2011 cas seminar 20110304 (final-show) · it is the responsibility of all seminar participants to...

2011 CAS Ratemaking SeminarState of the Market, Session WC-3 of 22

Workers Compensation—State of the Market

(SESSION WC-3)

Barry Lipton, FCAS, MAAA NCCI

Nancy Treitel-Moore FCAS MAAA Liberty MutualNancy Treitel Moore, FCAS, MAAA Liberty Mutual

Casualty Actuarial SocietyRatemaking and Product Management (RPM) Seminar

New Orleans, LAMarch 21, 2011

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Line of Business 2008 2009 2010 Est.2009–

2010 Est. Change

Personal Auto $158.0 B $156.5 B $161.2 B 3.0%

Homeowners $58.3 B $59.5 B $63.0 B 6.0%

Oth Li bilit (I l P d Li b) $42 0 B $39 1 B $38 7 B 1 0%

Premium Changes by LineNet Written Premium by Line—Private Carriers and State Funds

3

Other Liability (Incl Prod Liab) $42.0 B $39.1 B $38.7 B -1.0%

Workers Compensation $39.4 B $32.6 B $30.5 B -6.5%Commercial Multiple Peril $30.1 B $28.5 B $28.5 B 0.0%

Commercial Auto $23.7 B $21.8 B $20.6 B -5.5%

Fire & Allied Lines (Incl EQ) $24.2 B $23.4 B $23.8 B 2.0%

All Other Lines $64.4 B $57.2 B $54.4 B -4.9%

Total All Lines 440.0 B$ 418.6 B$ 420.8 B$ 0.5%

Source: A.M. Best Co., 2011 Best’s Special Report– Review & PreviewState Funds included in WC are AZ, CA, HI, ID, KY, LA, ME, MD, MN, MO, NM, OR, RI, UT Annual Statements

© Copyright 2011 National Council on Compensation Insurance, Inc. All Rights Reserved.


Combined RatiosNet Combined Ratios (C/R)

Private Carriers and State Funds

Line of Business 2008 2009 2010 Est.Personal Auto 100% 101% 99%

Homeowners 117% 106% 104%

Other Liability (Incl Prod Liab) 95% 106% 118%

Workers Compensation 104% 111% 118%

4

Workers Compensation 104% 111% 118%

Commercial Multiple Peril 104% 97% 101%

Commercial Auto 97% 100% 102%

Fire & Allied Lines (Incl EQ) 99% 80% 85%

All Other Lines 112% 96% 102%

C/R All Lines (P/C) 105% 101% 103%

Source: A.M. Best Co., 2011 Best’s Special Report– Review & PreviewState Funds included in WC are AZ, CA, HI, ID, KY, LA, ME, MD, MN, MO, NM, OR, RI, UT Annual Statements


Workers Compensation Premium VolumeContinues to Decline

Net Written PremiumPrivate Carriers and State Funds

4

5

6

40

50

60 Total WC Net Written Premium ($ B)Private Nonfarm Wages and Salaries ($ T)

$ Billions $ Trillions

5

29

.1

26

.3

28

.2

26

.9

25

.9

25

.0

28

.2

31

.5

38

.1

43

.3

45

.7

48

.6

46

.9

45

.0

39

.4 32

.6

30

.5

0

1

2

3

0

10

20

30

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Est.

Calendar Year

2010 Est. =A.M. Best Co. Projection

Source: A.M. Best Co., 2011 Best’s Special Report– Review & Preview


Adjusted Workers Compensation Premium Volume

Direct Written Premium

5964

69 71 7075 75

8084

89

82

76

4

5

6

60

70

80

90

100 Adjustment for Premium and Price ChangesLarge Ded CreditDWP—State FundsDWP—Private CarriersNon-Farm Wages and Salaries

$ Billions $ Trillions(premium) (wages & salaries)

6

p Preliminary

Source: 1998–2008 Private Carriers, Best's Aggregates & Averages; 2009p, NCCI1998–2009p State Funds: AZ, CA, CO, HI, ID, KY, LA, MO, MT, NM, OK, OR, RI, TX, UT Annual Statements

