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How Does the Labor Shortage Impact Workers’ Compensation?

Topics: Workers' Compensation

Summary: Companies across the country are experiencing labor shortages for a variety of reasons. Find out how these staffing shortages can impact workers’ compensation and what businesses can do to help deal with them.

Workers’ Compensation Trends: Staffing Shortages and Changing Demographics

Like many other industries today, the workers’ compensation industry is constantly evolving. As the world continues to adapt and change during the ongoing COVID-19 pandemic, several of the workers’ compensation trends seen over the past two years will continue to play a role throughout 2022.

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One notable trend in workers’ compensation is the changing workforce and population demographics contributing to the labor shortage that companies began experiencing in 2021. Baby Boomers have started retiring, and by 2050, the population of people 60 years and older will total two billion. Additionally, a record 4.5 million Americans left their jobs in November 2021, leading to a period that is now known as “The Great Resignation.”

What does this labor shortage mean to the workers’ compensation industry? For one, workplace risks are sure to increase for various reasons. Staffing shortages within the insurance industry will also have an impact.

The Labor Shortage and the Workers’ Compensation Industry

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Labor shortages existed even before the pandemic, especially in blue-collar industries. Eighty-five percent of businesses with blue-collar workers reported staffing shortages and recruitment issues as early as 2019. When COVID hit in the beginning of 2020, furloughs and layoffs quickly followed. Also, many companies switched to a remote workforce, and employees became quickly accustomed to this new way of life. When offices began reopening, many of these workers had reevaluated their lifestyles and decided against returning to an office building or job site full-time, even if that meant leaving and finding employment elsewhere – sometimes, starting their own ventures.

AmTrust’s Matt Zender, SVP of Workers’ Compensation Strategy, says, “Across the board, frequency has continued to decline over the past few decades. The notable exception to this was 2010, and that frequency increase is generally attributed to the expansion of jobs following the Great Recession. The post-COVID expansion will likely impact frequency in a similar fashion.”

An understaffed workplace means the remaining employees may need to pick up extra shifts, work longer hours and end their days in exhaustion. Or, businesses may find the need to hire untrained employees or temporary workers to fill in the gaps quickly and keep production moving. Both these scenarios can lead to an increase in workers’ compensation claims due to:
  • Overtired, exhausted workers are more prone to accidents, including vehicle accidents
  • A higher rate of errors made by undertrained employees
  • Skipping certain safety protocols due to time constraints
  • Rushing to fill positions and cutting corners to save time can lead to increased injuries – and mental and emotional distress among employees
  • Unhappy, disgruntled customers and clients taking their business elsewhere
Zender states, “We have absolutely seen claims that could have been avoided with better onboarding.”

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How Can Businesses Deal with Staffing Shortages?

As businesses continue to struggle to reach a “new normal” and get back to their pre-pandemic profits and workforces, they may find the need to change some of their tactics to recruit new staff and retain current team members, especially during this unprecedented labor shortage. Providing better training and incorporating technology to reduce some of the challenges they face can help improve overall employee satisfaction.

Business owners can also offer incentives to employees for referring potential new staff members, and provide the same types of enticements to their new hires. Increasing wages, offering bonuses for a job well done, and adjusting schedules and business hours as needed to adapt to employees’ needs can also help recruit and retain employees.

“Employers are working extremely hard to attract talent. While it can be attractive to focus on the ‘bird in hand’ and hire a lesser candidate, the long term interests of any business will benefit through a more prudent approach,” Zender says.

Small Business Insurance and Workers’ Comp from AmTrust Financial

AmTrust Financial is a leader in workers’ compensation insurance for small to mid-sized businesses. We understand and support our insureds, offering customized coverage options from workers’ comp to businessowners policies (BOP). For more information about our small business insurance solutions, please contact us today.

This material is for informational purposes only and is not legal or business advice. Neither AmTrust Financial Services, Inc. nor any of its subsidiaries or affiliates represents or warrants that the information contained herein is appropriate or suitable for any specific business or legal purpose. Readers seeking resolution of specific questions should consult their business and/or legal advisors. Coverages may vary by location. Contact your local RSM for more information.
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