Workers’ Comp Mega Claims Total $1B-Plus Yearly, Multiagency Study Shows

Mega claims in workers’ compensation represent far less than 1% of total workers’ comp claims yet account for more than 2% of total loss dollars, and total in excess of $1 billion each year, a new study from 10 state workers’ comp bureaus shows.

The Workers’ Compensation Insurance Rating Bureau of California, in collaboration with nine other workers’ comp rating bureaus, jointly released “Countrywide Mega Claims: Accident Years 2001–2021,” a study that updates a 2020 analysis produced in response to stakeholder concerns about the relative frequency and cost of mega claims.

The collaboration among the WCIRB and other bureaus produced a study that highlights national perspectives and compares findings against other states. Each of the participating bureaus compiled information based on 2022 cost levels for Accident Years 2001 through 2021 for incurred claim counts in excess of $2 million, $3 million, $5 million and $10 million.

To improve upon the 2020 study, the bureaus collected information on both counts and loss dollars for claims above the $2 million threshold, as well as earned pure premium adjusted to 2022 wage and premium levels.

With reported losses above $2 million each, mega claims represent far less than 1% of total workers’ comp claims yet account for more than 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.

Key findings in the report include:

• As of Dec. 31, 2022, 11,330 claims from Accident Years 2001 through 2021 were reported, with incurred loss in excess of $2 million at 2022 cost levels, which is roughly one out of every 1,295 reported indemnity claims.
• The reported frequency of mega claims has increased in recent years, but this may be partially due to faster recognition of mega claims.
• Claims in the highest severity categories are among the fastest to emerge. Even with slow emergence, office clerical, lower back and “strain or injury by” claims continue to represent a relatively small share of claims in excess of $2 million at ultimate.
• Claims take longer to exceed the $2 million threshold than higher thresholds. Based on historic emergence, around 40% of mega claims reach the $2 million threshold by 18 months from policy inception, and 82% of mega claims reach that threshold by 126 months from policy inception. Emergence patterns are faster, but similar, at the $3 million, $5 million and $10 million thresholds. Emergence is speeding up across all mega claims thresholds.
• Since 2017, the average share of reported loss more than $2 million at 18 months after policy inception increased at 18 months after policy inception across all industry groups. This is consistent with both faster emergence of mega claims and an increase in the relative frequency of mega claims.

Beside the WCIRB, the collaborative study was conducted by: 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; Pennsylvania Compensation Rating Bureau.