How prepared are workers’ compensation systems for COVID-19?

Regardless of the workers’ compensation model (private insurance, competitive state fund, exclusive state fund), every insurer has to prepare for the unexpected. Afterall, insurance is the transfers the financial risk of rare but costly events from the insured to the insurer.  As noted in my last post, the COVID-19 event most certainly is a rare event and just as assuredly will result in accepted workers’ compensation claims.  How each workers’ compensation insurer will fair in this reality depends greatly on past actions to:

• Understand the risk
• Plan for the financial consequences, and
• Prepare for the operational impact

Like all large business, workers’ compensation insurers identify their risks through environmental scanning, SWOT analysis, and risk ranking exercises.  Then comes the hard part:  putting in place the financial and operational contingency plans to ensure the resilience of the organization at a time it is needed most.  Low probability but high impact events like the COVID-19 pandemic may be identified but what happens next depends on the leadership.   

Corporate planning exercises are internal to the organization and not necessarily subject to public scrutiny making it hard to know how many workers’ compensation insurers saw COVID-19 coming and what, if anything, they did to prepare. Identifying past events and their impacts—how well we have learned from past events- is critical to such preparations.

The “Unknown” occupational disease risk in workers’ compensation

When workers’ compensation systems started a century ago, the focus was “industrial accidents” .  Few “industrial diseases” were included in early legislation and typically by industry or process ( things like lead poisoning in smelting or sulfur poisoning in coal mining) and not diseases.   The “Spanish Flu” pandemic of 1918 provided ample proof that a pandemic virus was a real risk to workers particularly in healthcare centres. 

The formulation of workers’ compensation legislation in most jurisdictions prevented workers’ compensation systems from accepting claims for previously unknown or scheduled diseases.  This limitation was noted at the time.  For example, one jurisdiction’s annual report noted:

As an example of the limitations of the Act, it may be mentioned that during the severe epidemic of Spanish influenza in the fall of 1918, many inquiries, telephonic and otherwise, were made as to whether the influenza was covered by the Act, some of the inquirers claiming that it was due to their daily work. There could, of course, be only one answer to these inquiries, that the influenza, though a great misfortune, could not by any stretch of imagination be considered as an accident arising out of employment.
[Source: Second Annual Report of the Workmen’s Compensation Board of the
Province of British Columbia For The Year Ending December 31^st 1918, Page U11]

As the tone of the passage suggests, the worker’s compensation authority saw the lack of coverage as a gap in the legislation.  The then chairman wrote:

In the closing months of the last year we have been compelled to reject a number of claims arising out of the influenza epidemic, in which mothers with small children made application for pensions. One case was particularly painful. When informed that we must reject her claim, the mother of eight small children asked us in desperation: "What am I to do?" We were unable to answer. She withdrew from the Board room accompanied by two of her frightened children clinging to her skirts, and one in her arms, to answer the question as best she could. These experiences also compel us, at the risk of being censured for going outside of our sphere, to call attention to the enormous wastage of life, health, and happiness through failure or inability to obtain medical attention.
[Source:  1918 Annual report ibid., page U47]

Over time, most workers’ compensation systems adapted to include coverage for occupational diseases.  The Spanish flu killed 675,000 in the US (population in 1918 was 103 million) and an estimated 40 million worldwide (when the population was about 1.8 billion).

From a workers’ compensation perspective, the possibility of a new disease suddenly emerging to injure and kill workers in the course of their employment was no longer an unknown risk.

“Known unknowns”

The idea that a new work-related disease could emerge was proven out when in other serious outbreaks less deadly than the Spanish influenza pandemic.   The 1957-58 “Asian flu”, for example,  infected 20% to 40% of the population but the death rate was much lower (excess deaths estimated at 66,000 in the US).  Other influenza viruses have spread quickly around the world, often resulting in harm to workers particularly those in the medical field where close contact lead to transmission and illness.  These include the “Hong Kong flu” of 1968, various strains of “Avian flu” and “Swine flu”.
[I've included a list of notable pandemics from Madhav N, Oppenheim B, Gallivan M, et al. Pandemics: Risks, Impacts, and Mitigation. In: Jamison DT, Gelband H, Horton S, et al., editors. Disease Control Priorities: Improving Health and Reducing Poverty. 3rd edition. Washington (DC): The International Bank for Reconstruction and Development / The World Bank; 2017 Nov 27. -Table 17.1, Chapter 17] 

Serious illness from pandemic virus became a serious topic in “business continuity” and “disaster management” in the corporate and government world in the late 1990s.  Concern over Y2K, increasingly serious natural disasters such as hurricanes, and disruptions through terrorism such as the September 11^th attacks pushed the evaluation of risk from the academic classroom and actuarial backrooms to corporate boardrooms.  Annual reviews of risks and business continuity plan testing became part of the corporate culture.  In hospitals and government offices, contingency plans were developed for many risks but one epidemic helped spur some workers’ compensation systems to take specific action to prepare for the “know unknown”:  the emergence Severe acute respiratory syndrome (SARS).

