In 2009, Milliman created a nationwide workers' compensation database consisting of $61.8 billion of incurred losses across all 50 states. We continue to update this database on an ongoing basis, and use the information to perform both state and industry analysis.
This white paper analyzes municipality workers' compensation costs using our most recent data update, in 2021. It includes over 240,000 nonzero claims from municipalities and municipality pools.
As shown in Figure 1, the unlimited incurred loss pattern continues to accelerate. The lines on the graph represent the incurred loss pattern from each of the updates to our workers’ compensation database since 2015 for municipalities. For a given claim age along the x-axis, we have continued to see an increase to the percentage of ultimate losses incurred as of that point in time.
Figure 1: Incurred loss pattern, unlimited
Figure 2 compares the reporting pattern on an unlimited basis to the reporting pattern limited to $250,000. As expected, losses limited to $250,000 develop to ultimate much more quickly than on an unlimited basis.
Figure 2: Incurred loss pattern, unlimited and $250,000 limit
The difference between these patterns is crucial for municipalities and pools when reserving for workers’ compensation exposures. To the extent that their actuarial estimates do not consider the self-insured retention (SIR) or deductible when selecting loss development patterns, the estimates may be too conservative.
Figure 3 shows average untrended ultimate loss and allocated loss adjustment expenses (ALAE) severity by department (police, fire, and all other) for claims occurring from 2009 to 2018.
Figure 3: Ultimate average claim severity by department
Over this time period, the severity trend for all claims has been approximately 2.0%. By department, police and fire claims have seen higher severity trends of roughly 3.5% whereas the severity trend for all other departments has been 0.0%.
The average ultimate claim severity for police and fire claims is nearly 70% higher than the severity for all other departments.
Figure 4 shows the average percentage of each claim that is for indemnity, medical, and ALAE using undeveloped and untrended incurred losses for occurrence years 2000 through 2015. The composition of claims does not vary significantly by department.
Figure 4: Composition of 2000-2015 incurred
Figure 5 shows the distribution of claims by department. There are three bars shown for each department:
- Percentage of nonzero claims from 2000 forward (e.g., 24% of all nonzero municipality claims are from police).
- Percentage of claims over $100,000 (trended) from 2000 through 2015 (e.g., 31% of all municipality claims over $100,000 are from police).
- Percentage of claims from 2010 and prior that remain open (e.g., 34% of all open municipality claims are from police).
Figure 5: Distribution of claims by department
Police and fire claims represent about 37% of the total nonzero claims. However, that grows to over 48% of claims over $100,000 and 53% of claims still open after 10 years.
Body part analysis
Figure 6 shows average untrended incurred loss and ALAE severity by body part for claims occurring in 2000 and forward. The affected body parts indicated in this graph are the 10 with the highest frequency appearing in our database for municipalities; the graph is then sorted by average severity.
Figure 6: Average claim severity by body part, high-frequency body parts
By department, the body parts with the highest average severity do not change significantly. Head injuries were the fourth-most severe (instead of sixth) for police departments and knee injuries were the second-most severe (instead of fourth) for fire departments. The severity for police and fire claims is higher by body part than all other departments, similar to what was seen in total in Figure 3 above.
Our database provides dependable benchmarks for municipalities and pools as well as an industry source for municipalities or pools that may lack credible historical data of their own. It is essential that municipalities and pools understand where their costs are coming from in order to effectively manage workers’ compensation risk.