california workers’ compensation workers’ compensation dwc 21st annual educational conference...

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California Workers’ Compensation DWC 21st Annual Educational Conference

Los Angeles February 3 & 4, Oakland February 10 & 11, 2014

WCIRB ProposedPure Premium Rates

Hearing

Approved Advisory Pure Premium Rates

Insurance Company

Insurance Company

Payroll/Premium & Loss Data

Rate Filing

Manual Rates = PPRs (deviations?) + Expense/Profit Loading

Greatly Abbreviated

CA Workers’ Compensation

Insurance RatesCircle of Life

(in 120 seconds or less)

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Insurance Commissioner – CA Department of InsuranceRate Regulation Branch – Rate Filing Bureaus

• In California, workers’ compensation is a “file-and-use” line of insurance; it is not covered under Proposition 103 as a “prior approval” line of insurance. (e.g. personal auto & homeowners, numerous comm’l lines)

• For WC, every insurer must file with the Commissioner all rates and supplementary rate information that are to be used in California.

• The WC rates and supplementary rate information must be filed not later than 30 days prior to the proposed effective date. » CIC §11735(a)

• If a WC filing is considered to be complete and in compliance with the statutory and regulatory filing requirements on the 30th day after filing receipt, the company can use or apply the filed rates.

• In 2012, CDI received 578 WC filings from 222 different WC companies.

• In 2013, CDI received 466 WC filings from 207 different WC companies.

Insurance Commissioner Advisory PPR Decision in 2013(File Number REG-2013-00012, November 22, 2013)

• No mid-year pure premium rate filing in 2013.

• November 2013, Insurance Commissioner’s Decision and Order (REG-2013-00012) directed the WCIRB to adopt an Advisory Claims Cost Benchmark at $2.70 per $100 of employer payroll to be effective January 1, 2014. This average pure premium rate of $2.70 is 6.7% higher than the average pure premium rate insurers were estimated to already have on file as of July 1, 2013 => $2.53.

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A Rate is a Rate is a Rate

Pure Premium Ratesreflect claims/losses and loss adjustment expense

Manual Ratesreflect insurer’s adoption of a set of pure premium rates and any filed

classification deviations/modifications+ insurer’s expense/profit loading

Charged Ratesmanual rates reflecting individual account characteristics including

x-mod, schedule rating, territory, & other insurer filed plans/factors

-3.6%

-7.0%

-3.6%

-14.9%-14.7%

-10.7%

-9.4%-10.4%

-0.8%

-2.6%

Jan 2004 Jul 2004 Jan 2005 Jul 2005 Jan 2006 Jul 2006 Jan 2007 Jul 2007 Jan 2008 Jul 2008

Source: California Department of Insurance

Average Workers' Compensation Manual Rate Changes Filed by Insurers - Post 2003-04 Reforms (AB 749, AB

227/SB 228, SB 899) through July 2008

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5.8%

8.5%

4.0%

1.6%

4.6%

1.4%

4.5%

6.7% 6.5%

1.4%

4.0%

Jan 2009 Jul 2009 Jan 2010 Jul 2010 Jan 2011 Jul 2011 Jan 2012 Jul 2012 Jan 2013 Jul 2013 Jan 2014


Average Workers' Compensation Manual Rate Changes Filed by Insurers - January 2009 to Present

Insurance Company Pure Premium Rate (Benchmark) Adoptions Filed for January 1, 2014…or Thereafter

The top 120 insurers (97.4% of the market in 2012)…

Of the 14 companies adopting the approved benchmark effective 1/1/2014, only 3 filed

no uniform class deviation (i.e. factor =1.000).

Of the 70 companies adopting the approved benchmark regardless of effective date,

only 6 filed no uniform class deviation.

EFFECTIVE DATE

PURE PREMIUM RATES (BENCHMARK) January 1, 2014 February 1, 2014 March 1, 2014 April 1, 2014

Approved JAN 2014 14 26 29 1 70

Amended Proposed JAN 2014 8 1 4 0 13

Proposed JAN 2014 3 0 0 0 3

Approved JAN 2013 3 0 4 0 7

TOTAL: 25 27 33 1 93

Companies not making a "year-end" rate filing: 27

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Aggregate Filed Manual Rate Changes for the CA Workers’ Compensation Industry

(Cumulative Post 2003-04 Reforms: 1/1/2004 through 3/1/2014)

• State Compensation Insurance Fund Cumulative Filed Manual Rate Change -41.4%

• CA Workers’ Comp. Industry Cumulative Filed Manual Rate Reductions -29.2%

Newly Authorized Workers’ Compensation Insurers since AB 227, SB 228, SB 899

(Determined by Initial Rate Filing or Certificate of Authority Application, as of 1/22/2014)

YEAR # OF COMPANIES ADMITTED

2004 62005 72006 62007 52008 72009 72010 102011 122012 102013 92014 1

TOTAL 80

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Newly Authorized Workers’ Compensation Insurers since AB 227, SB 228, SB 899


