Despite making up less than 0.1% of total claims, workers’ compensation mega claims, those exceeding $2 million, represent over 2% of total loss dollars, surpassing $1 billion annually, according to a recent collaborative study by multiple workers’ comp rating bureaus.

The frequency of these high-impact claims has been on a steady upward trajectory since 2013, according to the study, which analyzed the period from 2001 through 2021. According to industry data, the estimated ultimate frequency of mega claims per 100,000 indemnity claims has shown a consistent increase from 2013 onward.

However, this trend appears less pronounced when the number of mega claims is compared to premium volumes, the report noted. As a ratio to premium, for example, the estimated frequency for claims between $2M and $3M decreases when accident year 2021 is compared to 2001.

The rise in mega claims is not confined to a single business sector, the report found. The frequency increase has been observed across all industries, suggesting a broader shift in the workers’ comp landscape.

However, the construction industry has experienced the largest increase in mega claim frequency, highlighting the heightened risks faced by construction workers and the potential for catastrophic injuries in this field. The frequency of construction mega claims is roughly twice that of manufacturing, stores and dealers, transportation, and all other industries throughout the study period, the report noted.

Characteristics of Mega Claims

A closer look at the distribution of mega workers’ comp claims reveals that 53% fall between $2 million and $3 million, 27% between $3 million and $5 million, 15% between $5 million and $10 million, and 4% exceed $10 million.

Certain industries and injury types are more prone to these higher-value claims. Construction, head and brain injuries, and motor vehicle accidents show a disproportionately higher share of claims over $5 million compared to the $2 million to $5 million range. These categories also represent a larger portion of total losses exceeding $2 million, highlighting their significant impact on overall claim costs.

The recognition of mega claims has been evolving, with a trend toward earlier identification, the report stated. This shift has complicated the estimation of ultimate claim frequency, as the emergence of mega claims more than 18 months after policy inception has slowed down. However, the speed of emergence varies significantly across different claim types.

Burn and electric shock claims stand out as the fastest to emerge, with almost all such mega claims recognized within the first 18 months of policy inception. On the other end of the spectrum, office and clerical injuries, lower back issues, and strain injuries show the slowest emergence patterns. Despite their slow emergence, these categories continue to represent a relatively small share of claims exceeding $2 million at ultimate valuation, according to the report.

Interestingly, claims take longer to exceed the $2 million threshold compared to higher thresholds. Historical data shows that around 40% of mega claims reach the $2 million mark by 18 months from policy inception, with 82% reaching this threshold by 126 months. Emergence patterns remain similar at higher thresholds of $3 million, $5 million, and $10 million.

Factors Influencing Mega Claim Costs

Several factors contribute to the rising costs associated with mega claims, the report found. Medical advances, while improving patient outcomes and providing life-saving measures, can also drive up expenses. Innovative rehabilitation technologies, such as robotics and virtual reality, offer new treatment options but come with hefty price tags.

The increasing cost of home health care is another significant factor, as many severe injuries require long-term care outside of traditional medical settings. Extended recovery times for complex cases further contribute to mounting expenses. Additionally, inflationary trends on services not explicitly included in state medical fee schedules can lead to unexpected cost increases.

Opportunities for Risk Mitigation

Despite the presented challenges, there are promising opportunities for risk mitigation in the workers’ compensation landscape, the report found. Workplace safety technology and automation present potential avenues for reducing the occurrence of mega claims. Innovative solutions could help prevent severe injuries that typically result in prolonged recovery times and significant medical expenses.

Access the full report here. &