Commissioner Rejects Coronavirus Workers’ Comp Surcharges

workers' comp,

Despite the state’s rating agency asking for a 2.6% increase in workers’ compensation rates due to costs related to the coronavirus pandemic, California’s insurance commissioner has instead ordered that benchmark rates be cut 4.6%.

Besides the rate increase, the Workers’ Compensation Insurance Rating Bureau had recommended that all policies be subject to a COVID-19 surcharge that ranged from 1 cent per $100 of payroll for the least risky professions to 26 cents per $100 of payroll for the riskiest (such as health care workers).

Insurance Commissioner Ricardo Lara rejected that filing as well, saying both the request for rate hikes and the surcharges were not borne out by the claims statistics.

“The WCIRB’s thorough efforts to estimate COVID-19 costs are noted and appreciated but I am not persuaded that there is sufficient and reliable data upon which to base an adjustment for COVID-19 costs,” he said in a statement.

The Rating Bureau had made a big deal about the COVID-19 surcharges in anticipation of certain industries being adversely affected by high work-related coronavirus infections. However, overall workplace injuries in California have dropped precipitously since the start of the pandemic and all the fallout has put a major dent in economic activity.

The pandemic has led to an overall 20% decrease in workers’ compensation claims in the state, even though COVID-19 claims surged during the summer months.

Under California law, insurers are not allowed to count COVID-19 claims when calculating employers’ workers’ compensation experience modifiers (X-Mods). Another law extends a presumption that any worker who reports to a workplace and comes down with coronavirus will be eligible for workers’ comp benefits.

Commissioner Lara adopted an average advisory benchmark rate of $1.45 per $100 of employer payroll and adjusted the pure premium rates for individual classifications — excluding additional adjustments for COVID-19 — based on the benchmark rate effective Jan. 1, 2021. That’s compared with the $1.50 average benchmark rate as of Jan. 1, 2020.

The benchmark rate — or pure premium rate — is a base rate that insurers use to price policies. It excludes overhead and profits. The rate is advisory and final rates will vary based on each carrier’s specific rate filing and the individual employer’s claims experience.

Lara also said that if insurers want to include any additional COVID-19-related surcharges on their policies, they will need to clearly identify the adjustments in their rate filings with the Department of Insurance.

Additionally, while rejecting the COVID-19 surcharges, the commissioner’s proposed decision includes a Table of Recommended COVID-19 Additive Adjustment per $100 of Payroll that averages $0.05 per $100 of payroll.

The Story Behind Increasing Commercial Auto Insurance Rates

auto insurance rates

Commercial auto insurance rates have been on the rise since 2011, increasing often by more than 10% a year as accidents and claims costs have soared.

The trucking industry has been the hardest hit by the steep increases, and there are a number of factors contributing to the rate hikes, according to a recent study by Risk Placement Services. One of the biggest factors is that insurers have had trouble keeping up with increasing accidents and spiraling claims costs, leaving them in the red for most of the past decade.

Huge court verdicts, higher maintenance expenses, reduced freight demand, and poor infrastructure, compounded by an aging workforce and a driver shortage, have all resulted in higher insurance rates, according to the study. Here’s what’s in play:

Good drivers are aging and there are fewer of themHalf of all long-haul truck drivers are over 46 years old. The minimum age for obtaining an interstate commercial driver’s license is 21, and many insurers prefer drivers no younger than 24.

As the industry rushes to hire more drivers, who are often in their 20s, they have to contend with having more inexperienced drivers who are more likely to be involved in accidents.

Jury verdicts are huge, and growingThe number of transportation industry damage awards exceeding $10 million for injuries and property damage has been increasing since 2012. Claims for bodily injuries can sometimes take years to resolve, causing insurers to initially underestimate the eventual loss amounts.

High maintenance costsWhile advanced technology has made trucks safer, that tech is expensive to maintain, repair, or replace. The equipment is costly and mechanics with the technical skills to fix it can be hard to find.

However, poor maintenance makes accidents more likely and insurance more expensive.

Distracted drivingTruck drivers and those they’re sharing the road with continue looking at their phones, eating, looking at their navigation systems, and taking their eyes off the road with increasing regularity. This increases the frequency of accidents.

Crumbling infrastructureAmerica’s crumbling roads and bridges are increasing wear and tear on the trucks traveling on them, making accidents more likely.

