Inflation and the current claims landscape

March 13, 2023

Share on LinkedIn Share on Facebook Share on X

Price increases can be seen across all industries — from food and fuel to construction and manufacturing. When we look at the claims industry, these same factors are influencing costs in workers’ compensation, motor and property claims.

Inflation squeezes workers’ compensation

Price inflation in both medical care and wages is having an impact on workers’ compensation claims. With regard to medical care, Sedgwick claims data indicates that 2022 medical costs for U.S. workers’ compensation claims went up an average of 3% on a per-service charge in comparison to 2021 (driven by increases in the evaluation and management service area, surgical treatment and diagnostic charges). When it comes to wages, the U.S. Bureau of Labor Statistics reported in December 2022 that private employer wages and benefits through September 2022 had increased just over 5% compared to 2021. The temporary total disability (TTD) daily rate for Sedgwick-administered workers’ compensation claims with time away from work also increased by just over 5% on a national basis compared to 2021.

The primary objective of the workers’ compensation process is to help injured employees recover and return to work quickly and safely. Doubling down on the end goal may be the remedy to lessening inflation’s grip. Employers should explore optimizing all aspects of workplace safety and the workers’ compensation process to promote favorable outcomes, including:

  • Maintaining a robust medical provider network to promote timely, appropriate care for injured employees.
  • Delivering a positive and consistent experience for injured employees with empathy at its core.
  • Focusing on holistic care — especially in light of widespread exposure to stress during the COVID pandemic— and, when warranted, accessing resources like behavioral health solutions.
  • Preventing and mitigating litigation. Emphasizing care and communicating clearly at the time of injury can significantly reduce litigation. Once a claim becomes litigated, adopting a robust and thoughtful approach can help control costs.
  • Providing light duty positions that fit restrictions to encourage cooperation with a healthy return to work process. Employers can also work with a managed care partner to find transitional work opportunities with not-for-profit organizations; this helps employees stay active and find purpose while they recover and reduces time away from work.
  • Regularly reviewing workplace safety requirements and ensuring all employees are well trained on injury prevention.

Cost considerations in motor claims

Global supply chain complications and inflation have created an environment where the standard percentages used in adjusting motor claims no longer apply. Critical parts needed for motor repairs remain on backorder, and if damaged cars are not safe to drive, delays necessitate longer usage periods for rental cars. Several key areas of the motor industry have been directly hit by inflation. Repair costs have increased by 11% (and are taking nearly twice as long to complete), and used car values have increased by approximately 40%. These factors, cumulatively, create an increase in motor claim costs.

Considering cost containment options can help. For example, a direct repair network — a nationwide network of motor repair facilities — may have greater buying power than a single local repair shop and be able to secure parts faster, thereby reducing claim durations amid part delays. And of course, the best way to reduce costs is to prevent claims from occurring in the first place. Ensure vehicles undergo proper maintenance before something goes wrong. (See an earlier blog for more on inflation and the motor industry.)

Higher prices and supply chain woes sway property claims

Property claims are also taking a hit, as repair prices are affected by increased costs for materials and labor. Other factors include supply chain issues: manufacturing and delivery delays, labor shortages and increased fuel prices. The construction industry saw a 9.5% increase in residential maintenance and repair costs and a 14.3% increase in insulation materials, according to producer price indexes from November 2021 to November 2022. These factors all prevent homeowners and businesses from having repairs completed promptly after property damage occurs.

To promote cost control efforts, claims teams should use all tools optimally from the start. Ensuring prompt assignment of property claims to qualified adjusters is critical. Sedgwick’s property claims experts can verify repair costs to ensure they are in line with current market pricing, in addition to helping clients with all other aspects of their claims and engaging any additional resources. Policyholders are encouraged to review their policy with an insurance representative at least twice a year to ensure the coverage is appropriate.

Looking forward

It’s imperative that we continue to track economic trends impacting claims and explore every possible cost mitigation option. No matter the industry, strengthening cost-control strategies in today’s financial environment can put organizations in a better position to respond to current and future market trends.

Special thanks to Kathy Tazic, Sedgwick managing director of client services, for her valuable contributions to this blog.

Learn more — check out an expanded version of this article in issue 20 of Sedgwick’s digital magazine, edge

Tags: adjusters, motor, automotive, Claims, claims data, Coverage, Economy, Edge, Financial risk, Helping people, inflation, Insurance, Labor shortage, Mitigating risk, People, Policy, policyholder, Property, repair, Restoring property, supply, Supply chain, Supply chain disruptions, workers' comp