Adjustment for premium and price level changes relative to 1995; premium adjustment to 1995 rate level

Calendar Year

0

1

2

3

0

10

20

30

40

50

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009p



30%

40%

50%

Manufacturing and Contracting20% of WC Payroll But 40% of WC Premium

Industry Group Percentage Shares

7

0%

10%

20%

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

e

Manufacturing and Contracting Share of WC Payroll

Manufacturing and Contracting Share of WC Premium

e Estimated

Source: Based on the states where NCCI provides ratemaking services2008 and 2009 are NCCI projections

Policy Year


Contributions to Workers CompensationNet Written Premium Decline

Calendar Years 2007–2009Private Carriers and State Funds

2-Year Change in Countrywide NWP -23%

Known Pricing Impacts

Change in Bureau Rates and Loss Costs -7%

8

Change in Carrier Pricing -4%

Economic Impacts

Change in Total Payroll -4%

Impact of Recession on Industry Group Mix -4% to -6%

Impact of Recession by Firm Size -4% to -6%

Other Impacts +1% to -2%

Source: NCCI Analysis


Calendar Year Workers CompensationLoss Ratio Shows DeteriorationNet Loss Ratios—Private Carriers and State Funds

7374

7975

72 73

80

90

1001.9 % Due to September 11th.

Percent

9

73

61

57 58 58

62

68

7270

66

61 62 62

69

40

50

60

70

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Est.

Calendar Year

Source: A.M. Best Co., 2011 Best’s Special Report– Review & PreviewSeptember 11 est. from NCCI



21.7 22.5

25.2 24.626.1

23.8

20.8

17.1 17.319.4 19.2

21.322.4

24.1 24.4 23.8 23.4

20

25

30

Workers Compensation Ratio of Loss Adjustment Expense to Loss Ratio


Percent

10

0

5

10

15

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Est.

Calendar Year



Workers Compensation Expense Ratios Underwriting Expenses to NWP (Excl Dividends)


21.723.3

25.4 25.9 26.728.0

25.5 25.0

22.320.7 20.8 20.8

22.223.9 24.5 24.0

26.0

20

25

30

Percent

11

0

5

10

15

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Est.

Calendar Year



Workers Compensation Ratio of Policyholder Dividends to Net Earned Premium


6.46.0

4.85.4 5.3

5.6 5.6

5

8

Percent

12

3.5

2.8

1.61.3

1.72.0

2.8 2.8

1.72.0

0

3

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Est.

Calendar Year




102 100 102 104 111

119 121 121 113 109 105 103 98 104 104

111 118

100

120

140

Workers Compensation Calendar Year Combined Ratio is Trending up

Net Combined Ratios—Private Carriers and State Funds

1.9% Due to September 11th

Combined Ratio

13

0

20

40

60

80

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Est.

Calendar YearDividends Underwriting Expense LAE Loss



Workers Compensation Calendar Year Net Combined Ratios

Combined Ratio

115

118

122

1 1 1

114

119

128

141

144

137

142

118

118

117

126

11

119

121

121

11 3 1

118120

130

140

150 Private Carriers

State Funds

Total Market

14

100

101

107

11

110 107 103

93

101

101

110

103 100

101

105102

104

11 3 109 105 103

98

104

104

11

80

90

100

110

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Est.

Calendar Year

Source: Private Carriers and State Funds, NCCITotal Market, A.M. Best Co., 2011 Best’s Special Report– Review & Preview


15.1

17.718.6

21.9

18.6

22.420.9

12 8 12 2 12 2 12 2

14.8 15.115

20

25

Workers Compensation Investment Returns Remain Low

Investment Gain and Other Income to PremiumPrivate Carriers and State Funds

Percent

15

12.8 12.210.5 10.6

12.2 12.211.2

0

5

10

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Calendar Year

Source for 1994–2009: Best Aggregates & AveragesInvestment gain includes investment income on insurance transactions and realized capital gains.



13.5

18.216.2

18.2

7.4

3.92 0

5.1

9.6

13.711.3

6.63.95

10

15

20

25

Workers Compensation Results Deteriorated in 2009

Pretax Operating Gain/Loss Ratio Private Carriers and State Funds

Percent

16

-0.1

-8.0

-0.2

2.0

-15

-10

-5

0

5

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Calendar Year

Source for 1994–2009: Best Aggregates & AveragesInvestment gain includes investment income on insurance transactions and realized capital gains.