The 2003 SARS outbreaks in Ontario and British Columbia in particular provide hard lessons on the human and financial cost of work-related disease.  I attended a policy conference a few years later where one presenter noted that more than 400 claims were received by the WSIB for SARS exposure,  more than 160 for SARS illness, and two fatalities.  In a reflection of the risks associated with working at the front lines of medicine,  98% of accepted claims were from women in healthcare.  If you are unfamiliar with what happened during the SARS outbreak, you may find the following reference informative:

Low DE. SARS: LESSONS FROM TORONTO. In: Institute of Medicine (US) Forum on Microbial Threats; Knobler S, Mahmoud A, Lemon S, et al., editors. Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Washington (DC): National Academies Press (US); 2004. Available from: https://www.ncbi.nlm.nih.gov/books/NBK92467/

Anticipating the next pandemic

Workers’ compensation insurers were certainly aware of the risk of pandemics.  The risk was publicly acknowledged and actively planned for.  One annual report noted:

In 2003, Canadians saw Severe Acute Respiratory Syndrome (SARS) strike with devastating human economic costs. In 2004, the avian influenza virus put workers at risk and resulted in millions of birds being destroyed. In both cases, the original source of human infection was an animal. The potential threat posed by diseases crossing over from animals has been identified as a serious risk to humans by the World Health Organization. These “zoonotic” diseases have had very limited health impact on B.C.workers to date; however, in the event of an outbreak of a highly contagious disease, front-line caregivers may be at increased risk. These diseases are within the scope of coverage by the Workers Compensation Act if the worker contracts the disease in the course of, and arising out of, duties related to his or her employment.
WorkSafeBC,  2004 Annual Report and 2005-2007 Service Plan

In corporate planning and business continuity departments, pandemic planning was on the agenda.  Those charged with these tasks amplified the messages from experts.  The many public appearances and analysis of Michael T. Osterholm over the last twenty years, the assessments of the World Health Organization, and the rankings of the World Economic Forum may not have been on everyone’s reading list but business continuity planners and disaster management professionals certainly understood the risk.   “Team sites” were prepared, operational impacts and costs were estimated in some workers’ compensation systems.  Risk ranking exercises in finance departments often included the pandemic risks and actions were taken in many workers’ compensation insurers to operationally and financially manage (or at least buffer) the impact of the known pandemic risk with an unknown arrival date. 

A Current Risk

To be clear, pandemic risk has been on the agenda for years.  Researchers have raised the alarms but not every government or insurer was listening.  In hindsight, these warnings seem eerily prescient.  For example, this top finding from the Global Health Security Index [October 24, 2019] was alarming—at least to those who read them:

Countries are not prepared for a globally catastrophic biological event, including those that could be caused by the international spread of a new or emerging pathogen or by the deliberate or accidental release of a dangerous or engineered agent or organism

The World Economic Forum noted the risk of pandemic in many of its reports over the last fifteen years. Most recently, its Global Risk Report 2020 placed infectious diseases among the top ten impacts and noted:

Global health security risks. Considerable progress has been made since the Ebola epidemic in West Africa in 2014–2016, but health systems worldwide are still under-prepared for significant outbreaks of other emerging infectious diseases, such as SARS, Zika and MERS. [P. 76]

Major reinsurers like MunichRe  and SwissRe identified the risks and set up their own units or plans for pandemics and cooperated with the World Bank to launch the Pandemic Emergency Funding Facility in 2016.  Other large reinsurers certainly identified the risk.  The consequences of higher death rates across all demographics during a largescale pandemic on life insurance underwriters and government social insurance as well as on workers’ compensation insurers. Reinsurers and large insurers often provided tools and assessments to help insurers identify the risk and make plans accordingly.  [see Aon’s  https://www.aon.com/InfectiousDiseaseResponse/default.jsp for example].

