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BUSINESS, INSURANCE & RISK MANAGEMENT


California Workers’ Compensation: The State of the System, COVID-19 and the Future of Insurance Rates


By Paul C. Morales, CRIS, Alliant Insurance Services, Inc.


evolved into a massive industry involving more than 180 insurance companies providing coverage to over 695,000 businesses and delivering medical and indemnity benefits to nearly 810,000 injured workers per year. In this article we focus on the


S


current state of California’s workers’ compensation system, the impact of the national pandemic on claims and its likely effect on insurance rates for industrial insurance in the Golden State.


SOS: The State of the System 2020 PREMIUM LEVELS


According to the Workers’


Compensation Insurance Rating Bureau (WCIRB), the objective provider of actuarial information based on data from all insurers in California, Workers’ Compensation (WC) insurance premium decreases from 2017 through 2019 were driven by declining insurance company rates more than offsetting employer growth. With the steep economic recession


caused by the COVID-19 pandemic, insurance premiums are forecasted to decline by 15%-20% for the remainder of the 2020 calendar year. If this comes to fruition, average premiums will be at an eight-year low, which translates to a 30% lower figure under the 2016 peak. Interestingly, average insurer rates (like those mentioned above) are


www.AGC-CA.org


ince its creation in 1918, the California Workers’ Compen- sation Insurance System has


at a 50-year low, since declining claim frequency and increasing wage levels have offset rising medical costs and increases in WC indemnity benefits. Historically, the California Insurance Commissioner has approved over nine consecutive pure premium rate decreases since 2015. Although intrastate rates have


fallen in California for several years, the state still has one of the highest rates in the country, second only to New York as the most expensive for WC coverage. Based on the state of Oregon’s recent study of compensation rates, the reason California was near the top of the list for high rates was due to the high frequency of permanent disability claims and prolonged patterns of certain medical treatments


for back cases and “cumulative” type injuries to claimants. Lastly, depending on the effects of


the “second wave” of COVID-19 cases this winter, a possible decline in the California economy may continue to drive down premium levels going into 2021.


COSTS AND DRIVERS Workers’ compensation claim costs


Long-term medical issues affecting COVID-19 patients are still not well known. If additional long-term medical care issues arise from COVID-19 claims, the medical costs on severe and critical COVID-19 claims could be higher.


consist of indemnity benefits, medical benefits and allocated loss adjustment expenses, which all influence premium. With California’s very diverse industry, no economic sector grouping generates more than 15% of statewide pure premium. Te professional “white collar” industry group comprises a majority of the states’ payroll but a tiny share of pure premium. Moreover, the construction and utility industries comprise only 5% of statewide payroll but up to three times the share of pure premium, as rates for these sectors, especially in construction, are higher. According to the California


Division of Workers’ Compensation, actual claim frequency has steadily declined since 1991 due to factors such as a shift to a more service-based economy, increased technological advancement in automation and improved safety pre-loss initia- tives. Over the past several years, indemnity claim frequency has been relatively flat due in part to increases in “cumulative trauma” claims and post-termination claims filed by an employee. Indemnity claim frequency in 2020 may be significantly impacted by the COVID-19 pandemic and the


Continued on page 16 Associated General Contractors of California 15


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