Posted: 28 May 2020 10 min. read

What’s next for Workers Compensation when we emerge from COVID-19 lockdown?

In our previous blog we considered the direct and indirect effects of COVID-19 on Workers’ Compensation schemes, claims managing agents, insurers and employers and how they respond to the crisis, focusing on employee safety and business continuity.  In this article we look at what stakeholders in the Workers’ Compensation ecosystem will need to consider as focus shifts to the recovery phase.

As the Federal Government’s three stage approach to easing restrictions is implemented, organisations will start to shift from managing the crisis and keeping businesses functioning, to managing the transition to a new future working environment and business position. 

As we consider the longer-term implications, there are different viewpoints on how and what plans should be put in place to be able to emerge from the pandemic in a strong position.

Managing this transition will be challenging. The past is looking less and less likely to be a good indicator of the future state. Many expect the ‘next normal’ to look significantly different to the pre-COVID-19 ‘normal’.  

Our analysis and modelling forecast the possible pathway of the virus and the corresponding impacts on the economy and society.  The Economic cases for resilient leaders considers two potential future states across epidemiology, society, technology, policy and environment and the corresponding economic implications as summarised in the diagram below.

While these economic cases are hypothetical, they are useful to frame planning given the considerable uncertainty about how we will emerge from this crisis.

Considerations for Workers Compensation in the recovery phase

As we begin to emerge from the crisis we explore some considerations for the workers’ compensation ecosystem under the two possible future states:

Area of workers    compensation

Mild future state

Severe future state

Impacts of claims costs

Return to work

  • Possible backlog of injured workers looking to return to work and increase their work capacity. How will employers and rehabilitation providers cater for these groups?
  • Organisations and individuals may embrace working from home models. How will this impact ‘return to work’ opportunities?
  • How is the cohort of injured workers enduring prolonged time off work due to a lack of suitable RtW options likely to behave?  Will they be motivated to return to work?  Will their recovery be impacted?
  • How will schemes cater for increased numbers of injured workers who may have no job to come back to and become unemployed?

Provision of treatment services

  • A possible spike in demand for services e.g. elective surgery as we emerge from the crisis and service providers become more available.
  • Social-distancing practices may change behaviour and possibly lead to injured workers reconsidering their treatment needs, and how they receive those services.
  • With prolonged impact on service availability, some workers’ injuries may be exacerbated through their inability to access timely treatment and so require more intensive treatment to recover, increasing time off work and the costs to schemes.
  • Through prolonged confinement there may be increased need for drug, alcohol abuse, and domestic violence services, as well as reintegrating into society.

Mental health injuries

  • With industries being impacted quite differently by the crisis, the occupation classes impacted by mental health conditions are likely to differ to historical trends.
  • Traditional practices, cultural imperatives and identification processes may no longer be appropriate or relevant to identify and assist employees with mental health conditions.
  • The longer the crisis continues the greater the issues associated with doubt and uncertainty, job insecurity, isolation and financial concerns leading to a flow-on impact on mental health.
  • The increased likelihood of workers suffering mental health injuries may well see those injuries manifesting into more severe conditions with longer recovery times than expected.

Premium pool impacts

Employer declared remuneration

  • The spike in unemployment likely to result in reduced declared wages and employee count. This will impact the premium pool.
  • The impact will be more significant in industries like arts, retail, tourism and hospitality, particularly in small to medium enterprises.
  • Significant and prolonged reduction in declared wages and employee count will significantly impact the premium pool.
  • The impact will be widespread across many industries with some more significant than others.
  • There is the likelihood of an incorrect estimation of wage declarations given the severe and prolonged disruption.

Employer capacity to pay premiums

  • The increased volume of premium refund requests reflecting wage declaration reductions will have a temporary and moderate impact on the premium pool.
  • There will be an increased need for temporary premium relief.


  • A significant increase in premium refund requests and premium relief holidays.
  • With the prolonged economic impact comes increasing volumes of insolvency, and so non-recovery of temporary premium relief.
  • A significant impact on the overall premium pool, with the mix by industry likely to impact overall profitability expectations due to cross subsidies by industry and employer size.


Scheme’s financial condition

  • The faster we return to ‘new normal’ activity, the milder the future state effects and the greater the likelihood that the impact on scheme costs and underwriting ratios will be temporary and moderate.
  • Investment portfolios are likely to be impacted, with sharp falls in equity markets already occurring which will take time to recover from.
  • Longer durations of the crisis are likely to lead to greater likelihoods of more severe injuries, requiring longer treatment programs and time off work, increasing scheme costs.
  • Greater pressure on investment portfolios, not only with severe impact on equities markets, but other asset losses due to mark-to-market, more rigorous liquidity considerations, and credit rating impacts on corporate bonds.
  • Reduced premium pools due to shrinkage in declared remuneration and the impact of unpaid premiums.
  • The combined effects will lead to pressure on funding and loss ratios, and ultimately require the reassessment of break-even premiums and cross subsidies.
What should scheme stakeholders do?
  1. Model the impacts of these scenarios around the duration of the shutdown, length of recovery and impact on business continuity and unemployment to understand the extent of the Workers’ Compensation impacts under each possible future state.
  2. Assess the exposures and impact scenarios to help provide guidance and understand possible boundaries.
  3. Consider what a mild outcome looks like, compared with a severe case.  

With so much uncertainty the best way forward to ‘recover’ in a strong position is to examine the different possible future state scenarios and undertake the analysis to develop a series of possible outcomes for each of these states.  This will inform planning, strategies to best address the evolving risks, and prioritisation to ensure that the most impactful risks are addressed first.  

In our next blog we consider the issues from the perspective of organisations that self-insure their workers compensation liabilities.

More about the author

Niki Appleton

Niki Appleton

Principal, Actuaries & Consultants

Niki is a qualified actuary with experience that spans general insurance, injury schemes, health insurance, self-insurance and data analytics. She provides advice across a range of industries including thought leadership for strategy development work. Niki also advises insurers on liability valuations, pricing reviews and financial condition reporting. As an active member of the Actuaries Institute, Niki contributes to the Institute’s Anti-Discrimination Working Group and COVID-19 Workers Compensation Working Group.