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ProAssurance sees severity increases in 3Q workers compensation claims

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Labor shortages and post-pandemic anxiety contribute to rise in severity of claims in ProAssurance’s workers comp business, even as frequency falls.

ProAssurance reported a better than fivefold leap in operating profit in the past year, to $13.8mn, for the third quarter. The gain was boosted by its acquisition earlier this year of California mutual Norcal.

Kevin Shook, president of the workers’ compensation unit, said during the company’s conference call to discuss the results that frequency is up only slightly from 2020, and in fact the number of reported claims is at a decade-low, but severity is up.

“We're not seeing significantly more reported claims from a frequency perspective,” he said. “We're just seeing some more difficult claims.”

“With workers, for example, working on a piece of machinery that they're not used to working on, because they're only at 80% of their required labor, or a newer worker that comes in and isn't trained the way they would have been 18 months ago, because they're just trying to get warm bodies.”

Shook said there is also general anxiety in the workplace with the pandemic, exacerbated by short staffing.

Anecdotally, the company is hearing about accidents involved experienced workers who are pressured under this environment.

“A person that's been operating a piece of machinery for 25 years, and they're like, I don't know how I got my hand or arm or whatever caught in this machine,” Shook said.

“So, I think frequency is only up slightly, but I really believe that the claim activity that we've recognized is directly related to the events in 2021, starting with a return to employment, and most recently, this increase loss activity, specifically related to the labor shortages.”

CEO Ned Rand said the challenge from a reserving standpoint is that while the company can observe declining claim frequency, “we don't know what to attribute that decline to.”

“We don't know the higher selectivity on the part of plaintiff’s lawyers about the cases that they're bringing, or what else might be driving that frequency and is just too early to be able to tell and as a consequence of that, we're going to be cautious in recognizing any benefits associated with it.”

The fact that court systems aren't fully open right now is also a factor the company is keeping an eye on.

“Things are proceeding more slowly through those court systems, if they're proceeding at all through the court systems,” Rand noted. “That adds as an uncertainty especially for long tail line of business, like our healthcare professional liability line of business. And so, we are very, very cautious and that spills over to what we saw this quarter in the workers compensation business.”

“We began to see some increases in claim frequency and some concerns about claim severity there, and took action very quickly to what we're seeing.”

“I think we're probably ahead of many others in recognizing some of the trends that are actually going on in the workers comp space and reacted appropriately.”

The Birmingham, Alabama-based company reported a 7.3-point increase in its loss ratio, to 82.1%, pushed higher by an increase in reported loss activity related to the current accident year, primarily driven by the company’s small business book, in particular small construction, hospitality and restaurant accounts.

For the quarter, the workers comp business recorded an underwriting loss of $2.2mn and a combined ratio of 106.3%, up from 97.4% last year.

ProAssurance said prior year favorable reserve development was $1.6mn in the 2021 3Q, compared with $4mn in the same quarter of 2020. The difference was entirely related to the workers’ compensation portion of our business, the company said.

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