw reserve releases totaling 4.4 percent of year-end 2016 estimated ultimate reserves. And while workers compensation direct written premium in the United States grew only 4 percent annually from 2013 to 2017 – the 2017 national loss ratio is 7 points below the average for the same period.
Workers Compensation Loss Ratio Trends
Source: Guy Carpenter
To continue this positive trend, carriers must now look to harness the technological advances that have spurred application of wearables, sensors and drones in the workplace to a greater degree going forward. In 2015 the Industrial IoT market was valued at USD 113.71 billion; this figure is expected to jump to USD 195.47 billion by 2022, representing a compound annual growth rate of 7.89 percent for the period. As of March 2017, 67 percent of respondents in the industrial manufacturing sector indicated an ongoing smart factory initiative, and General Electric predicts investment in the space will top USD 60 trillion in the next 15 years.
These statistics indicate a growing synergy between connected devices and loss control improvements and post-claim loss cost containment and mitigation. Workers compensation insurers stand to benefit from these trends more than others, as there is significant indirect loss related to the decreased productivity of injured workers. By employing wireless sensors, mobile devices and wearables, employers and insurers can improve business results and employee satisfaction.
Link to Part II >>
Click here to register to receive e-mail updates >>
 Conning Insurance Segment Report, Workers’ Compensation, Year-End 2017