2022 CAS Spring Meeting

State of the Workers’

Compensation Market
May 16, 2022
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 California Workers’
Compensation Update

Dave Bellusci, FCAS, MAA

WCIRB of California
 California Workers’ Compensation Update
The “Watch List”
Key Drivers Economic Recovery

 COVID-19 Pandemic
Claim Frequency
 Rates
 Premiums Cumulative Trauma
 Profitability

9/1/22 WCIRB Filing Medical Inflation

 2020 & 2021 Years Frictional Costs

 COVID-19 Projection

“Long COVID”
COVID-19 California Workers’ Compensation Claims Relative to
Statewide Infections
California COVID-19 Infections 4,074,000
4,000,000
Filed Statewide WC Claims

3,000,000

2,250,000
2,000,000
4.9%
10.9% 993,000 3.1% 1.8%
1.8%
1,000,000 2.0% 6.2%
561,000
233,000 206,000 271,000
25,500 49,100 69,400 3,800 10,100 80,800 16,900
0
Executive Order Initial SB 1159 Winter Surge Vaccine Period Delta Variant Period Omicron Variant Post-Omicron Period
Presumption Presumption Period (12/1/20 - 2/28/21) (3/1/21 - 5/31/21) (6/1/21 - 9/7/21) Period (9/8/21 - (2/23/22 - 4/21/22)
Period (Through (7/1/20 - 11/30/20) 2/22/22)
6/30/20)

Source: Division of Workers’ Compensation and California Department of Public Health.

5
COVID-19 Share of Indemnity Claims By Industry
As of February 14, 2022

Statewide 12%
Agriculture 3%
Information 3%
Mining 3%
Wholesale 3%
Construction 3%
Transportation 4%
Utilities 5%
Real Estate 5%
Other Services 6%
Administrative Services 6%
Professional Services 7%
Arts & Entertainment 7%
Accomodation & Food Services 7%
Retail 8%
Education 8%
Manufacturing 8%
Outside Sales 9%
Finance 15%
Clerical 18%
Public Administration 31%
Health Care 45%
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Source: WCIRB Indemnity Transaction Data.

6
Accident Year 2020 Average Incurred Claim Size
As of December 31, 2021

$40,000 Medical Indemnity $39,419

$30,000
$21,780

$20,000
$17,206
$15,797
$11,907 $8,346
$8,728
$10,000
$5,776 $17,639

$7,069 $8,860
$6,131
$0
COVID-19 Non-COVID-19 COVID-19 Non-COVID-19
All Claims Indemnity Claims

Source: WCIRB aggregate financial calls..

7
Distribution of Claims and Incurred Losses by Claim Type
Accident Year 2020

Death Medical-Only Permanent Disability Temporary Disability Only

100%

26%
38% 41%
45%
75%
11%

3%
50%
28%

54%
63% 2%
25% 52%

29%

0% 1% 6% 2%
0%
Non-COVID-19 COVID-19 Non-COVID-19 COVID-19
Claim Counts Claim Counts Losses Losses

Source: WCIRB Unit Statistical Data as of February 14, 2022..

8
Indemnity Claim Distribution by Incurred Loss Size
Accident Year 2020
COVID-19 Indemnity Only COVID-19 Medical and Indemnity Non-COVID-19 Indemnity
60%

50%
46% 46%
43%

40%

20% 19%
20%
13%
13%
12% 12%

6%
5% 5%
3% 4% 1.3%
1% 0% 0% 0.0% 0.3%
0%

Source: WCIRB Unit Statistical Data. AY 2020 claims from PY 2019 and 2020 USRs at first report at first report with Accident Date of 4/1/2020 or later
9
 Written Premium
Gross of Deductible Credits
As of December 31, 2021

25
23.5
21.4 21.3

20
18.1
17.6 17.7
16.4 16.5 17.0
15.9
$ Billions

15 14.8 14.0 13.7

13.0
12.5
12.0
10.6 10.8
9.8
10
8.8
7.1
6.4

0
97 99 01 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21

Calendar Year

Source: WCIRB aggregate financial calls.

