Workers’ Comp Insurers Urged to Reduce Premium Rates in 2021

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December 1, 2020California

The California Insurance Commissioner has issued a surprise recommendation for a 4.6% rate cut in workers’ compensation rates starting January 1, 2021.

Key Takeaways 

  • Insurance Commissioner Ricardo Lara has recommended a 4.6% decrease in workers’ compensation rates starting January 1, 2021, along with a potential COVID-19 surcharge for employers with a significant volume of pandemic-related claims. The Commissioner’s surprise recommendation is non-binding on carriers, which have the latitude to set their own premium rates and to determine whether to assess a COVID-19 surcharge. 
  • The Commissioner’s recommended rate cut is an unprecedented break with the Workers’ Compensation Insurance Rate Bureau (WCIRB), the advisory body that recommends rates based the costs of workers’ comp in California. In September, the WCIRB recommended a 2.6% increase in 2021 workers’ comp premium rates. 
  • Going forward, workers’ comp carriers are directed to separate out any potential COVID-19 surcharge. Workers’ comp carriers will need to clearly identify any COVID-19 adjustments in rate filings to the California Department of Insurance. 

Impact To Employers and Insurers 

  • Employers with little or no exposure to COVID-19 claims may see a reduction in workers’ comp costs in 2021, if their carrier elects to do so. The Commissioner lowered the benchmark to $1.45 per $100 of payroll for workers’ compensation insurance. 
  • Companies with significant exposure to pandemic-related claims may see the rate decrease offset by COVID-19 related claims. These organizations include frontline employees providing pandemic-related medical care or social services, or workers in agriculture or hospitality. 
  • The Commissioner essentially abolished the recommended six-tier COVID-19 surcharge schedule established in September. Instead, the Commissioner directed the WCIRB to collect data on the aggregate premium charged for any rate or rating plan component that includes an adjustment for COVID-19. 
  • The pricing increase due to COVID-related exposure may be broken out separately in anticipation that the pandemic will subside sometime next year. Rather than include pandemic-related expenses as part of the entire premium, a separate breakout will create more transparency and an opportunity to discontinue the surcharge before the next renewal period. 
  • Insurance companies will be under pressure to look closely at organizations with COVID-related exposure and apply the surcharge. Each carrier will likely approach the issue differently and may make significant changes to their current rating structures. 

What Employers Should Do 

  • Move quickly to consult with your broker. With the rates likely to change on January 1, 2021, employers need an expedited assessment of their potential cost implications, particularly those with significant COVID-19 exposure. Be prepared to shop your current plan. 
  • Confirm your current carrier’s methodology for pricing COVID-19 exposure. The Commissioner’s action is likely to prompt carriers to rethink their approach to pandemic-related claims. Employers should not assume their current insurer’s approach will remain the same in 2021. 

 

MMA Is Here To Help 

Marsh & McLennan Agency works with employers to develop workers’ compensation strategies and can help you create an action plan. The MMA team is ready to help your organization move quickly in anticipation of the new rate environment. For more information, contact your MMA representative. www.MarshMMA.com