Lockton releases "first of its kind" people insurance report

“The overall message is that with the costs of people insurances increasing, this renewal season there will be winners and losers,” said David Clonan (pictured), workers’ compensation expert at Lockton, based in Melbourne.

Clonan said people insurances can often be an organisation’s second largest expense outside of payroll.

“Those who invest the time in engaging the markets early and providing a detailed renewal submission are more likely to outperform their peers and those who don’t,” he added.

Clonan said the report sets a new standard for insurance market updates.

“In our view, historical insurance markets have typically been too focused on historical and projected rates for the classes across workers’ compensation, group salary continuance and group personal accident,” he said.

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Clonan said this report goes further and identifies strategies to help organisations achieve an “optimal renewal outcome” irrespective of the specific class of insurance. 

The report also includes actionable insights and case studies detailing how companies have been able to get better deals on their people insurance.

There’s also a section devoted to myth busting.

“In our experience, organisations who act on market rumours, speculation and myths often leads to poor insurance renewal outcomes,” said Clonan.

One example of this, he said, is the view of an all-prevailing hard market.

“However, while the workers’ compensation market may be hardening as insurers’ portfolios are requiring increases, the movement is not near the levels which could define the current position as a hard market,” he said.

“Due to the way the underwritten workers’ compensation schemes operate, capacity and policy excesses don’t apply and therefore don’t experience some of the challenges that currently exist in the general classes,” he added.

The underlying thrust of the report is to encourage companies to be proactive.

“Lockton believes the proactive management of injured/ill employees, regardless of whether their injury/illness occurred in the workplace or elsewhere, provides significant business benefits,” said Clonan.

The workers’ compensation expert said organizations should consider adopting a model which manages injured/ill employees, regardless of whether their injury/illness occurred in the workplace.

“Early return to work minimises disruption to business, reduces the impact claims will have on future premiums and ensures the retention of key personnel,” he said.

Clonan cites data that shows that in the first 30 days after an injury, having a return-to-work plan increases the odds of returning to work by up to 1.7 times.

Clonan said the easiest area a company can improve is around improving injury/illness management.

“A consistent, coordinated and targeted approach to injury management is critical to strong claims outcomes and ultimately lower premiums,” he said.

Another initiative that can help drive down costs, said Clonan, is combining what he calls “the marketing” of workers’ compensation and group personal accident policies to achieve better outcomes.

“With a tougher market post COVID-19, Lockton has been innovatively dual marketing workers’ compensation and personal accident policies together to gain as much leverage as possible when negotiating rates and rate reductions for our clients,” he said.

One of the toughest challenges for companies today, he said, is managing and navigating multiple insurers with multiple case managers. 

“For large organisations their extensive provider network can include rehabilitation, on-site physio, doctor networks and EAP systems. For organisations with large claims volumes there is the very real chance of claims being neglected if a robust framework is not put in place to oversee this process,” he said.

Clonan said this use of multiple insurers is one of the biggest changes in this insurance space during the last 10 years.

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Clonan said this hinders pricing from a risk state perspective “as some insurers in the past would use the funded state component of a program as a loss leader and price the risk state component quite aggressively.”

A growing challenge for companies in the coming years is dealing with Excess of Loss (XOL) insurance, which is now a requirement for all workers’ compensation self-insurers.

“This is a reinsurance policy which financially protects self-insurers in the event of a large loss or event,” he said.

Over the last 18 months, he said, XOL “has quickly become a hard market.”

“An increase in large losses has seen this class of insurance underperform for most reinsurers,” said Clonan.

Nonetheless, Clonan expects his firm’s 2022 People Insurance Outperformance Report to help companies navigate the people insurance challenges ahead.