Boca Raton, FL – NCCI recently released a new Insights research brief delivering an early look at the workers’ comp Residual Market and Covid-19, which focuses on potential COVID-19-related impacts to the NCCI-managed Residual Market Pools.
The Mix of Policies in the Residual Market
Did the share of small residual market policies change during 2020? To date, we have not seen any notable changes. More than 85% of residual market policies have premium less than $5,000—which is consistent with that observed in prior years.
A significant portion of these smaller policies are construction-based companies. Compared with about 25% in the voluntary market, 40% of all residual market policy premium is in the contracting industry. In addition, although COVID-19 directly impacted many frontline workers, the residual market currently provides only a small percentage of that coverage.
Although it is still too early to have a full understanding of COVID-19’s effect on the residual market, the preliminary indications appear encouraging:
- Small businesses: Since small businesses account for more than 85% of the residual market premium volume, a close review of COVID-19’s impact to small businesses is necessary. Many small businesses struggled to remain open during the pandemic—with the restaurant, retail, and healthcare sectors being hit the hardest. Monitoring the types of policies migrating into the residual market will help us better assess future pricing and reserving needs.
- Construction industry: Anecdotal feedback from industry stakeholders and NCCI’s analysis of employment data6 show that the construction industry has been less affected by pandemic-related shutdowns than service sectors. Nevertheless, the impact of COVID-19 on premium audits and the collectability of policy premium remains top of mind.
- Frontline workers: Currently, frontline workers account for a relatively small percentage of the residual market. Carriers have many tools to write these policies in the voluntary market. As such, it is likely these policies will remain in the voluntary market but monitoring shifts in this industry sector is prudent.
Impact of COVID-19 Claims on the Residual Market
To date, healthcare workers and first responders have accounted for a majority of COVID-19 WC claims. NCCI recently surveyed residual market servicing carriers to better understand the possible impact that COVID-19 may have on the residual market. The following statistics apply to COVID-19 claims in NCCI-managed Residual Market Pools and are based on Accident Year 2020 data reported to NCCI as of year-end 2020:
- These claims account for approximately 2.2% of all residual market claims and 1.1% of total incurred losses
- To date, 80% of the COVID-19 claims are under $10,000, with a total average incurred severity of $13,000—although a few claims have exceeded $100,000, with the largest COVID claim at $630,000
- There were no reported COVID-19 claims in about one-third of the NCCI-managed Pool states
- Approximately half of the reported COVID-19 claims have been associated with a few residual market policies, and most of the benefits paid to date have been indemnity
Read the free brief: NCCI: The Residual Market and COVID-19 – An Early Look