Posted: 04 May. 2020 6 min. read

COVID-19 - general insurer - workers’ compensation and professional liability

The impacts of Workers’ Compensation will vary by industry. We expect higher claims activity from employment segments with higher exposure to COVID-19, including health care, retail, education and others.

Workers’ Compensation:

  • The new remote working pattern in most of the service sectors will also pose challenges as to what constitutes an injury arising in the course of employment. 
  • While in the initial stages of the lockdown and physical distancing rules, workers have been secured safely from a COVID-19 physical exposure perspective, the relative isolation, job insecurity and financial concern factors are likely to bring a wave of mental health claims which employers are now aware of and are undertaking a variety of activities to counteract its effects.   
  • The delays in healthcare provisions may result in poorer injury outcomes for some workers.
  • The current economic environment will also mean fewer ‘Return-To-Work’ outcomes which is likely to increase scheme utilisation by injured workers. 
  • Other considerations include, the importance of developing and implementing response strategies for suspected cases of COVID-19 for those industries, particularly essential services, still operating out of workplaces. 
  • Access to lump sum benefits in the jurisdictions that offer this, will be impacted by the closure of courts.

D&O and PI:

With greater corporate governance in place in Australia and around the world, including regulatory scrutiny post the Australian Royal Commissions, Directors, Officers and various professionals are facing heightened oversight environments. This is ensuring they perform their professional and fiduciary duties with greater thoroughness.

  • A number of D&O policies offer coverage for breach of Occupational Health and Safety Laws which will impact to a greater extent certain sectors of the economy such as healthcare, retail and education amongst others. As a result, D&O and PI is likely have increased claims arising from how Directors, Officers or professionals handled business or professional decisions when responding to the COVID-19 crisis.
  • The Australian Federal Government has announced temporary amendments and protections effective 24 March 2020, to insolvency and Corporations Law in response to the COVID-19 challenges that businesses are facing.  These temporary measures reduce the risk of personal liability for Director and Officers for insolvent trading. 
  • On the other hand, exposure to claims arising from lawsuits from other fronts still exists. In 2008, the GFC caused a significant increase in legal cases which increased D&O prices and has meant that we are still dealing with that activity today.  In the current COVID-19 environment, claims are likely to come from class-action lawsuits brought on by a variety of groups (shareholders, customers, employees, competitors, suppliers or regulators) who are not satisfied with the way companies responded to the pandemic.

For actuaries making reserving and pricing judgements starting from the 31 March balance dates and future balance date periods, there are judgement considerations that need to be put into place around the impacts of:

  • The above class-by-class dynamics on the central estimates, both claims and premium dynamics
  • Current conditions on economic assumptions, lower discount rates, lower future CPI/wage inflation in the short term, potential for inflation surge when lockdown eases or in a few years when world economies recover and impacts on superimposed inflation or inflationary effects over and above normal levels of inflation
  • Risk margins given the current higher uncertainties, carefully considering premium liability assumptions, especially loss ratios historically linked to outstanding claims assumptions, results of future Liability Adequacy Tests, how to perform roll-forwards and actual vs expected claims to be able to recommend insurance liabilities given the low claims assessment/processing activity and lower levels of human activity and so much more.

In this turbulent environment of uncertainty, one thing is certain, greater attention to actuarial professional judgement is needed to manage the above complex considerations when determining and recommending future estimates and scenarios. 

More about the authors

Kaise Stephan

Kaise Stephan

Partner, Consulting

Kaise is a Partner in Consulting and advises general insurers and reinsurers on a range of matters covering Board and Management insurance reserving advice, corporate strategy, reinsurance programs, claims and capital management, pricing advice on large/complex deals and Appointed Actuary and External Peer Reviewing roles. Kaise’s international experience covers the Australian, New Zealand, South East Asian and European insurance markets.

Rick Shaw

Rick Shaw

Partner, Consulting

Rick is a partner of Consulting and part of the Actuaries practice. He has extensive overseas and Australian experience, and is recognised internationally for his work on capital modelling, regulatory systems and pricing and valuation. Rick’s primary focus is developing management information systems and integrating capital models into companies’ decision making. He has also advised regulators on actuarial valuation standards and capital model approval.