118122

138

125130

140

150

AY 2009 Combined RatioShowed Significant Deterioration

WC Calendar Year vs. Ultimate Accident YearCountrywide—Private Carriers

Combined Ratio

17

118

111 110107

103

93

101 101

110106

97

88 87 86

98102

108

80

90

100

110

120

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Calendar Year Accident Year

CY 2000-2009: Best’s Aggregates & Averages; AY 2000-2009: NCCI analysis based on Annual Statement dataAccident year data is evaluated as of 12/31/2009 and developed to ultimate.Includes dividends to policyholders.


What Have Been The Key Factors Impacting Workers Compensation Results?

• Premium

• Reserve Levels

• Economic Downturn

18

• Loss Severity Trends

• Frequency Trends

• Investments


Calendar Year Reserve Deficiencies On the Rise

Workers Compensation Loss and LAE Reserve DeficiencyPrivate Carriers

15

1820

21

18

15

20

25

302009 Tabular Discount Is $5.3 Billion

$ Billions

19

2

5

10

15 15

12

9

42

6

9

0

5

10

15

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Calendar YearConsiders all reserve discounts as deficienciesLoss and LAE figures are based on NAIC Annual Statement data for each valuation date and NCCI latest selectionsSource: NCCI analysis


Deficiency Excess of Tabular Reserves Workers Compensation Loss & LAE Reserves

Private Carriers

15.7

12.9

9.8

7.3

21.0

18.0

15.2

12.4

9.1

6 0

8.510

15

20

25

illio

ns

20

3.5

-1.9-3.6

0.9

3.23.6

1.9

6.0

-5

0

5

12/31/01 12/31/02 12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08 12/31/09

$ B

Evaluation Year

Deficiency Excess of Tabular Reserve Discount Deficiency

Excess Deficiency is equal to Deficiency less Tabular Reserve DiscountFigures are based on the respective Annual Statement data for each evaluation date and NCCI latest selections


Reserve Deficiency by Accident Year

Workers Compensation Loss & LAE Reserves as of 12/31/2009Private Carriers

4.6

3.13

4

5

Total Reserve Deficiency

Tabular+Non-Tabular Reserve Discount

$ Billions

21

0.70.4 0.5

0.4 0.4 0.4

0.0

0.2 0.2

0.60.3 0.2 0.3 0.4 0.4 0.4

0.6 0.8 0.8 0.9

-1

0

1

2

Prior 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Accident YearDeficiency considers all reserve discounts as deficient

Source: NAIC Annual Statement, Schedule P data as reported by Private Carriers



Workers CompensationAccident Year Net Loss & LAE Ratios

Countrywide—Private Carriers

104

94

90

95

100

105

110At First Report

As of 12/31/2009

Percent

22

Reported Loss and LAE reserves from Schedule P.

83 83

7577

74 73 7375 76

79

72

6462

66

73

7780

60

65

70

75

80

85

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Accident Year


How Are Final Workers Compensation Premiums Determined?

ADVISORY ORGANIZATION

Advisory Loss Costs

Assigned Risk Rates

INSURANCE COMPANY

Final Rate Determination:

– Expense Multiplier

23

Experience Rating Values

Experience Mods

Rating Plans and Classifications

– Loss Cost Deviations

Individual Risk Modifications:

– Schedule Rating

– Retrospective Rating

Average Filed and Approved BureauRate/Loss Cost Turning Positive in 2011History of Average WC Bureau Rate/Loss Cost Level Changes

Percent

12.1

7.4

10.0

2 9 3.54.9

6.6

5

10

15

Cumulative 1994-1999

-27.8%


+17.1%


-26.3%

24

Calendar Year

* States approved through 2/11/2011Countrywide approved changes in advisory rates, loss costs, and assigned risk rates as filed by the applicable rating organization

