Workers’ Compensation has historically been coverage that is highly affected by prior incidents. A workers’ compensation carrier may use a merit rating to determine rates – using a company’s loss history to predict future trends in claims is a standard rating method and is used in many states to develop a company’s Workers’ Compensation rate.
However, 2020 was an unprecedented year, and the COVID-19 pandemic created many grey areas for insurance carriers and policyholders. Commercial general liability and business interruption coverage has been under the microscope due to conditions and exclusions that rendered it often meaningless for COVID-19 relief.
But what about Workers’ Compensation? Is there coverage under a standard Workers’ Compensation policy to handle claims from ill employees? And, since many insurers use merit rating, how do COVID-19 claims affect a company’s future Workers’ Compensation rates?
Read on to learn more about Workers’ Compensation policies after COVID-19 claims and contact Fusco & Orsini Insurance Services experts for more help.
COVID-19 and Workers’ Compensation Rating
If you have had any employees report COVID-19, you may be concerned about how your Workers’ Compensation rates will be affected. Even without any reported claims, you may be wondering if your rates will change due to the pandemic.
Experience Modifier Rating
One way to develop Workers’ Compensation rates is through an experience modifier or ex-mod. An ex-mod is a rating system that employs a factor created by using the insured’s actual loss history and comparing it to its business class’s expected loss history. If the insured’s business performs well against the expected loss history, their experience modifier will be less than one. A company with greater-than-expected reported losses will have an experience modifier that is greater than one.
An ex-mod factor of less than one means the business will pay less than an insured that carries an ex-mod factor greater than one. Using the ex-mod to determine Workers’ Compensation rates implies a company is rated directly on their actual loss history and efforts to reduce claims.
The experts at Fusco & Orsini Insurance Services can help you understand your ex-mod factor calculation, if applicable. They can also help you understand how any claims submitted during the policy period may affect your future rate calculations.
Are COVID-19 Losses Compensable Under Workers’ Compensation Coverage?
Right now, this remains undetermined in many cases. The answer will vary based on state and employer classification. However, the National Council on Compensation Insurance (NCCI) has submitted requests to exclude claims from the pandemic losses from ex-mod rating. The reason for the exclusion is because pandemics are considered rare events and catastrophes – due to the infrequent nature, they are not predictable, similar to a terrorism event.
Specifically, in California, the Workers’ Compensation Insurance Rating Bureau of California (WCIRB) reports the Insurance Commissioner determined that Workers’ Compensation claims related to COVID-19 on or after December 1, 2019, will not factor into a company’s ex-mod factor. The change in law means these losses will not affect future rates – this is because the commissioner felt the pandemic-related losses do not accurately reflect future claims due to the infrequent nature of global pandemics.
Will COVID-19 Claims Affect my Workers’ Compensation Rates?
Workers’ Compensation rates are calculated considering future medical and lost wage claims from employees. Because of this perspective nature of rates and the pandemic’s uncertainty throughout 2021 and 2022, it is challenging to predict rate fluctuations based on COVID-19 claims.
Some businesses that employ people directly involved in healthcare or patient care may see an increase in rates due to the expected increase in losses related to COVID-19. With more employees at risk of contracting the disease due to working with patients, it follows that they may see more losses and submit more claims.
However, claims classified during the pandemic as a catastrophe may not factor into future Workers’ Compensation rates.
Trends in Fewer Claims
One trend that argues against increasing Workers’ Compensation rates due to COVID-19 losses is that more employees work from home and continue to do so. Many employers are electing to keep employees working from home or are allowing minimal rotations of in-office hours for select staff. Suppose the majority or all of a company’s employees work from their homes. In that case, they cannot contract COVID-19 through their employment, which naturally limits Workers’ Compensation claims related to COVID-19.
Since Workers’ Compensation rates seek to reflect future claims and losses during the policy period, having all employees work at home and avoid contact with each other severely limits losses from COVID-19. For employers at the frontline of healthcare and patient services, this may not be possible.
Differences in Healthcare Costs
Another factor we may see in 2021 is that patients are seeking treatment in different ways. Telemedicine services saw a significant increase in use in 2020. Telemedicine is likely to continue through 2021 as the CDC and large healthcare systems encourage patients to seek care virtually when possible. Telemedicine may incur different costs than in-person visits.
Additionally, non-essential patient care or surgeries will delay until a safer time. Fewer medical visits and services rendered could decrease severities in the near-term. Of course, once patients feel safer, there could be a resurgence of costs as they seek delayed care during the pandemic.
The House of Representatives drafted legislation in May 2020, called the Pandemic Risk Insurance Act of 2020 (PRIA). The PRIA has not yet been voted into law, however. If passed, PRIA will offer relief to insurers who incur pandemic- or disease-outbreak-related losses. The PRIA program would trigger once aggregate industry losses exceed $250 million following a covered outbreak for insurers who opt into the program.
PRIA is modeled mainly after TRIA – the Terrorism Risk Insurance Act signed into law in 2002 and extended four times since. TRIA provides a government backstop for private insurers in the case of a certified terrorism event.
Some states have also passed legislation affecting Workers’ Compensation claims handling related to COVID-19. NCCI maintains a page on their website dedicated to updated state legislative activity and executive orders.
Workers’ Compensation rates vary based on many factors, like location, loss history, and industry. While it is still early to know the full effects on the insurance industry from COVID-19, claims handling is of particular concern to employers and ill workers. For many businesses, we may see COVID-19 claims excluded from future rating factors.
Before your next renewal, it is a good idea to discuss your claims experience and rating factors with Fusco & Orsini Insurance Services experts. Even if you have had claims related to COVID-19 under review, you can get information on how your claims experiences may affect your rates.
How do I Learn More?
Now that you know more about how COVID-19 claims affect Workers’ Compensation rates, you can contact Fusco & Orsini Insurance Services. Our licensed professionals will be happy to answer any questions you have.