10
Industry Average Charged Rates
Average Rate Per $100 of Payroll
As of September 30, 2021

6.02
6 5.73

4.65 4.74

4
3.47
3.24
2.90 2.97 2.96
2.78
2.39 2.35
2.52
2.32
2.50 2.46 1.68
2.15 2.10 2.25 2.19
1.94
2 1.78

0
1997

1999

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021
Policy Year

Source: WCIRB aggregate financial calls.

11
Projected Accident Year Combined Ratio
As of December 31, 2021

150 146

128
125
117 118
112
109
104 105
100 96
89 89
Percentage (%)

85
82 82 81 82
79
68
59
55
50

0
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21

Accident Year

Source: WCIRB projections based om aggregate financial calls. 2021 ratio is preliminary.
12
September 1, 2022 Pure Premium Rate Filing - Process

AY 2020 Evaluated AY 2021 Projected Ratio of

Historical 1983 - 2019 Evaluated 9/1/2022 Policy Period
as of 12/31/2021
Accident Years Evaluated Typically Used in as of Loss & LAE to Pure
as of 12/31/2021 Filing 12/31/2021 Premium is Basis of
9/1/2022 Filing

1984 2019 2020 2021 2022 2023

Premium and Frequency Premium and Loss 9/1/22 Policy Period

Gradual
Experience Unaffected by COVID-19 Experience Heavily Expected to be Less
Economic
Pandemic Impacted by COVID- Impacted by
Recovery Claim
19 Pandemic Experience Pandemic
Some Loss Development Impacts in
Generally Not used Less Impacted
2020
in 9/1/2022 Filing by Pandemic

13
Average Wage Level Change Forecast
As of March 2022

14%
Average of Mar 2021 UCLA and Nov 2020 CA DoF
Average of Mar 2022 UCLA and Nov 2021 CA DoF
12% 11.4%

10% 9.6%
8.0% WCIRB Recommended Wage Change Forecasts
8%
6.3%
6% 5.1% 4.9%
4%
2.8% 2.9% 2.8% 2.9% 3.2% 2.8%
2.7% 2.5%
1.8% 2.0% 2.0%
2%
0.9%
0%
2020 2021 2022 2023 2024 2020 2021 2022 2023 2024
Unadjusted Adjusted for Shifts in Industry and Wage Mix
Average Annual Adjusted Wage Change Projection from 2019:
9/1/2021 Filing: 2.9%
AC Recommended: 4.7%

Source: UCLA Anderson School of Business and California Department of Finance forecasts
14
COVID-19 Share of Indemnity Claims
As of April 7, 2022

50%

41%
40%
35%

30%

25%
23%
22%
19%
20%
16% 17%
14%

10% 9%
6% 5%
4% 4%
2% 3% 3% 3%
1% 1% 2%
0% 0% 0%
0%

Preliminary

Source: SROI records from WCIRB indemnity transaction data.

California Industry Employment Forecasts
Indexed to 2019
1.20
All Industries Information
Finance/Insurance Real Estate Hospitality/Art/Entertainment 1.13

Retail 1.09
1.10

1.03
1.02 1.01

1.00 0.97 0.99

0.96 0.96 1.01
1.00
0.94 0.98 0.94
0.97
0.95
0.94 0.95 0.94
0.90 0.93 0.92
0.92
0.91

0.80
0.77
0.73

0.70
2019 2020 2021 2022 2023 2024
Calendar Year

Source: UCLA Anderson School of Business forecasts.

16
 California Employment Loss by Wage Level – 2019 to 2020
Construction Finance & Insurance Arts & Entertainment Hospitality All Industries
20%

11%
10% 9% 9%
6%
4% 4%

0%
Change in 2020

-1% -1% -1%

-4%
-7% -6%
-10%
-9%
-12% -13%
-15% -15%
-17%
-20%

-22%

-25%
-30%
Lowest 25% of Second Quartile of Third Quartile of Highest 25% of
Wage Earners Wage Earners Wage Earners Wage Earners

Source: American Community Survey.