2.9

-6.4

-3.2

-6.0

-8.0

-5.4

-2.6

1.2

-6.0-5.1

-5.7 -6.6

-3.1-2.0

-1.2

0.2

-10

-5

0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*

Cumulative1990-1993

+36.3%



-4.0 -1.7

2.1 0.7

-2 2-5

0

5

10

Percent

Impact of Discounting onWorkers Compensation Premium

NCCI States—Private Carriers

25

-7.1 -7.4 -7.1-8.5

-10.5

-14.6

-17.7

-22.6 -23.2

-19.2

-14.3

4.0 -2.2-4.7

-7.4 -8.1

-25

-20

-15

-10

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Dividends Schedule Rating Rate/Loss Cost DeparturePolicy Year

Dividend ratios are based on calendar year statisticsNCCI benchmark level does not include an underwriting contingency provisionBased on data through 12/31/2009 for the states where NCCI provides ratemaking services


10 1%

+9.2%+3.1%

+4.6%+1.6%+3.4%

+5.6%+5.9%

+8.2%+0.8%

20

25

IndemnityClaim Cost (000s)

The Rate of Change in Workers Compensation Indemnity Claim Costs

Have ModeratedLost-Time Claims

Annual Change 1991–1993: -1.7%Annual Change 1994–2001: +7.3%Annual Change 2002–2008: +4.6%

26

$10.0

$9.7

$9.5

$9.9

$10.1

$10.7

$11.5

$12.5

$13.8

$15.2

$16.6

$17.1

$17.9

$18.2

$18.8

$19.9

$21.1

$22.8

$23.0

+1.0%-3.1% -2.8%+4.9%+1.7%+5.9%

+7.7%+9.0%

+10.1%

+10.1%

5

10

15

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Accident Year

1991–2009: Based on data through 12/31/2009, developed to ultimateBased on the states where NCCI provides ratemaking services, including state fundsExcludes high deductible policies


5.9

7.7

9.0

10.1 10.19.2

4.65.6 5.9

8.2

4 25.2 5.6

4.7

6.3

4 4 4.7 4.56

8

10

12

PercentChange

Workers CompensationIndemnity Severity vs Wage Inflation

Lost-Time Claims

27

1.7

3.1

6

1.6

3.4

0.8

3.64.2

2.3

1.2

2.6

4.43.5

4.5

2.3

-0.6-2

0

2

4

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Change in Indemnity Cost per Lost-Time Claim Change in Average Weekly Wage

Year

Indemnity severity 1995–2009: Based on data through 12/31/2009, developed to ultimateBased on the states where NCCI provides ratemaking services, including state funds; excludes high deductible policiesSource: Average Weekly Wage 1995–2009: Quarterly Census of Employment and Wages

Accident year indemnity severity—NCCI states, NCCI



15

20

25

30

Economic Recessions

Indemnity Claim Cost ($000s)

The Growth in Indemnity Severity HasEased During Prior Recessions

Lost-Time Claims

28

0

5

10

15

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

Accident/Calendar Year



120 months

80

100

120

140

ati

on

Da

ys

Countrywide6 mo

12 mo

18 mo

24 mo

30 mo

36 mo

42 mo

Temporary Total Indemnity Benefit Duration Accelerated Between Dec 2008 and Jun 2009

Age in months

Recession*

Recession

Recession

29

6 months

0

20

40

60

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Be

ne

fit

Du

ra

48 mo

54 mo

60 mo

72 mo

84 mo

96 mo

108 mo

120 mo

* Recession began December 2007States where NCCI provides ratemaking services

Accident Year

Recession


Countrywide Estimated Ultimate Temporary Total Indemnity Benefit

Duration Likely to Increase

141136133

110

120

130

140

150

tio

n D

ays

Frequency Changes by Size

of Loss

State-Specific Causes

Recession

30

60

70

80

90

100

110

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Be

ne

fit

Du

ra

Latest Year Duration Development Factors; this is our best estimate

2-Year Average Duration Development Factors

3-Year Average Duration Development Factors*

Accident Year

* Previous study based on a 3-year average of duration development factorsStates where NCCI provides ratemaking services



+5.4%

+9.1%+6.1%

+6.1%+5.0%

+5.4%

25

30Annual Change 1991–1993: +1.9%Annual Change 1994–2001: +8.9%Annual Change 2002–2008: +6.9%

