Report Shows Healthy, Stable WC Market — Pre COVID

Nancy Grover

Oakland, CA ( – California has seen approximately 15,000 COVID-19-related workers’ compensation claims for the time period March 19 – July 5. The timeframe covers the governor’s executive order creating a rebuttable presumption for workers forced to work outside their homes who contracted the virus.

The Workers Compensation Insurance Rating Bureau had initially estimated there would be about twice that many claims filed, at a cost of $1.2 billion. The total could ultimately be close to that number.

“The 30,000 estimate was driven by mild claims. There are a lot of challenges to that assumption,” said Dave Bellusci, EVP and chief actuary of the WCIRB. “We don’t know how many with mild symptoms will actually file. They have paid sick time,” and other benefits available.

Bellusci spoke during a webinar on the WCIRB’s 2020 State of the System Report. The report, based mainly on pre-pandemic information, paints a picture of a healthy, stable market.

“Rates were at a 50 year low. It’s a non-concentrated market. There were favorable, flat loss trends,” Bellusci said. “With the pandemic there is tremendous uncertainty.”

Premiums Expected to Plummet

Workers’ compensation premiums in California peaked at $18.1 billion in 2016, and have declined over the last several years, to $15.9 billion. WCIRB expects that number to plunge this year, due to pandemic-related job losses.

“We estimate about a $3.5 billion decline in premium, about 20 percent,” Bellusci said. “That’s about 30 percent below the 2016 peak.”

The estimate comes from the combination of an expected decrease in rates and the economic slowdown from the pandemic. “So you have both factors driving premiums down,” Bellusci said.

Another uncertainty is what will happen with claim frequency. The rate of claims in California has been trending lower than NCCI’s countrywide average. But the impact of COVID could change that, depending on a variety of factors.

“There is the loss of employment – this is unprecedented; there is a shift to telecommuting – workers being on the road less will likely drive down frequency; there are furloughed employees who are being paid; there are potential surges in post-termination claims,” Bellusci said. “If we don’t have a big surge of post-termination claims, and COVID claims are relatively modest, we could have significant frequency decline.” However, these factors could be just the opposite and drive up frequency.

Bellusci also said there is no history on which to base projections. For example, the economy went from full employment to 15 percent unemployment over a four-year period during the Depression. The same phenomena has happened over the last four months. “So it’s a little unprecedented.”

Pre-Pandemic Stats

California industry officials have set their sights on improving the numbers in what is one of the highest cost states for workers’ compensation. Currently, costs the system $0.52 to deliver $1 of benefits through the system, compared to:

  • Medicare — $0.02
  • Private group health insurance — $0.18
  • Workers’ compensation median state — $0.24

But trends had been improving — up until the pandemic. Reforms, reduced utilization of prescription medications and efforts to rid the system of medical provider fraud are credited with keeping medical costs relatively flat for the last several years, for example. That contributed to overall system costs dropping between 2014 and 2019, from $16.8 billion to $13.2 billion.

“About 70 percent of the total decrease was in the medical benefit category, a lot driven by [Senate Bill] 863 and the speed-up rate of claim closures, reducing the need for future medicals,” said Tony Milano, WCIRB’s VP of Actuarial Services. “Medical overall has decreased over time. The drivers, the pharmaceutical category and medical liens comprised about 15 percent of the total benefits in 2014. Now it’s only about 5 percent.”

Cumulative trauma claims, which have been a big driver of indemnity frequency in California for years, have abated somewhat since 2016. However, that may also change due to COVID-19.

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