17
 California Employment Loss by Wage Level – 2020 to 2021
Construction Finance & Insurance Arts & Entertainment Hospitality All Industries
70%
64%

60%

50%

39%
40%

30%
Change in 2021

20%
20%
12% 12% 13%
11% 11%
10% 6% 5%
0%
0%
-1%
-10% -5% -6%
-11% -12%
-15% -14% -13%
-20%
-20%
-30%
Lowest 25% of Second Quartile of Third Quartile of Highest 25% of
Wage Earners Wage Earners Wage Earners Wage Earners

Source: American Current Population Survey from the Census Bureau as compiled by the Economic Policy Institute. .
18
Changes in 12-Month Indemnity Claim Counts and Employment Levels
As of December 31, 2021

130
Reported Indemnity Counts (thousands) Ex. COVID-19 Indemnity Counts (thousands)
122.1 122.4 122.8
119.8
120

117.3
-3.9%
110

106.4
100
2018 2019 2020 2021
Class Mix Adjustments
20 Statewide Employment (millions) from 2019 to 2021
Counts: +2.3%
Employment: +1.5%

12/31/2021 Experience Review

17.9 Net Impact: +0.8%
18 17.5 -
16.9
16.6

16
2018 2019 2020 2021

Source: WCIRB Aggregate Financial Data and UCLA Anderson forecast. Employment totals are adjusted to a common insurer mix level.
19
Cumulative Trauma Claims per 100 Indemnity Claims
20

16.1

15

12.6 12.7
12.0 12.3 12.1
11.6 11.8

10.1 10.2
10 9.7
9.1
7.8
7.2
6.7

0
06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Preliminary

Source: WCIRB unit statistical reports evaluated as of first unit statistical report (18 months from policy inception). Excludes COVID-19 claims.
20
Increase in AY 2020 CT Claims – By Select Industry (Ranked by 2020
Percent Employment Loss)
109.0%

100%

85%
76.5%
70%

55%
43.3%
40%
33.3%
27.1%
25%

10.5% 10.9%
10% 6.0%

-5%
-2.0%
Utilities & Healthcare Construction Clerical & Manufacturing All Industries Retail Hospitality Art &
Transportation Public Entertainment
Administration

Source: WCIRB unit statistical reports evaluated as of first unit statistical report (18 months from policy inception). Based on preliminary data. Excludes COVID-19 claims.
21
Changes in Medical Severity
As of December 31, 2021

Post-SB 899 Reform

Period
(2005-2011) Post-SB 863 Period
$40,000
4% Annual Trend (2017-2021)
Post-Minniear Period
2% Annual Trend
(1995-2002)
13% Annual Trend 31,375
35,078 30,081
$30,000 27,433
30,518
28,514 28,805
SB 863 Period
$20,000 (2011-2017)
SB 899 Reform Period
13,220 (2002-2005) -4% Annual Trend
-3% Annual Trend
8,827
$10,000 Long-Term Annual Medical Inflation Trends (1990-2021)
- Including Reform Periods: +5%
- Excluding Reform Periods: +8%
WCIRB 9/1/22 Filing Projection (On-Level): +1.5%

$0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21

Accident Year

Source: WCIRB aggregate financial data calls and projections.

22
Frictional Costs
Cost to Deliver $1 in Benefits

04c. California Insurance Market Update – WCIRB Perspective – “The Watch List”
Medicare
$0.02
$0.18
Private Group
Health Insurance

Workers’ Compensation
Median State $0.25
California Workers’
Compensation $0.48
Sources: WCIRB aggregate financial data calls, NCCI Annual Statistical Bulletin, Medicare and a number of published studies on group health administrative
costs. 23
Impact of the “Frictional Four”
3%
$12,000
Lower
14% 14%
Lower Lower
$10,000
$9,803 $9,527
$8,382 37% $8,458
Lower
$8,000 48%
Lower
$6,214
$6,000
$5,062

$4,000

$2,000

$0
California Estimated Median State CA Average ALAE: CA Average ALAE: CA Average ALAE: CA Average ALAE:
Ultimate ALAE per Estimated Ultimate Proportion of Assume 60% Lower Average Claim Excluding Los
Indemnity Claim ALAE per Indemnity PD Claims Similar to CT Claim Share Duration Similar to Angeles Basin
Claim Median State Median State Region

Source: WCIRB aggregate financial data and unit statistical data, Mmedian state information based on data provided by the NCCI and WCRIBMA
24
 Share of COVID-19 Claims with Treatment for Long COVID Symptoms
Four Months after Acute Care

60%
% of COVID-19 Claims

40%
40%
36%

20%

11%

0%
Mild Severe Critical

Source: WCIRB medical transaction data on accident year 2020 claims.

25
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