MedicalClaim Cost (000s)

Workers Compensation Medical Claim Cost Trends Have Moderated

Lost–Time Claims

31

$8.2

$8.4

$8.2

$8.9

$9.4

$10.1

$11.1

$12.0

$13.3

$14.2

$16.2

$17.6

$18.9

$20.0

$21.8

$23.1

$24.5

$25.7

$27.1

+6.8%+1.3% -2.1%+9.0%+5.1%

+7.4%+10.1%

+8.3%+10.6%

+7.3%

+13.5%+8.8%

+7.7%5.4%

5

10

15

20

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Accident Year1991–2009: Based on data through 12/31/2009, developed to ultimateBased on the states where NCCI provides ratemaking services, including state fundsExcludes high deductible policies


Workers Compensation Medical Severity vs Medical CPI

Lost–Time Claims

7 4

10.1

8.3

10.6

7 3

13.5

8.8

7.7

9.1

8 0

10.0

12.0

14.0

16.0Change in Medical Cost per Lost-Time Claim

Change in Medical CPI

Percent Change

32

Medical severity 1995–2009: Based on data through 12/31/2009, developed to ultimateBased on the states where NCCI provides ratemaking services, including state funds; excludes high deductible policiesSource: Medical CPI—All states, Economy.com; Accident year medical severity—NCCI states, NCCI

5.1

7.4 7.3

5.46.1 6.1

5.05.4

4.53.5

2.83.2 3.5

4.14.6 4.7

4.04.4 4.2 4.0

4.43.7

3.2

0.0

2.0

4.0

6.0

8.0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Year


15

20

25

30

Economic Recessions

Medical Claim Cost ($000s)

Medical Claim Costs IncreasedDuring Prior Recessions

Total Medical Claims

33

0

5

10

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

Accident/Calendar Year




2009

Medical: 57%Indemnity: 43%

3135 37

40 4144

4649

52 54

40

50

60

im C

os

t C

laim

(0

00s

)

WC Medical Losses Are Near 60%of Total WC Losses

All Claims, NCCI States—Private Carriers

1991

Medical: 48%

34

19 19 19 20 21 22 2426

2931

0

10

20

30

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Ave

rag

e C

lap

er L

os

t-T

ime

C

Accident YearMedical Indemnity


Indemnity: 52%


The Impact of Inflation is More Sensitive on Excess Policies

Year 1 Year 2 Change

Gross Loss $360,000 $385,200 7%

35

Deductible $250,000 $250,000 -

Excess Loss $110,000 $135,200 23%

• Consider a 25-year old quadriplegic• Indemnity benefits of $23,500 a year• 24-hour attendant care costs of $135,000 a year• Other medical costs of $72,500 a year• These costs continue until death

With Medical Technology,How Big Can a WC Claim Become?

Medical Inflation Rate

5% 7% 9%Age at Death

36

5% 7% 9%

45 $7 $8 $8

60 $16 $20 $27

75 $33 $49 $82

90 $64 $118 $266

Death

$ amounts are in millions.Attendant care assumed to increase at 3% per year


Percent Change

Workers Compensation Lost-Time Claim Frequency Continued to Fall

Frequency per $1M Pure Premium

0.3 0.5

-2.3 -2.1-2

0

2 Cumulative Change of –57.8%(1991–2009)

37

Accident Year

1991–2009: Based on data through 12/31/2009, developed to ultimateBased on the states where NCCI provides ratemaking services, including state funds; excludes high deductible policiesFrequency is the number of lost-time claims per wage adjusted pure premium (in millions of dollars)

-4.2 -4.4

-9.2

-6.5

-4.5-3.9

-4.5

-6.9

-4.5-4.1

-3.7

-6.6

-4.5-4.1

-5.5

-10

-8

-6

-4

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009


40

50

60

70

10

15

Cla

ims

pe

r $1

M

(NC

Cer

10

0 F

TE

Wo

rke

rsL

S)

Workplace Injury Incidence Rates Have Shown Declines in Last Four Economic

Downturns

38

0

10

20

30

0

5

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

Pu

re P

rem

ium

CI)

Inc

ide

nc

e R

ate

s p

e(B

Recessions

Manufacturing Industry Injuries and Illnesses per 100 Full-Time Workers

Private Industry Injuries and Illnesses per 100 Full-Time Workers

NCCI Lost-Time Claims per $1M Pure Premium

Source: US Department of Labor, Bureau of Labor Statistics (BLS), National Bureau of Economic ResearchNCCI Frequency and Severity Analysis; based on the states where NCCI provides ratemaking services,including state funds; excludes high deductible policies.


