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COVID-19: The 3 Most Important Pricing Issues

Updated: Jan 5, 2022

States, like California, have been issuing orders to insurance companies to refund premium to customers for overpayments made on certain insurance lines (including work comp) to reflect lower risk COVID19 has created through reduced activity; lower payroll, less driving, etc.

The basis of premium for work comp is payroll. Employers pay a rate for every $100 of payroll. I feel an employer, through it's broker, should have already contacted their insurance company to adjust estimated premium for the year. That adjustment reduces premium (and possibly generates a refund) accordingly.

Also, if you're not familiar with work comp, those payroll and, in turn, premium adjustments would occur naturally at the end of the policy term when insurance companies audit their customer to "true up" estimated and actual payroll. That exercise will result in returned premium to the employer for reduced payroll.

I don't know how necessary these "orders" are for work comp insurance because the payroll adjustments that can be made (and should have been made) get you most of the way there. And, refunds due to reduced payroll are certain at the end of the term anyway.

Among the new, unforeseen issues that the COVID19 pandemic has created for workers' compensation programs, there are 3 most important to pricing for employers in that they impact nearly all businesses who are not self-insured.

1) Will we pay premium for payroll paid to furloughed employees; employees not working.

The short answer is "no." NCCI is the rating bureau for 36 states and they announced on Thursday, May 14th that they have created a new rule exempting this payroll from premium charges.

Employers, FYI, make sure you keep "separate, accurate and verifiable records" of these payments in order to ensure no premium is charged for this payroll. If you do so, this payroll will be placed in a newly created code (Code 0012—Paid Furloughed Employees) and not charged premium.

California (not an NCCI state) has proposed this rule change but to my knowledge hasn't approved it yet. That is the only independent rating bureau I keep tabs on regularly due to the sheer number of employers under their purview.

2) Will we be able to reclassify employees working from home to the lower rated clerical or telecommuting class codes.

If you're in an NCCI state, the short answer is "yes" provided you keep proper payroll records for payroll earned. I'm unaware of any independent bureau state that doesn't allow this temporary change; again assuming employers keep proper records.

NCCI provides a good example on their website that I'll just use:

"A retail store that remains open for delivery of goods but closes the showroom to consumers. Several of the retail showroom employees will work from home to assist with phone orders, customer service calls, and related clerical paperwork. These employees may be reassigned to Code 8871—Clerical Telecommuter Employees. In addition, this same employer has other showroom employees delivering goods to customers. These employees would be reassigned to Code 7380— Drivers, Chauffeurs, Messengers, and Their Helpers NOC—Commercial while they are in their new role as delivery drivers. In both situations, the employees’ original job descriptions were included in the applicable store code, but their new job descriptions place them in a new code. Once the employees return to their former roles after the pandemic has passed, their payroll would return to the store code that was assigned before the employer closed the showroom. "

3) Will COVID19 claims appear in our Experience Modification Rate?

This question is another one of NCCI's proposed rule changes that hasn't been adopted yet. Keep in mind that each state NCCI represents must independently adopt the rule for it to be effective in that particular state. I know this rule change is also part of the proposed package of changes not yet adopted in CA.

Of course this experience rating issue won't impact the pricing of current, in force work comp policies. But, it will be an important issue especially for essential businesses that remained operational and experienced Coronavirus claims.

I'll let you know as proposed changes are enacted. As always, let me know if you have any questions or if you want assistance with any upcoming work comp audits.

Stuart Cytron, MBA has been published in trade journals such Construction Forum St. Louis and St. Louis Business Journal among others. You can read more about Stuart and how he developed a passion for helping businesses reduce work comp expenses on his website.

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