California Workers' Compensation Impact Projections - COVID19

Worker' Comp underwriting strategy for risk selection and understanding of proper pricing during Covid

As our clients continue to grow their businesses during the COVID-19 pandemic, it has never become more important to select the right client company exposures to take risk on and those to lay off on guaranteed cost policies.  Having an underwriting strategy for risk selection and understanding of proper pricing as a result of COVID-19 is an issue that needs to be focused on in this dynamic environment.As with any projection, as time goes by, the future is understood with greater certainty.  As I continue to monitor the "risk load" attributable to COVID-19 on a State by State basis, it made me think of one of my literary heroes and a famous quote of his:

"A habit of basing convictions upon evidence, and of giving to them only that degree or certainty which the evidence warrants, would, if it became general, cure most of the ills from which the world suffers."  - Bertrand Russell

Why?  Because we are still dealing with "evidence" on COVID-19 that is uncertain.   How much we can warrant forecasted outcomes as a result is therefore uncertain.  Besides the fact we are dealing with a 1 in a 100 year pandemic with no script to work off from the past, the models forecasting number of events and costs are built off of social distancing and staying at home; these variables being complicated by the reopening of States on the rise and social demonstrations triggered by the Floyd case/police brutality.

That said, based on the evidence in California at present, the middle of the road estimate is the addition of $1.2B of system costs to the current system costs of $18.3B, or 7%.

The low end is 3.3% and high end 11%.  These costs emanate from the mid-range loss estimate of 31,100 COVID19 claims.  Please note that this projection is based off the Governor's order of presumption only lasting through July 1, 2020.  Of these expected claims, it is anticipated the costs will be as follows:

Claim Type               %               Expected Costs per Claim

• Mild                           82                          $2,100
• Severe                      10                           $74,800
• Critical                        3                           $191,100
• Death                         5                            $280,500

While I found this projection on the surface to be light, Mr. Stypla and I than contemplated the facts that California was one of the first to close and has been very strict in "stay at home" protocols.  As a result, their fatalities per 100,000 people are far less than other populous states:

Cases/ Fatalities/ 100,000

• California - 347/12/100,000
• New York - 1,951/157/100,000
• Texas - 270/6/100,000
• Florida - 307/13/100,000
• New Jersey - 1,855/139/100,000
• Illinois - 1,020/48/100,000
• Michigan - 651/60/100,000
• Wisconsin - 366/11/100,000
• Ohio - 335/21/100,000
• Mass. - 1,507/108/100,000

As you can see, there is a wide range of events by State with California being on the lower end of the spectrum.  So the take away is based on evidence today, California appears to be outperforming against initial forecasts and the country as a whole.  Hopefully the numbers will stand, but to belabor it, these are very fluid forecasts based on evidence available as of today.

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