What Are Key Items in Workers Compensation Today?

• Impact of Economy

• Underwriting Cycle

• WC Medical Inflation

39

• Reserve Levels

• Legislative Issues

• Developments in Ratemaking

• Implementation of Class Ratemaking Changes

• Developments in Experience Rating Methodology


National Health Care BillImplications for Workers Compensation Insurance

The Patient Protection and Affordable Care Act*(as of 12/31/2010)

Direct Impacts

1. Changes to Federal Black Lung Benefit Entitlement Provisions**

a. Reinstates the 15-year rebuttable presumption of total disability for benefits

b Eliminates the requirement to prove that death of miner was due to

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b. Eliminates the requirement to prove that death of miner was due to occupational disease for survivor benefits

2. Changes to Medicare reimbursement levels;

potential impacts will depend on:

a. Potential modifications to Medicare reimbursements

b. How the states react to those potential changes

*HR3590 as amended by HR4872

**Section 1556: Federal Coal Mine Health and Safety Act


National Health Care BillImplications for Workers Compensation Insurance

The Patient Protection and Affordable Care Act*(as of 12/31/2010)

Provisions Worth Watching:

• Increased health care coverage in general population

• Wellness initiatives

• Consumer access to more generic drugs

• New taxes on medical devices, pharmaceutical manufacturers,

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and health insurance companies

• Fraud and abuse provisions

Other Areas of Interest:

• Electronic transaction standards

• Coordination, subrogation, and reimbursement issues

• Medicare as a secondary payer

*HR3590 as amended by HR4872


• Flat to modest increases for physician fees

• Flat to modest increases to hospital and ambulatory surgical center (ASC) fees

Legislative UpdateIssues and Trends

2010 Key Themes—Medical Fee Schedule Proposals

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• Repackaged/relabeled drugs changing from charged amount to percentage of average wholesale price

• Implants going from discount off charges to percentage above actual cost



• Permanent Partial Disability Benefit Increases

– Maximum weekly benefits (AL, MT, RI)

– Duration (MT)

– Elimination of schedule (NM)


2010 Key Themes—Indemnity Proposals

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Elimination of schedule (NM)

– Other (CO, KY)

• Other Benefits Increases (IA, KY, NM)


• WCAB en banc decisions on Guzman, Almaraz, and Olgilviecourt cases impact determination of PPD benefits

• Appeal of Guzman en banc decision affirmed by 6th district

• Still awaiting rulings on appeals of Almaraz and Olgilviedecisions

Legislative UpdateCalifornia Court Cases

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• These decisions allow more subjectivity in application of impairment guidelines and diminished future earning capacity modifiers used in determination of PD ratings

• WCRIB of California included 5.8% in 1/1/2010 pure premium filing and continued to use this estimate in their 1/1/2011 filing

• Arizona Med Fee Change, effective 10/1/2010

– Change in fees for physicians, overall impact +0.3%

• Arkansas Med Fee Change, effective 1/1/2010

– Change in fees for physicians, overall impact +0.1%

• Colorado Senate Bill 187, effective 7/1/2010

Legislative UpdateEnacted Legislation

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– Eliminates retirement and disability offsets to PPD indemnity benefits, overall impact +0.2%

– Implements an annual adjustment to the PPD benefit caps, effective for injuries occurring on or after 1/1/2012

• Colorado Med Fee Change, effective 1/1/2010

– Change in physician and outpatient/ambulatory surgical center fee schedules, overall impact +0.6%