COMPANY / GROUP NAME DATE OF ADMISSION

• 71. Ohio Security Insurance Company 1/9/13• 72. Tokio Marine America Insurance Company 3/1/13• 73. Cincinnati Casualty Company 3/7/13• 74. Cincinnati Indemnity Company 3/7/13• 75. Ohio Casualty Insurance Company (The) 3/19/13• 76. Foremost Ins Co Grand Rapids, MI 4/18/13• 77. Foremost Property and Casualty Insurance Co 4/18/13• 78. OBI National Insurance Company 8/29/13• 79. Torus National Insurance Company 11/18/13• 80. Sagamore Insurance Company 1/8/14

Pending Applications for New Workers’ Compensation Insurers since passage of AB 227, SB 228, SB 899


COMPANY NAME DATE OF APPLICATION

• 1. Cherokee Insurance Company 1/14/14

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0

20

40

60

80

100

120

140

160

180

2003 2005 2006 2007 2008 2009 2010 2011 2012 2013

# Companies


CA WC Schedule Rating - Max Filed Debit/Credit

+50/‐50

+40/‐40

+25/‐25

Other

CDI WC Enforcement Actions 2013

Legal

* Settlement reached with insurer after insurer failed to file large deductible (dispute resolution) agreement forms with CDI as required by the Insurance Code. Insurer never filed agreements after CDI advised all insurers in 2011 to file such agreements. Insurer’s agreements generally offered on a take it or leave it basis to employers, with New York laws applying to disputes, and resolution in Chicago regardless of employers’ base of business (e.g. in CA).

* Hospitals agree to record payment and billing/disclosure reforms in CDI lawsuit involving anesthesia billing. => lower prices and affect WC claims. CA to receive $20 million for investigation and prevention of insurance fraud.

* Business owner sentenced to one felony count of insurance fraud and ordered to pay restitution of nearly $4.2 million; sentenced to six years in prison for defrauding two insurance companies by underreporting employee payroll and unemployment insurance tax evasion.

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…business owner sentenced for insurance premium fraud…misrepresented the number of employees at the company as well as its actual payroll when applying for workers' compensation insurance to its insurer…

…arrest of three suspects accused of producing and selling hundreds of false certificates of insurance for workers' compensation insurance…

…Wife gets arrested when husband dies, but she continues to cash his workers’ compensation checks. Overpayment of benefits results in wife fraudulently receiving over $500,000…

…Investigation leads to conviction of business owner for committing workers' compensation insurance premium fraud for failing to properly report employee payroll to the insurance carrier…

…California Department of Insurance investigation leads to conviction of family for workers' compensation insurance fraud…


…business owner sentenced to 364 days in jail and three years’ probation after pleading no contest for two felony counts including insurance premium fraud and failing to maintain workers' compensation insurance...paid restitution of over $52,000 toward unpaid insurance premiums...

…insurance agent arrested for theft and providing bogus insurance certificates to dupe clients…Investigators found that the agent collected more than $6,000 from clients for workers' compensation, general liability, and commercial automobile insurance coverage and allegedly failed to forward the premium exposing clients to the risk of uncovered loss…

≈

To assist in addressing the type of activities outlined above, $32 million in local grants were awarded to district attorneys across 36 counties in California in 2013 to combat workers' compensation fraud.

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Market Conduct

CDI completed 10 insurance company exams during 2013 that included the Workers’ Compensation line. Four of the exams covered claims practices and six covered rating and underwriting. The typical compliance problems found, which tend to be common findings on WC exams in general, include:

Claims

• Errors or miscalculations in the benefits owed leading to underpayments

• Failure to include self-imposed penalties and interest when due

• Not performing complete investigation (or not documenting all investigatory steps taken)

• Delays in acknowledging and responding to communications

• Delays in issuing payments


Market Conduct

Rating and Underwriting

• Failure to file all components of rates, rating plans and supplemental rate information being used

• Use of rating/pricing tiers – including failure to have objective and mutually exclusive placement rules, failure to consistently apply placement rules, failure to collect all underwriting info needed to apply rules, and failure to include such rules in a rate filing

• Inadequate documentation of application of schedule rating

• Failure to make required filings with WCIRB – such as forms and safety group information

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Recently Enacted Legislation - Dispute Resolution or Arbitration

CIC §11658.5, which applies to workers’ compensation policies issued or renewed on or after July 1, 2012, requires an insurer that intends to use a dispute resolution or arbitration agreement to disclose to the employer at policy quotation that choice of law and choice of venue or forum for the resolution/arbitration process may be a jurisdiction other than California, and that these terms are negotiable between the insurer and the employer.

The disclosure must be signed by the employer as evidence of receipt where the employer accepts the offer of coverage from that insurer.

A dispute resolution or arbitration agreement may be negotiated by the insurer and the employer before any dispute arises.

Failure by the insurer to observe these requirements will result in a default to California as the choice of law and forum for resolution of disputes arising in California.

