Insurance Commissioner Ricardo Lara got an earful from the insurance industry saying rates need to go up by 2.6% next year to pay for COVID-19 claims costs – the first increase in California workers’ comp rates since 2015. The increase comes from a controversial proposal by the Workers’ Compensation Insurance Rating Bureau to surcharge all employers. All of this is happening while workers’ comp carrier profitability is in the record-making range, and the end of the pandemic is in sight.
The Bureau proposes a six-tiered surcharge — hitting employers and industries that have not been affected by the pandemic from communist China. It ranges from $0.01 to $0.24 per $100 of payroll based on six industry sectors. The proposed surcharge is not adjusted to individual employer experience and would be added before X-Mods. It would apply to even the smallest of employers.
However, a more in-depth analysis holds California employers should get between a 1.9% and a 5.3% rate cut if the COVID surcharge is eliminated.
The Commissioner heard compelling testimony that the proposed average COVID-19 surcharge of $0.06 per $100 of payroll not only overestimates the cost of the pandemic but is also inherently unfair and has small employers shouldering an outsized share of the pandemic’s costs.
The Bureau is a private organization with quasi-governmental responsibility. It is financially supported exclusively by insurance carriers in whose interests it operates.
“I think it’s probably as good as actuarial science can take you with the data and the time that we had,” says Mark Priven, an actuary with Bickmore who represents employers and organized labor before the WCIRB. “However, I am very sensitive and sympathetic to the idea that even though it’s as good as the actuarial science can take it, it might not really be accurate enough or good enough.”
Priven’s voice is one in a growing chorus who say that carriers’ likely are best equipped to assess the pandemic’s impact on individual risks – not a rote application of a surcharge.
“Maybe the most accurate thing would be to leave it to an underwriter,” says Priven. He points out that across the broad industry sectors identified by the Bureau, there are specific classes with much lower COVID-19 exposures than average and others much higher. The Bureau was forced to carve dentists and physicians out of the broader healthcare sector due to their much lower exposure than hospital workers and nursing homes.
Priven’s base recommendation is for a 1.9% rate cut, including a small surcharge for COVID-19 claims. Eliminating his suggested surcharge drops, the rate indication to a 5.3% decrease from the average approved January 1, 2020, advisory rate.
Excluded from Presumption
“We also know that the potential exposure will vary very much by employer depending on how they protect or don’t protect their workers from COVID, and also could vary, based on SB 1159, just on the size of the employer,” Priven says, mentioning the COVID-19 presumption bill that Gov. Gavin Newsom signed into law last month. The bill excludes employers with fewer than five employees from the presumption. Its specific terms make the presumption much less likely to apply to a workplace than the Governor’s original executive order.
“The definition of outbreak — of 4 workers or 4% [of the workforce] depending employer size – we see as an extremely high bar that is only going to be met in extremely rare cases,” says Mitch Steiger of the California Labor Federation. Outside of first responders, healthcare workers and other essential workers, “we don’t think there’s a presumption to speak of that should be factored into the rates,” he adds.
The opposition to the Bureau’s approach is not only from employers and labor representatives. The State Compensation Insurance Fund, which backed an unsuccessful motion to keep the surcharge out of the rate filing, continues to oppose its application.
“State Fund’s objection to a recommended rate increase is twofold,” says Rhonda Myers for the carrier. “First the cost of claims due to COVID-19 are unknowable at this time. There is simply not enough reliable data to factor the cost of COVID-19 into near future rates. And we feel the proposed rate increase has a built-in inequality in which small employers would subsidize larger employers.”
Myers notes that small employers are unlikely to meet the SB 1159 criteria for an outbreak to trigger the COVID-19 presumption. She maintains that the COVID-19 load should not apply to employers with fewer than five employees. “We feel carriers can address the potential COVID-19 exposure on employers through pricing tools such as scheduled rating tools, allowing carriers to more accurately determine the premium charge to employers based upon their individual exposures,” Myers testified.
The Department wrapped up the public hearing yesterday afternoon but kept the record open until the WCIRB delivers additional information requested by CDI actuaries. Indications are that the record will stay open at least through the end of the week, after which Commissioner Lara has 30 days to issue a decision.