Expensive cargo — The goods inside the trucks are also requiring larger amounts of insurance at higher rates. For example, shipments of electronics and medicine are magnets for thieves. And if a flatbed trailer carrying expensive machinery flips over, the cargo will likely be damaged beyond repair and the insurer has to pay to replace it.

Products like food, flowers, and some medicines must be refrigerated; if the driver makes a mistake, the entire lot may be ruined.

The takeaway

Because of these high costs, some companies are opting to forgo buying essential coverages such as excess liability (which can protect against those $10 million lawsuits) and cyber insurance. Modern vehicles are increasingly automated and are vulnerable to cybercriminals.

The Risk Placement Services report concludes that businesses with larger vehicle fleets, someone responsible for the safety and that hire quality drivers and practice regular maintenance, will find insurance more affordable and readily available.

For the rest, the rate increases will likely continue.

COVID-19 Workers’ Comp Claims Grow, While Overall Claims Plummet

covid-19 claims

While the number of COVID-19 workers’ compensation cases filed in California continues to grow, total workplace injury and illness claims in the state have fallen nearly 20% so far in 2020 compared to 2019.

Through September, the state had recorded 47,412 COVID-19 workers’ compensation claims, accounting for 11.1% of all claims reported since the start of the year. During that same period, California workers filed 425,280 workers’ compensation claims, down 19% from the first nine months of 2019.

The first COVID-19 cases among California workers were filed in March. They peaked in July and started to decline in August just when parts of the state started opening up on a partial basis. Numbers have continued to fall as you can see at a glimpse of claims counts as of Oct. 21:

  • March: 2,994 (ultimate projected cases for the month: 3,127).
  • April: 4,215 (ultimate projected: 4,382).
  • May: 4,880 (ultimate projected: 5,135).
  • June: 11,761 (ultimate projected: 12,752).
  • July: 14,098 (ultimate projected: 15,253).
  • August: 5,973 (ultimate projected: 6,770).
  • September: 3,316 (ultimate projected: 5,334).

While it’s too early to tell if it’s a harbinger of things to come, the numbers are high enough that employers cannot let their guard down when it comes to preventing the spread of the coronavirus in their workplaces.

Who is filing claims?

The top five sectors reporting COVID-19 workers’ compensation claims during the first seven months of the year are:

  • Health care workers: 16,889 claims (37% of all claims)
  • Public safety/government workers: 6,902 claims (15%)
  • Manufacturing: 3,759 claims (8.3%)
  • Retail workers: 3,593 claims (7.9%)
  • Transportation: 2,255 claims (5%).

Overall claims falling

Due to the severe economic slowdown brought on by the coronavirus pandemic that forced thousands of businesses to shut their doors or have their workers work from home, the number of overall workplace injuries has tumbled.

There were a total of 425,280 workers’ compensation claims filed in California in the first nine months of the year, compared to 526,469 claims in the same period of 2019. That’s a drop of 19.2%. The caseload in September dropped 30% compared to September 2019.

“That decline reflects both the sharp drop in employment, the high number of workers now working from home, and the pandemic-driven slowdown in economic activity in the state,” the California Workers’ Compensation Institute wrote in a report about the numbers.

Handling workers’ comp claims

A new law that took effect in September extends workers’ compensation benefits to California employees who contract COVID-19 while working outside of their homes.

To qualify for the presumption, all of the following conditions must be met:

  • The worker must test positive for or be diagnosed with COVID-19 within 14 days after a day they worked at your jobsite at your direction.
  • The day they worked at your jobsite was on or after June 6.
  • The jobsite is not their home or residence.
  • If your worker is diagnosed with COVID-19, the diagnosis was done by a medical doctor and confirmed by a positive test for COVID-19 within 30 days of the date of the diagnosis.

The takeaway

If you have an employee who is working on site and who tests positive for COVID-19, you should let them know about their rights to file for workers’ compensation if they miss work and/or need treatment.

The state’s insurance commissioner has approved new rules that bar insurers from using any COVID-19 claims against your experience modifier (X-Mod), so it won’t hurt your workers’ compensation experience if a worker files a claim.

New Emergency Workers’ Compensation Rules Take Effect

Workers' Compensation Policy

The Department of Insurance has approved emergency workers’ compensation rules dealing with COVID-19 and California employers.

The rules were recommended by the Workers’ Compensation Insurance Rating Bureau to bring fairness for employers’ experience rating during the COVID-19 pandemic amid shelter-at-home orders and for dealing with claims of workers who contract COVID-19 on the job. The following new rules took effect July 1:

1. Classification changes for staff working from home

As a result of the California stay-at-home order, many employers have altered employees’ duties so they can be accomplished from home, and often those duties are clerical-like in nature.

