Senate Bill No. 863 Cost Monitoring – Current Update W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r

Senate Bill No. 863 Cost Monitoring – Current UpdateW o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a®

Senate Bill No. 863 Cost Monitoring – Current Update

Dave BellusciWCIRB California

State Senate Committee on Labor and Industrial RelationsMarch 25, 2015Sacramento, California

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Overview

Average Workers’ Compensation Premium Rates Since 1978 Countrywide Comparison of Average Premium Rates Senate Bill No. 863 Update

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California Premium Rating System

• Pre-1995 Minimum Rate Law – Uniform Set of Full Premium Rates Approved by Insurance Commissioner

• Post 1995 – Advisory Pure Premium (Loss Cost) Rates Approved by the Insurance Commissioner

– Insurers file their own premium rates and plans with Commissioner – Very competitive market (over 400 insurers licensed))


Estimated Average Charged Insurer Rate Per $100 of Payroll

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1978 1983 1988 1993 1998 7/03-12/03 2008 2013 2014$0.00

$2.00

$4.00

$6.00

$8.00

$2.99$3.24

$4.21 $4.40

$2.33

$6.29

$2.15

$2.86 $2.93

Policy Period

Sources: WCIRB Aggregate Financial Data Calls and Unit Statistical Submissions

Average charged rate is 2% below 1978 and 53% below the 2003

level, but is up 36% since 2008


0.00

0.25

0.50

0.75

1.00

62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

83% Reduction in claim frequency in the past 50 years from 1 in 5 injured to 1 in 25

Long-Term California Claim Frequency Indexed to 1962

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Source: Based on reported unit statistical claim counts to reported payroll adjusted for wage inflation.

1962 1978 1996 2012


Overview

Average Workers’ Compensation Premium Rates Since 1978 Countrywide Comparison of Average Premium Rates Senate Bill No. 863 Update

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Rate Comparison Based on Oregon Studies California* vs. National Median Average Charged Rate

$2.58

$2.04

$2.92

$3.48$3.34

$2.68$2.72

$4.13

$6.08

$5.23

$2.26$2.42

$2.26$2.48

$1.88 $1.85

$0.00

$2.00

$4.00

$6.00

1/1/00 1/1/02 1/1/04 1/1/06 1/1/08 1/1/10 1/1/12 1/1/14

Rate Effective Period

California National Median

*The information is based on the state of Oregon biennial rate comparison and is based on the state of Oregon classification mix and, as a result, the California average rates shown on this exhibit differs from other measures of the average California rate.

Projected

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In 2014 California is only state in the Oregon study with an average rate over $3.00 per $100


Countrywide Estimated Permanent Partial Disability Claims per 100,000 Employees

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DC MI VA MA ME LA AL AZ NH UT FL GA PA AR TX MS MN IN KY SD ID NC DE MT VT NE MD HI AK NM TN NV RI CO SC WI KS IA OR NJ CT MO NY IL CA OK0

200

400

600

800

California has the second highest perma-nent partial disability frequency in the

country 120% higher than the Countrywide median

707

Source: 2014 NCCI Annual Statistical Bulletin for 2010 policy year at first report level.

Median = 320


Countrywide Incurred Medical Benefits per Indemnity Claim

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RI MA HI DC MI OR ME TX NV MO WI CO AR CT ID MD OK IA GA IN MS FL AZ PA NC NE NY NM TN NH VT NJ SC MN SD KS MT IL KY AL UT VA LA AK CA DE$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

$80,000

$46,940

Source: NCCI Annual Statistical Bulletin for 2010 policy year at first report level.

Median = $26,124

California has the second highest medical cost per indemnity claim in the country

80% higher than the Countrywide median


Average Benefit Delivery Costs; Claims with 7+ Days of Lost Time California vs. WCRI 16 State Median (at 36 Months)

AR FL IA IL IN LA MA MI MN NC NJ PA TX VA WI Median

CA2,000

4,000

6,000

8,000

10,000

$4,417

$6,763

$4,401

$5,776

$3,746

$8,588

$4,308$4,470

$4,790

$6,152 $6,331$6,124

$5,368

$4,774

$3,498

$5,079

$8,529

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Source WCRI Compscope Benchmarks, 14th Edition for claims arising from October 1, 2008 through September 30, 2009 evaluated as of March 31, 2012.

