Basic economics tells us that recessions are always a possibility and that they typically occur in cycles that can be predicted by major social, environmental, and economical factors. Global crises such as the novel coronavirus (COVID-19) pandemic can lead to a recession that will ultimately affect businesses in countless ways. From payroll to workers’ compensation insurance, the effects of a recession are large and impactful.
How Does a Recession Affect Workers’ Comp Insurance Premiums?
Typically, a recession causes a reduction in employment, whether via layoffs or hiring freezes. Companies often take a “do more with less” approach to managing their staff and delegating job responsibilities during tough economic times. When payrolls fall across the country, workers’ compensation insurance premiums follow suit.
How Does a Recession Affect Workers’ Comp Claims?
According to economists, workplace injury — and, as a result, workers’ comp claims — tend to decrease during a recession. This could be for a variety of reasons, not the least of which is reduced employment during times of economic downturn, especially in high-risk industries such as manufacturing and construction.
Workers’ comp claims may also be decreased because employers often choose to let go of less skilled or less experienced workers in favor of employees who have more on-the-job experience and are more reliable. This typically results in lower workplace accidents, because more skilled workers are more likely to follow workplace protocol. In addition, employees who are employed throughout a recession may be less likely to file a workers’ comp claim in the event of a workplace injury out of fear that they may lose their job as a result.
However, there is also evidence that workers’ compensation claims can rise in the midst of a recession. One reason could be that, in efforts to boost sales, companies expand into areas of business that they may not have entered prior to the downturn. For example, many retailers that have been forced to close during the COVID-19 pandemic are expanding into new areas such as curbside service, take-out, and online services.
In addition, some industries such as online retailers, grocery stores, and medical supply companies are seeing boosts in profits, causing them to hire more employees to meet demand. More employees and new services will inevitably lead to a higher risk of workplace accidents and more workers’ compensation claims.
Another cause for potential increases in workers’ comp claims during a recession is that workplace conditions and safety protocols may deteriorate during times of economic hardship. Whether businesses cannot afford to upgrade working conditions due to the recession or employees are overworked due to understaffing, business owners could still find themselves relying on their workers’ comp policies, even during a recession.
Should Businesses Consider Getting Workers’ Comp Insurance During a Recession?
Workers’ comp insurance should always be a priority for businesses, especially during a time when money is tight for the foreseeable future. There is no better way to protect a business from potential litigation than with a comprehensive workers’ compensation policy. Economic recessions, like workplace injuries, are unpredictable and can lead to circumstances that may cause dangerous situations for workers. It’s best to be prepared and protected with a workers’ comp insurance policy.
Cerity, a faster and more affordable approach to workers’ compensation insurance, is here to support business owners during these uncertain times. Get a free workers’ comp quote for workers’ comp insurance with our free online quote tool.