Workers’ compensation is the largest premium segment in the U.S. commercial insurance market. Workers’ compensation, mandated by law in 49 U.S. states to provide employer reimbursements for injuries occurring in the course of employment, represents one of the largest nondiscretionary expenses for labor-centric firms.
Yet these premiums are dwarfed by the overall cost of occupational injuries and illnesses, estimated at $250 billion in 2012 by a UC Davis researcher. This figure far exceeds the direct and indirect costs of cancer, diabetes or strokes.
While some progress has been made in addressing expenses, the costs of administering the system are stubbornly high. Take California as an example, where it costs the system $0.54 to deliver $1 worth of benefits. In Medicare, the overhead costs to deliver the same benefits are $0.02.
Operating in a data-poor environment, the insurance industry is using long-established rating and risk guidelines, with retroactive and backward-looking underwriting policies based on loss histories.
Investments in technology and operational efficiency improvements have largely focused on treatment and back-to-work programs after an injury has occurred. The industry has been stymied in its desire to prevent worker injuries by a lack of data and technology that would enable preemptive action.
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