California is nearly 70% higher than the WCRI median


Overview

Average Workers Compensation Premium Rates Since 1978 Countrywide Comparison of Average Premium Rates Senate Bill No. 863 Update

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SB 863 Summary

• Signed by the Governor on September 18, 2012• Includes Benefit Increases Effective 1/1/2013 and 1/1/2014• Series of Structural Reforms to Benefit Delivery System• Initially Evaluated by WCIRB as Small Net Savings• WCIRB Retrospectively Evaluating Cost Impacts


WCIRB Prospective Cost Evaluation of SB 863Summary of WCIRB Initial Prospective Estimates ($’s in billions)

SB 863 Provisions Impact on Statewide Claim Costs

% Impact on Claim Costs

2013 & 2014 PD Benefit Level Changes +$1.2 +6.4%Liens ($0.5) -2.5%IMR (Impact on Frictional Costs & TD Duration) ($0.4) -2.1%Other Reforms ($0.5) -2.7%Total Estimated Impact of SB 863 ($0.2) -1.1%

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Senate Bill No. 863 Cost Monitoring

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Emerging Better Than Projected

Emerging Worse Than Projected

Reductions in Liens Claim Frequency Increases

More IMRs than Projected

Loss Adjustment Expenses Per Claim Increasing

Average Indemnity Cost Per Claim

Average Medical Cost Per Claim


2011 2012 2013 20140

200

400

600

800

1000

1200

398.3

1,059.9

166.0 166.3

65.5

119.4

20.2 23.8

Los Angeles AreaRest of State

1.2 million liens filed in 2012

186K liens filed in 2013



Number of Liens Filed

Calendar Year/QuarterSource: EAMS Liens Data

In Thousands

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2014 lien filings down more than 80% from 2012 and almost 60% from 2011 as compared to 40%

projected reduction


Cumulative Change in Average Cost Per Indemnity Claim in 2013 & 2014

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Indemnity Medical-15%

-10%

-5%

0%

5%

10%

15%

20%

11.3%9.7%

7.0%

-8.3%

ProjectedActual (Current Estimate)

Medical Costs Per Claim Emerging Much Lower than Projected


Senate Bill No. 863 Cost Monitoring

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Emerging Better Than Projected

Emerging Worse Than Projected

Reductions in Liens Claim Frequency Increases

More IMRs than Projected

Loss Adjustment Expenses Per Claim Increasing

Average Indemnity Cost Per Claim

Average Medical Cost Per Claim


Changes in Estimated Indemnity Claim Frequency from 2011 to 2014

0

3

6

0.9

4.9

ProjectedActual (Current Estimate)

Accident Year

Indemnity claim frequency since 2012 emerging higher than projected

% As of December 31, 2014

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Counts of 2014 IMR Filings

IMR Requests Valid IMR Requests Projected 0

50,000

100,000

150,000

200,000

250,000

220,000

135,000

50,000

IMR Counts

IMR requests are more than four times higher than projected and valid IMR requests are almost three times higher

Source: DWC collected from IMR vendor

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Changes in Average Loss Adjustment Expense Per Indemnity Claim

ALAE 2013 & 2014 ULAE 2013-15%

-10%

-5%

0%

5%

10%

15%

20%

-9.6%-12.3%

18.7%

3.8%

ProjectedActual (Current Es-timate)

Loss adjustment expenses are in-creasing sharply rather than declining as projected

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Actual ALAE changes are projected ultimate changes in private insurer ALAE per indemnity claim as of December 31, 2014 for 2013 and 2014, while the actual ULAE change is the changes in private insurer calendar year paid ULAE per indemnity claim for 2013.


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SB 863 Provisions WCIRB Original Cost Estimates

($’s in billions)Updated WCIRB

Assessment2013 & 2014 PD Benefit Changes +$1.2Liens ($0.5)IMR (Impact on Frictional Costs) ($0.4)Other Reforms ($0.5)Indemnity Claim Frequency Small IncreaseIndemnity Severities IncreaseMedical Severities Small IncreaseALAE and ULAE Severities Significant DeclinesTotal Estimate – All Items ($0.2)

WCIRB SB 863 Cost Monitoring – Updated WCIRB Assessments

Documents

Senate Bill No. 863 Cost Monitoring – Current Update W o r k e r s’ C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r