For any insurer, these assessments made the risk clear.  How each prepared in light of this information will determine how well they will weather the consequences during of the current pandemic. 

Preparing for the inevitable…

Operational contingency plans often included building system access and redundancies.  If one office or headquarters was quarantined or significant numbers of staff were disabled in a particular centre, operations could continue elsewhere.  The ability of workers’ compensation insurers to shift to work-from-home models were developed and tested.  These operational contingencies were not necessarily in anticipation of pandemic or local outbreak but based on more generally on the availability of staff and facilities after or as a disruptive event unfolds.  Scenario planning included a variety of possible disruptions from earthquakes to an outbreak and even scenarios that may have sounded farfetched at the time:

Due to the cruise ship, cargo and air traffic through Vancouver, it is possible that emerging diseases will be identified here in BC and that workers in health care, transport and hospitality will develop compensable disease.
[WCB of BC,  “Future Risks: Issue specific environmental scan” 1998].

As with most insurers, workers’ compensation insurers create “reserves” for risks like these.  Occupational disease reserves and disaster reserves are commonly developed and funded.  The robust market returns and extended economic growth cycle since the Great recession (2007-2009) have allowed reserves to be built up for many insurers.  Whether present reserves will be sufficient is an open question.  No one yet knows the extent to which work-related COVID-19 will result in workers’ compensation claims but injury, illness and fatality claims arising from this pandemic are already entering workers’ compensation systems world wide.

Aside from reserves, funding strategies may include reinsurance. Reinsurance is a way for a firm or insurer to share the financial risk of large losses.  You can think about it as insurance for insurers.  As a strategy, it may insulate any one insurer but that assurance comes at a cost.  Premiums and deductibles may be high.  Just how each insurer manages its pandemic risk will vary.  Whether to establish reserve, reinsure, do both… or neither, is a choice for any risk.  Now that this particular eventuality risk has become manifest, the consequences of those choices will begin to be reflected in financial statements. 

Enter the Pandemic and the need to adapt

The COVID-19 pandemic is still unfolding and its impact on the economy and insurers is uncertain at best.  The impact on workers battling the pandemic, supporting the ill, and keeping the essentials of society running is unknown. 

In this pandemic, quarantine is becoming a bigger issue.  The lag in disease development and the potential for asymptomatic and pre-symptomatic individuals make quarantine and isolation a priority especially for first responder, healthcare workers and others providing direct care to those who are ill or vulnerable particularly the elderly.  Large numbers of first responders and healthcare workers are being sidelined because of work exposures.  Quarantine is for the well exposed but not infected.  The period of quarantine may mean lost wages and psychological pressure on workers and their families. 

As I noted in my last post, quarantine is not typically compensated by workers’ compensation legislation.  This may be changing. Washington state “is taking steps to ensure Workers’ Compensation protections for health care workers and first responders who are on the front lines of the COVID-19 (coronavirus) outbreak.”  The news release states:

L&I [Washington State’s Department of Labor and Industries is immediately changing its policy around workers’ compensation coverage for health care workers and first responders who are quarantined by a physician or public health officer. Under the clarified policy, L&I will provide benefits to these workers during the time they’re quarantined after being exposed to COVID-19 on the job.https://www.governor.wa.gov/news-media/inslee-announces-workers-compensation-coverage-include-quarantined-health-workersfirst 

Workers’ compensation systems have expanded their coverage over the last century to include more occupational disease.  Science has led us to better understand the work-relatedness of occupational illnesses and workers’ compensation systems have adapted to the benefit of both workers and employers.  Their varying degrees of preparedness for this pandemic will be revealed over time but workers and employers will undoubtedly be relying on workers’ compensation systems well after the pandemic peaks. Any shortcomings in their preparation should not jeopardize the benefits and supports promised by workers’ compensation laws. Those with work-related illness and first responders forced into quarantine by medical order need to be supported financially regardless of past decisions or policies.   

Will there be a significant cost?  Of course. Medically ordered quarantine, however, is necessary to protect others on the front line and the rest of us.  These workers and their families are already sacrificing so much; they should not have to suffer lost wages, use vacation time or consume sick leave because of their dedication in spite of the risk.  It is not as if they can quit their jobs and be free of the quarantine.  They are, for all intents and purposes, totally disabled from work by virtue of their exposure and the medical risk that carries for everyone.

Workers’ compensation has evolved its coverage in the past.  Perhaps now is the time for a further evolution along the lines proposed in Washington state.