• Connecticut Med Fee Change, effective 7/15/2010

– Change in physician fee schedule, overall impact +0.5%

• Florida Staffmark Court Decision, 8/12/2010

– Apportionment of pre-existing conditions, overall increase expected to be minimal

H ii M d F Ch ff i 1/1/2010

Legislative UpdateEnacted Legislation (cont’d)

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• Hawaii Med Fee Change, effective 1/1/2010


• Idaho Med Fee Change , effective 1/1/2010


• Illinois Med Fee Change, effective 1/1/2011

– Increase in physician and hospital services, overall impact +0.7%


• Kansas Bergstrom Court Decision, 9/4/2009

– Eliminates Good Faith requirement, overall impact +0.6%

– Tyler v. Goodyear (2/26/2010) is related to Bergstrom; whether wage loss is related to injury is inconsequential

• Louisiana Senate Bill 639, multiple effective dates

Ch t SIF i b t th h ld (7/1/2010) li ibilit


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– Changes to SIF reimbursement thresholds (7/1/2010), eligibility requirements (1/1/2011), and claim acceptance (1/1/2015)

• Maryland Med Fee Change, effective 1/1/2010

– Increase in physicians and ASC Med Fee Schedules, overall impact +0.8%

• Mississippi Med Fee Change, effective 7/1/2010

– Changes to the physician and pharmaceutical fee schedules, overall impact +0.1%


• Montana Med Fee Change, effective 1/1/2010

– Change in physician and hospital fee schedules, overall impact +0.8%

• Nebraska Med Fee Change, effective 6/1/2010

– Change in physician fee schedule, overall impact -0.3%

N d M d F Ch ff i 2/1/2010


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• Nevada Med Fee Change, effective 2/1/2010

– Change in physician and hospital fee schedules, overall impact +1.3%

• New Mexico Med Fee Change, effective 12/31/2009




• New York– Fee Schedule Changes

• Inpatient hospital fee schedule enacted Dec, 2009—moved from a Diagnostic Related Group (DRG) basis to a new pricing system reflecting All Patients Refined Diagnostic Related Groups (ARP-DRG)

• Physician fee schedule for Evaluation & Management services


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increased 30% effective 12/1/2010. • Revised fee schedule for chiropractic services effective 12/1/2010,

changing billing to be by modality rather than per visit– 7/1/2007 Reforms

• Medical treatment guidelines for 4 body parts went into effect 12/1/2010

• Impairment guidelines being finalized – to be used in determining caps on weeks of benefits for nonscheduled PPD claims

– Workplace Safety and Loss Prevention Incentive Program (WSLPIP)

• Oklahoma House Bill 2650, effective 8/27/2010

– Limits the duration of PTD benefits

– Adjusts the minimum and maximum weekly benefit amounts for scheduled PPD injuries; the latter only for 5 years

– Amends definition of objective medical evidence

Contains numerous other provisions


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– Contains numerous other provisions

– Overall impact -4.5%

• Oklahoma Med Fee Change, effective 1/1/2010

– Changes in physician and durable medical equipment (DME) fee schedules, overall impact +0.2%

• Oregon Med Fee Change, effective 7/1/2010



• Rhode Island Senate Bill 2083, effective 1/1/2012

– Increases minimum and maximum weekly benefits for additional compensation on specified injuries and increases the number of weeks payable for hearing loss; overall impact +1.4%

• South Carolina Med Fee Change, effective 7/1/2010

– Change in physician fee schedule overall impact +0 5%


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Change in physician fee schedule, overall impact +0.5%

• South Dakota House Bill 1118, effective 7/1/2010

– Raises maximum burial expense benefit from $7.5K to $10K, overall impact < +0.1%

– Addresses out-of-state reimbursement rules for medical services, overall impact is minimal

• Texas Med Fee Change, effective 1/1/2010




• Texas Healthcare Certified Networks, 1/1/2011

– House Bill 7 (HB 7) required any current healthcare network that provides healthcare services to injured workers to be certified by the Texas Department of Insurance

– House Bill 473 states that as of January 1, 2011, informal or voluntary networks may no longer be used

• Utah Med Fee Change effective 12/1/2010


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• Utah Med Fee Change, effective 12/1/2010