Under the rule, an employee can be assigned payroll classification code 8810 if:

  • Their duties meet the definition of a “clerical office employee” while working from home, and
  • Their payroll for the balance of the policy period is not assignable to a standard classification that specifically excludes clerical office employees.

There are a number of other classifications that already include clerical operations in their definitions, and those classifications would not be eligible for a change.

If you are reclassifying any employees to 8810, make sure to document all changes and maintain records of those changes. This rule is effective for as long as the statewide state-at-home order by Gov. Gavin Newsom is in effect, and 60 days after the order is lifted.

2. Non-working, paid staff

Salaries paid to workers who are at home not working, yet still collecting a paycheck, will be excluded from payroll for workers’ comp premium calculation purposes when the payments are less than or equal to the employee’s regular rate of pay.

Again, make sure you document these payroll disbursements and maintain records to show they were not working, so that they are not chargeable to your workers’ comp policy.

3. COVID-19-related claims

All claims directly arising from a diagnosis of COVID-19 shall not be reflected in the computation of any employer’s experience modification.

The Rating Bureau said in proposing this change that the since the occurrence of COVID-19 workers’ compensation claims are unlikely to be a strong predictor of future claim costs incurred by an employer, their inclusion in X-Mod calculation would not meet the intended goal of experience rating.

The takeaway

Now that these rules have taken effect, if you are having employees work from home you need to assess if the duties they are performing are largely clerical in nature and discuss with your carrier or us whether you should change the code to reflect their new duties and reduced risk of occupational injury or illness.

You will need to document those changes and keep careful records, as the change would likely affect your premium.

Additionally, under a second Newsom order, it will automatically be presumed that any employee who is working on-site and contracts COVID-19 caught the virus in the scope of their work.

Those claims will be eligible for workers’ compensation benefits under the order. But under the Insurance Department’s decision, any COVID-19 workers’ compensation claims will not affect an employer’s experience and X-Mod.

What Business Insurance Policies Cover Rioting, Looting

looting

As protests around the country descended into rioting and civil unrest, many businesses that have been looted, or seen their shops damaged or completely destroyed, will obviously be turning to their insurance to file a claim.

While many companies were unsuccessful in filing business interruption claims for the COVID-19 crisis, claims for damage and theft from rioting and looting are more likely to be paid. A number of coverages will come into play depending on the damage and lost income a business suffers at the hands of rioters, vandals and looters.

Property damage

Standard commercial property policies cover damage to a business property caused by fire, explosion, riot or civil commotion, vandalism or malicious mischief. This would include coverage to the structure of the business, as well as any inventory, fixtures and other contents. Business owner’s policies also include this risk.

The business personal property coverage portion of the policy would cover damage and theft if rioters break into a real estate office, for example, and steal computers, burn furniture and destroy office equipment. That said, the damage would be subject to limits (specific or blanket), as well as any deductibles required by the policy.

Commercial vehicle damage

Automobiles are covered under the optional comprehensive portion of a commercial auto policy, which you should have for all your vehicles. This will pay for damage to the vehicle and its contents caused by fire, falling objects, vandalism or rioting.

Comprehensive coverage will cover the gamut and will pay you if a vehicle is:

  • Stolen,
  • Damaged, or
  • Destroyed (for example, burned).

One of the most common damages to vehicles during riots is broken windshields, which you can usually get covered with an optional glass coverage rider.

Business interruption coverage

Companies that are forced to close as a result of riot and looting damage may have coverage for business interruption under a business property policy.

The policy may also cover lost income because a business had to close after riots. It would often cover dependent properties or have contingent business extensions of coverage. Also, coverage can apply if a business suffers a loss of income because of curfews or if authorities bar access to a property.

Coverage is typically triggered if there is direct physical damage to the premises.

You should note that many policies require a 72-hour waiting period before a policyholder can begin making a claim. That’s because the first three days of business shutdown, access constraints or limited hours of operation because of a civil authority action are often excluded from coverage.

There may also be a limit to the claim period. A standard limit is up to three weeks of losses.

Filing a claim

When filing a claim, read your policy in its entirety to determine how to best present it. It’s important to understand the policy’s limits and deductibles before spending time documenting losses that may not be covered.

If you are going to file a claim, document all damage. You should have receipts for all your inventory and fixtures. Here’s what you should do:

  • Take photos of all damage.
  • Contact your agent and file a claim immediately.
  • Clean up to protect your building, but do not make major repairs until you talk to the insurance company.
  • Keep receipts for any remediation work.

