COVID-19 Clouds the Outlook for California Construction in 2021

By Ken Simonson, AGC of America Chief Economist

shadow, especially on construction and especially in California. IF the vaccines developed so


California's Workers' Compenstion Continued from page 15

resulting stay-at-home orders and the economic downturn. From a severity standpoint, average

indemnity costs were relatively flat as increased claim settlement rates reduced claim duration, offsetting increases in average wage levels and indemnity benefit levels from 2012 through 2017. In 2018 and 2019, average indemnity costs increased as the recent acceleration in claim settlement rates plateaued. Average indemnity costs in

California are $25,031 per claim, compared to the national high of almost $55,000 in the state of New York. Per the Department of Industrial Relations, from 2011 to 2016, average medical costs per claim sharply declined, primarily driven by CA SB 863, CA SB 1160 and CA AB 1244 reforms, as well as efforts to reduce medical provider fraud and contained pharmaceutical costs. Average medical costs per claim in California are $29,044, compared to the national high of $70,606 in the state of Delaware.

COVID-19 Impacts In the WCIRB’s evaluation of the

Governor’s Executive Order of March 2020, the low-range cost estimate impact of total costs to the system was

16 January/February 2021

here is reason to expect the pandemic will soon pass its peak. But that peak will cast a long

quickly in 2020 prove to be safe and effective, and if enough of the public has access to and takes the vaccine, and if the population acts to limit the spread of the disease, the economy should continue its upward path through 2021. Tat will be a necessary precursor to a pickup in construction but will probably not lead to an actual

$0.6 billion, the mid-range estimate $1.2 billion and the high-range estimate $2.0 billion. Tese estimates are actually lower than those in an earlier WCIRB estimate of a potential presumption of COVID-19 compen- sability, due primarily to the limited time the Executive Order applies and the availability of information on California death and hospitalization rates by age that reflect the impact of the stay-at-home orders. However, that may change significantly due to the September 17, 2020 passing of SB 1159, which encapsulates new reporting requirements and conditions around compensability that sunsets on January 1, 2023. Because the majority of COVID-19

claims are anticipated to be mild with no hospitalization, the average medical cost projected over all COVID-19 claims is well below the average medical per indemnity claim on non-COVID-19 claims. 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. As expected, the vast majority of

COVID-19 claims reported to the Division of Workers’ Compensation are in the health care (over 50%) and government/public administration

boost in activity before 2022. As with most of

the nation, California had a devastating loss of construction employment between February and April 2020. Te state lost

sectors (over 17%). It is anticipated that claims stemming from the construction industry will be under 2% of total pandemic related cases. It is likely that as California’s economy begins to re-open (or close) the industry mix of COVID-19 claims will be more dispersed and may fluctuate.

OUTLOOK Many variables will affect the

future of premiums, rates and claim costs going forward in California. Te WCIRB proposed January 1, 2021 advisory pure premium rates in its August 26, 2020 filing average $1.56 per $100 of payroll and represent an overall average 2.6% increase from the approved January 1, 2020 advisory pure premium rates. Te proposal includes variables associated with the pandemic. Te overall impact remains

uncertain, however, as it is completely dependent on the increase and/or decrease in COVID-19 positive cases, hospitalizations, claims filed and denied either as result of virus exposure or post-termination claims due to a possible economic slowdown. 

Paul C. Morales, CRIS, is First Vice

President, Construction Services Group, Alliant Insurance Services, Inc. He can be reached at 213-443-2446 or pmorales@

California Constructor

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