ORLANDO, FLA.--The recession is not all bad news for workers' compensation insurers, because fewer workers are likely to be injured, an economics expert explained here.

Some of the impact from the downturn is "sort of a silver lining," explained Harry Shuford, chief economist for the National Council on Compensation Insurance. "Injury rate frequency tends to fall at a faster pace during recessions."

Mr. Shuford was interviewed before he delivered a briefing today on "Workers' Compensation and the Business Cycle--An Overview" at the Regulatory Forum, a session for state regulators in advance of tomorrow's NCCI Annual Issues Symposium here.

Injury "frequency, it turns out, is really the key driver of claim costs...so typically as you move into a recession you see claim costs easing a bit," Mr. Shuford said.

This is different from what many people might intuitively anticipate, "that hard times in the economy translate into hard times anywhere--that is not entirely true with workers' compensation.," he said.

In a briefing paper on the subject Mr. Shuford advised that "conventional wisdom" that anticipates increases in frequency of claims as unemployed workers begin submitting claims is wrong.

Indeed, workplace injury rates fell in six of the seven recessions since the early 1960s, and when the economy came back up "in five of the six expansions, it rose," he wrote.

Mr. Shuford said the workers' comp premium is sensitive to employment changes in key high-rate sectors, particularly the cyclical areas of construction and manufacturing.

The plunge in construction employment in the past year, he wrote, will probably be reflected in slower growth, if not outright declines, in workers' comp premium.

Mr. Shuford finds that while events such as plant closings and large layoffs do result in clusters of claims, evidence suggests this is unlikely to play a major role in frequency patterns--reflecting the U.S. economy's dynamic nature where large layoffs happen frequently.

The decline in rates when the economy sinks is attributable to various factors, but Mr. Shuford explained the most important is that inexperienced workers are more likely to be injured on the job.

"As the economy moves into recession, employers typically lay off their newest hired, least experienced workers," he said in his paper.

Injury frequency, according to workers' comp data, indicates that frequency fell or declined faster during the three most recent recessions and there is every reason to believe this downward pressure will be observed during the current economic downturn, the economist stated.

His study found that data from the past three recessions suggests the key driver of indemnity severity is the slowing of the growth in wage rates and that this impact extends a year or so beyond the end of the recession as state benefit levels adjust to the previous year's average weekly wage.

Asked if there were any indications that the current downturn would be different, Mr. Shuford responded: "This recession is already the longest downturn since the Great Depression. We are seeing a strong impact in the labor markets, which might mean if it continues for an even more extended period of time that the downward pressure on frequency we've seen in previous recessions might be less pronounced--but that's largely speculation, because during the Great Depression we saw a marked decline in injury rates."

Concerning the recession's impact on the residual market for workers' comp coverage, Mr. Shuford's briefing for regulators noted that in the 1980s the residual market grew in response to market losses. Since then, however, the residual market has grown following recessions and decreased during recovery.

On Friday the topic of frequency will be discussed during a talk at the symposium by Frank Schmid, NCCI director and senior economist.

He said that accident frequency declines during recessions due to a turndown in the rate of job creation.

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