If you’re going to file a business interruption insurance claim, you will need:

  • Pre-riot financial statements and income tax returns.
  • Post-riot business records.
  • Copies of current utility bills, employee wage and benefit statements, and other records showing continuing operating expenses.
  • Receipts for building materials, a portable generator and other supplies needed for immediate repairs.
  • Paid invoices from contractors, security personnel, media outlets and other service providers.
  • Receipts for rental payments, if you move your business to a temporary location.

A final thought: Filing a business interruption claim is not easy, particularly when estimating losses. The process is highly complex and can be contentious. If the insurer disagrees with your loss estimates, they may have specialists audit your claim.

 

Coverage Disputes Over Online Attacks Grow

cyber coverage

A federal court has ruled that an insurer’s professional liability policy must pay out $6 million for a company’s losses from a business e-mail compromise scam, even though the business lacked cyber coverage.

The ruling is part of a growing trend of businesses that haven’t purchased cyber insurance seeking coverage for cyber-related losses from other policies they do have, such as business liability, professional liability, and directors & officers (D&O) coverage.

Seeking coverage for cyber losses and for e-mail compromise scams from other than cyber policies is not often successful, and whether the insurer will pay out can depend on the nature of the loss.

In this latest case however, a judge in the U.S. District Court in the Southern District of New York ruled that American International Group must cover $5.9 million that a company had been duped out of by Chinese hackers in 2016.

AIG had disputed the claim saying that the professional liability policy the business had does not cover “criminal acts,” adding that it had never sold the company a cyber policy.

These disputes are becoming more common and you should pay attention to your policy exclusions, as well as consider cyber insurance, if you have assets that could be exposed through a cyber attack or fraud.

How was the business scammed?

SS&C Technologies received spoof e-mails that purported to come from one of the company’s clients, Tillage Commodities Fund, a commodities investment firm. The e-mails instructed the company to make six wire transfers to a bank account in Hong Kong.

The scammers masqueraded as Tillage employees with e-mail addresses that spelled “Tillage” as “Tilllage.”

But according to court documents, there were telltale warning signs that the e-mails were fishy:

  • One e-mail asking SS&C to wire $3 million contained only the words “How was your weekend?” and then the wire transfer details.
  • E-mails included grammatical errors and unusual syntax like “Let’s round up business today.”

Based on the above, staff at SS&C were not too diligent in looking out for possible

business e-mail compromise scams involving a third party hacker posing as someone else (a client, a vendor or even a manager or president of the targeted company) via e-mail and requesting a wire transfer into a bank account.

This type of scam, which cost organizations $300 million every month in 2018, according to the U.S. Department of Treasury, is covered by a standard cyber insurance policy.

SS&C did not have a cyber policy, so it sought coverage under its professional liability policy for the losses it sustained when transferring those funds. AIG did pay for SS&C’s legal defense costs after Tillage Commodities sued, but refused to cover the $5.9 million in stolen funds.

According to court documents, AIG’s policy included a clause that it would not provide indemnity coverage for losses arising from “dishonest, fraudulent or criminal acts.”

What this means for your firm

While this case worked out for the insured party, businesses should not rely on their non-cyber insurance policies to continue paying claims. As costs for cyber attacks like ransomware, malware, stolen data and business e-mail compromise scams grow, insurers are increasingly including clauses that explicitly exclude coverage for those risks.

If you have any important company assets in digital form and/or make or receive payments online, it would be wise to secure a cyber insurance policy.

If you don’t, you can try to seek coverage under other policies. That it may be difficult to obtain, but not impossible.

For example, if your company has D&O liability insurance and/or crime insurance, it may be able to seek coverage for any ransomware events since those policies will typically include coverage for kidnapping and ransom.

Some insurers are now providing — either deliberately or unintentionally — kidnapping and ransom coverage that applies to ransoms paid in response to cyber extortion. Among the events that these policies may consider cyber extortion are:

  • Threats to poison a computer system with malware.
  • Threats to change, damage or destroy programs or data stored on a system if the owner does not pay a ransom.

That said, many insurers who provide this coverage likely did not anticipate covering ransomware losses and have started changing their D&O and crime policies to specifically exclude ransomware.

Other insurers have added deductibles to the coverage, mirroring the terms of cyber policies, while others have capped the amount of business interruption coverage they will provide for cyber-extortion losses.