California Lowers Workers’ Comp COVID Estimate; Expects Claims Drop in Downturn

June 1, 2020

The Workers’ Compensation Insurance Rating Bureau of California on Monday released a study looking at the historic impact of economic downturns on workers’ comp claim frequency and the potential impact of COVID-19 on claims.

The study, Impact of Economic Downturn on California Workers’ Compensation Claim Frequency, shows that among other impacts between 1961 and 2017, overall claim frequency decreased modestly more during years of economic recession than during years of expansion. And unlike other claims, the rate of cumulative trauma claims increased during downturns.

The WCIRB recently published estimated costs of allowing state workers to receive benefits for COVID-19 claims without proving virus exposure at work, dropping a prior mid-range estimate by $10 billion. In a report published in late May, WCIRB estimated the cost of COVID-19 claims filed by workers subject to the May 6 Executive Order N-62-20 issued by Gov. Gavin Newsom, putting it in the range of $0.6 billion to $2.0 billion, with a mid-range estimate of $1.2 billion.

Highlights of the recent study include:

  • For industry sectors that were hit the hardest during the 2001 recession and the Great Recession, claim frequency tended to fall along with job losses or fall faster during economic downturns compared to economic expansions.
  • Based on the post-COVID-19 national unemployment rate for 2020 of 14.7%, the WCIRB projects indemnity claim frequency to decline by 14% in 2020. This estimate accounts for several economic and claims related factors but does not fully reflect recent trends in post-termination claims or the impact of COVID-19 claims.
  • Since 2012, about 25 post-termination claims have been filed for every 1,000 jobs lost. If only 50% of the rate of post-termination claims is applied to the 4.3 million Californians who have lost jobs, about 54,000 post-termination claims could be filed over the next year, increasing statewide indemnity claim frequency by approximately 25%.
  • Many claims with a COVID-19 diagnosis are emerging in the workers’ comp system. Based on two cost estimates of presumptions of compensability that the WCIRB recently published, the estimated frequency increase from COVID-19 claims ranges from 14% over a four-month period of a rebuttable presumption applied to all workers directed to work outside of home to 42% over an annual period of a conclusive presumption to all essential workers.

The study is available on the WCIRB website.

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