• Vermont Attorney Fee Rule 10, effective 6/15/2010

– Increase in attorney fee hourly rate and maximum payable, overall increase expected to be minimal

• Vermont House Bill 647, effective 6/1/2010

– Changes in how evidence to discontinue TTD benefits is considered, plus other administrative changes, overall impact is expected to be an increase, but magnitude is not quantifiable



2011 Session Overview – First 45 Days

• Several states proposed comprehensive legislative changes

– IL, KS, KY, ME, MT, and OK

• Legislation to address repackaged prescription

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• Legislation to address repackaged prescription drugs

• Impact of 2011 Medicare Update

• Proposed Implementation of Medical Fee Schedules

– ID, IN, MD, and NH


NCCI Developments inRatemaking Methodology

• NCCI conducted a comprehensive review of all class ratemaking methodologies

• Implemented with filings effective October 1, 2009

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• The goal of NCCI’s new class ratemaking methodology is to improve accuracy, class equity, and loss cost stability

• The new methodology has been implemented in all NCCI states other than Texas



Areas Impacted byClass Ratemaking

• Lower loss limits

• Revised loss development to include body part

• Replaced use of serious and non-serious partial pure premiums with indemnity partial pure

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premiums

• Revised excess loss treatment to incorporate ELPPFs

• Maintaining industry group differentials

• Adjusted class credibility to accommodate new partial pure premiums


Industry Group Impact Relative toStatewide Loss Cost Changes

Distribution of State Industry Group Differentials

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Impact in loss costs relative to statewide averageNote: Results exclude F-Class codes

Source: NCCI analysis


Hazard Group Loss Cost/Rate ChangesRelative to Statewide Average

Distribution of State Hazard Group RelativitiesLoss Development

Impact Change

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Impact in loss costs relative to statewide averageNote: Results exclude F-Class codes

Source: NCCI analysis

Excess Loss LoadChange Impact



• Experience rating plan showed excellent results overall in performance testing for prior years

• An extensive review has been recently completed

• Number of years in the plan will remain the same

Experience Rating PlanMethodology Review

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y p

• We are increasing the split point from $5,000 to $15,000 (trended) over a three year transition

• The split point will be indexed for claim inflation

• A filing for these changes will likely be made in 3rd Quarter of this year (2011)


Quintile Analysis: $5,000 Split Point(Current)

150%

Lo

ss R

atio

5th Percentile

95th Percentile

25th Percentile75th Percentile

Before Experience Rating

After Experience Rating

59© Copyright 2011 National Council on Compensation Insurance, Inc. All Rights Reserved.

50%

100%

0.36 -0.89

0.89 -0.93

0.93 -0.95

0.95 -1.05

1.05 -3.67

0.36 -0.89

0.89 -0.93

0.93 -0.95

0.95 -1.05

1.05 -3.67

Rel

ativ

e P

ure

Groups Based on Experience Rating ModificationSource: NCCI analysis; PY 2006 experience under the ER Plan, indexed for severity inflation

Quintile Analysis: $15,000 Split Point(Indicated)

150%

5th Percentile

95th Percentile

25th Percentile75th Percentile

Before Experience Rating

After Experience Rating

Lo

ss R

atio

60© Copyright 2011 National Council on Compensation Insurance, Inc. All Rights Reserved.

50%

100%

0.32 -0.81

0.81 -0.87

0.87 -0.92

0.92 -1.08

1.08 -4.26

0.32 -0.81

0.81 -0.87

0.87 -0.92

0.92 -1.08

1.08 -4.26

Groups Based on Experience Rating Modification

Rel

ativ

e P

ure

Source: NCCI analysis; PY 2006 experience under the ER Plan, indexed for severity inflation


Key Issues for the Future

• Impact of the economy

• Premium growth

• Premium returns on audits

• Frequency changes as we emerge from the recession

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q y g g

• Medical severity changes

• Impact of earnings pressures on reserve levels

• Impact of economic pressures on reforms

• The underwriting cycle

Q & A

WORKERS COMPENSATIONCURRENT ISSUES

(SESSION WC-3)

2011 cas seminar 20110304 (final-show) · it is the responsibility of all seminar participants to...

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