With a global pandemic at our doorstep, we now live in a changed world. While advances in communication, logistics and information technology have brought worldwide commerce to our doorsteps, it has also made it possible for pathogens to arrive just as quickly and spread rapidly. As the pandemic evolves, so does our analysis.

Initially, we believed that the workers' compensation exposure would arise primarily from frivolous post-termination claims and that only frontline workers (e.g. healthcare, public safety, transit and hospitality) would see increased exposure to claims from Covid-19. The rationale was that the frontline workers were placed in a special "zone of danger" where the conditions of employment put them at an increased risk of exposure. There are a few precedential cases in California that speak to this and the trend was that the injured worker would have to prove that their employment put them at an increased risk of exposure or had a higher probability of exposure at work than they would at home, out shopping or in public places.

However, this changed when several governors declared a state of emergency and issued stay-at-home orders. What follows is that any workers designated as "essential" would now be placed at an increased risk of exposure and therefore be found eligible for benefits should they contract the coronavirus. Essentially, anyone who is still working and having contact with other people are now at a higher risk than the general public (by virtue of being ordered to stay at home). The conditions for compensability have now essentially evolved.

With some states "re-opening" and others taking a more measured approach, the exposure will continue to evolve. Similarly, based on initial comments coming from the WCIRB's actuarial committee, overall claims incidence has dropped, which should have a positive effect on the combined ratio and result in a dip in experience modifications. Simply put, with fewer people working or driving, there are fewer claims to resolve. Automotive carriers are refunding premium for this exact reason. However, due to the latency in the development of workers' compensation exposure, it will be some time before we see exactly where costs go.

Other key points from the actuarial committees are that Covid-19 exposure essentially represents a one-time exposure for the industry and Covid-19 claims will be excluded from XMod calculations. However, this does little for the post-termination claims that are and will be filed as a result of layoffs and furloughs. Unfortunately, we don't expect that the WCIRB, Insurance Commissioner or legislature will get it right on the first try.

Finally, there's the actual exposure that Covid-19 would effectively pose for essential employers. For many injured workers, this would be 2-4 weeks of temporary disability while under a mandated quarantine and medical costs associated with testing (e.g. office visits, telemedicine, lab tests and perhaps medications). For others, the exposure could include an inpatient hospital stay with CT scans, labwork, ventilator, respiratory therapy, medications, treatment for blood clots, etc. Unfortunately, there is also the big exposure of death benefits should an injured worker succumb to their illness.

What can employers and employees do to mitigate their exposure? Simply put, follow the CDC's guidelines for social distancing, hand washing, workstation sanitizing, face masks, etc. Whether it is time to reopen the economy now or wait until further steps have been taken to ensure that we have a better understanding and containment of this virus and limit our overall exposure is up for debate. We urge everyone to take a step back and thoroughly assess the risks associated with reopening our economy.

If we are mindful of our approach and take a measured approach, we will get through this together and lift each other up concurrently. In the meantime, we will continue to keep abreast of the ongoing developments and keep our clients and readers informed.

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Post Termination Claims