rate increase

The COVID-19 pandemic seems to have reversed years of falling workers’ compensation rates in California, as the Workers’ Compensation Insurance Rating Bureau has recommended that average benchmark rates be increased by 2.6% for 2021.

The recommendation was forwarded to the California Department of Insurance, which will schedule a hearing on the recommendation in the fall.

It should be noted that the 2.6% increase recommendation would be an average across all class codes, as the Rating Bureau plans to allocate the expected COVID-19 costs by weight across the state’s overall industrial sector. Note that even low exposure classes will be surcharged.

The Bureau in its recommendation aims to apply the surcharge on a weighted basis according to each class code’s share of growing COVID-19 claims costs. It is considering a tiered surcharge model based on an employer’s risk (for examples, see list at bottom):

High risk – A 12-cent surcharge per $100 of payroll.

Medium risk – A 6-cent surcharge per $100 of payroll.

Low risk – A 4-cent surcharge per $100 of payroll.

The Bureau’s actuarial committee noted that the pandemic does present challenges for predicting workers’ compensation costs. “The 2021 policy year will still be impacted by COVID-19, but some trends may stabilize. The challenge will be projecting exposure and claims frequency (for COVID-19 claims),” the committee wrote in a report.

The X-factor

Actually, the overall effect of COVID-19 on rates going into 2021 was 4%, according to the Rating Bureau. Had it not included the COVID-19 surcharge, it would be asking for a 1.3% decrease in benchmark rates.

The reason is that claims costs and claims frequency have been falling overall and long-term claims are costing less than originally anticipated.

The Bureau also forecast that the recession caused by the pandemic will also have a profound effect on overall claims: it projects an overall 6.3% decrease in claims frequency due to slowing economic conditions.

Interestingly, COVID-19 claims are not supposed to count against employers’ experience rating and loss histories, according to new rules that took effect in May. However, the claims are having an overall effect in terms of workers’ comp benefit payments.

The Bureau also has to price in the uncertainty over the future of COVID-19. Will it get worse, or will it begin to wane? Will there be a vaccine and new and improved treatment regimens that reduce mortality or decrease symptoms and hospitalizations?

It is concerned that some industries in the low risk category may be getting a surcharge that is still out of proportion to their actual risk, particularly people who are working remotely. It plans to further study the issue and will likely amend the filing in September depending on the results.

Risk categories for COVID-19

High risk

  • Health care and social assistance
  • Agriculture, forestry, fishing and hunting.

Medium risk

  • Accommodation and food services
  • Transportation and warehousing
  • Retail trade
  • Public administration
  • Utilities
  • Other services (except public admin)
  • Educational services
  • Admin support and waste management and remediation services
  • Manufacturing
  • Construction
  • Wholesale trade
  • Mining, quarrying, and oil and gas extraction.

Low risk

  • Real estate, rental and leasing
  • Arts, entertainment and recreation
  • Finance
  • Professional, scientific and technical services
  • Information
  • Management of companies and enterprises.
Nils Wright
Author: Nils Wright