Flash Report: Pandemic Impacts 2021 Workers’ Comp Rates

The Workers’ Compensation Insurance Rating Bureau is still working to calculate proposed 2021 advisory pure premium rates.  But it is quite clear the Bureau intends to cite costs from the COVID-19 pandemic to thrust a rate increase upon California employers.

If approved by Democrat Insurance Commissioner Ricardo Lara, the increase will be the first in California since rates began falling in 2015. The Bureau says the increase is entirely attributable to the COVID-19 outbreak, which originated in Wuhan China.

Industry actuaries just completed their second review in a week of the potential cost drivers. They concluded that pandemic costs will add 6 cents per $100 of payroll to the average pure premium rate next year or roughly a 4.1% increase. Certain industries will pay more to account for their higher share of COVID-19 claims and associated costs. Look to health care and related classes to be hugely impacted.

The overall impact is expected to be a “couple point” increase over January 1, 2020, advisory rates approved last year by Insurance Commissioner Ricardo Lara. “My sense is it is probably a modest indicated decrease before COVID, and maybe a modest indicated increase with the 4 points from the COVID [costs],” says Dave Bellusci, WCIRB’s chief actuary. Bellusci will make the actuarial recommendation to the rating bureau’s governing committee on Wednesday, while the actual filing isn’t expected until the end of the month.

All of these increases come against a backdrop of record profits for insurance carriers who enjoyed an 18% pre-tax underwriting profit. Carriers used to hope for a 5% underwriting profit.

The Bureau is a private organization with quasi-governmental responsibility. It is financially supported exclusively by insurance carriers in whose interests it operates.

The Bureau will propose adding COVID-19 costs to the individual class rates after the underlying pure premium rate indication is developed using its standard actuarial methodologies and applying them to the industry’s experience.

The COVID-19 costs will be added essentially as a surcharge to the class rate. However, it will be weighted based on the industry sector, with the two hardest-hit sectors – healthcare and agriculture – paying the most.

The Bureau is expected to propose a high/medium/low surcharge that equates to about 12 cents per $100 of payroll for the high category, 6 cents for the medium, and 4 cents for the lowest risk classes. The Bureau is currently divvying up the costs based on broad NAICS industry sectors (see chart) but will break out the impact by individual class in the actual rate filing. Bellusci says staff will adjust the final surcharges to average out to the overall 4.1% increase it is currently projecting.

All studies about what industries are hit by COVID show a seriously off-balance tilt towards healthcare and first responders. Nearly all first responders, policemen, firemen, etc. are covered by self-insured public agencies, and hopefully, the Bureau is omitting those cases and costs from its studies.

Industry actuaries will reconvene in early September to review an additional month of COVID-19 claim data. It will decide at that time if an amended rate filing is warranted.

SectorDescriptionRecommended Category
62Health Care and Social AssistanceHigh
11Agriculture, Forestry, Fish and HuntingHigh
72Accommodation and Food ServicesMedium
48Transportation and WarehousingMedium
44Retail TradeMedium
92Public AdministrationMedium
81Other Services (except Public Admin)Medium
61Educational ServicesMedium
56Admin Support and Waste Management and Remediation ServicesMedium
42Wholesale TradeMedium
21Mining, Quarrying, and Oil and Gas ExtractionMedium
53Real Estate and Rental and LeasingLow
71Arts, Entertainment, and RecreationLow
52Finance and InsuranceLow
54Professional, Scientific and Technical ServicesLow
55Management of Companies and EnterprisesLow