Comparison Shop on the Internet

• Comparison Shop on the Internet

– www.insurance.ca.gov - Click on “Consumers”, “Compare Premiums”, “Information on the CA Workers’ Compensation Rate Comparison”, and click on the range of class codes that contains your governing class code. Use the bookmarks and Class Code Search feature to help navigate to specific class codes.

– Click on the Back button and go back to the Cal WC Rate Comparison main page, and click on “Check your insurance company’s profile” link to obtain profile information about the company. Request a premium quote from the company, or for an authorized agent/broker that may provide a quote. If the quote is too high, select another company from the list. Check company licenses and agent/broker licenses. Check financial stability ratings.

– Many companies have their own websites and can provide on-line quotes.

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© WCIRB California. All Rights Reserved.

California Workers’ Compensation Update – WCIRB PerspectiveW 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®

California Workers’ Compensation Update – WCIRB Perspective

Presented by Dave Bellusci & Shane Steele

WCIRB of California

DWC 21th Annual Educational Conference Los Angeles February 3- 4, 2014Oakland February 10- 11, 2014

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5.76.4

7.1

12.0

21.4

23.5

21.3

16.4

13.0

10.6

8.89.8

10.8

12.5

14.7

0

5

10

15

20

25

95 97 99 01 03 04 05 06 07 08 09 10 11 12 13

$ Billions

Calendar Year

Full Year Forecast

Reported Written Premium Gross of Deductible Credits

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2



Estimated Average Charged Insurer Rate Per $100 of Payroll

$2.41$2.28$2.25$2.10$2.15$2.30

$2.85

$4.36

$5.49

$6.29

$2.59$2.81

$0.00

$2.00

$4.00

$6.00

$8.00

7/03-12/03 7/04-12/04 7/05-12/05 7/06-12/06 7/07-12/07 2008 2009 2010 2011 1/12-6/12 7/12-12/12 1/13-9/13

Policy Period

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Accident Year California Projected Combined Loss and Expense Ratios

145129

11085

5536 33 44

6279

94 95 85 78

22

21

18

14

12

9 1012

15

19

24 2433

24

22

20

18

16

15

14 1416

18

20

22 23 23

20

0

50

100

150

200

99 00 01 02 03 04 05 06 07 08 09 10 11* 12*

Other Exps.LAELosses

118

142140

9582

57

115

146

170

189

141

As of September 30, 2013

Accident Year

5972

132% Point Improvement over 6 Years

85% Point Deterioration over 5 Years

122

* The cost of medical cost containment programs is reflected in LAE for accident years 2011 and 2012. It is reflected in losses for all other accident years.

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WCIRB Prospective Cost Evaluation of SB 863Summary of WCIRB October 12, 2012 Estimates ($’s in billions)

SB 863 ProvisionsImpact on

Statewide Claim Costs

% Impact on Claim Costs

2013 & 2014 PD Benefit Level Changes +$1.2 +6.4%Elimination of PD Add-ons ($0.2) -0.9%Three-Tiered Weekly PD Benefits ($0.1) -0.5%Liens ($0.5) -2.5%Surgical Implant Hardware ($0.1) -0.6%ASC Fees ($0.1) -0.4%IMR (Impact on Frictional Costs & TD Duration) ($0.4) -2.1%Ogilvie Decision ($0.2) -1.1%MPN Strengthening ($0.2) -1.0%Total Estimated Impact of SB 863 (pre RBRVS) ($0.5) -2.7%

RBRVS Fee Schedule +$0.3 +1.8%Total Estimated Impact of SB 863 (post RBRVS) ($0.2) -0.9%

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Indemnity Claim Frequency – WCIRB Prospective Estimate

Impact of SB 863’s PD Benefit Increases on Frequency Estimated to Increase Costs by 1.1% ($200M)

Accident Year 2013 Frequency Initially Projected to Increase by 1.0% Based on WCIRB Frequency Model

Preliminary 2013 Indication: +5%

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Change in Estimated Indemnity Claim Frequency –California vs. NCCI States

-6.8

-1.4-2.7

-16.8

-13.4

-6.6

-1.9

-4.0

-1.6

6.7

-1.9

3.95.0

-6.9

-4.5 -4.1 -3.7

-6.6

-4.5

-2.2

-4.3-5.7

3.8

-0.9

-5.0

-20

-15

-10

-5

0

5

10

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013(9 mos.)Accident Year

California

NCCI States

NCCI estimates are based on May 16, 2013 State of the Line Presentation (NCCI 2012 estimate is preliminary and the 2010 and 2011 estimates have been adjusted to remove the impact of audit premium and other factors).

% As of September 30, 2013

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Source: WCIRB Unit Statistical Data (2001-2011) and Aggregate Data Calls (2012-2013)


Estimated Frequency Changes by Geographic Region USR 1st Report Level

-14.2

-5.9-4.9

-8.2 -7.9

4.0

-3.4

-2.2

-16.0

-5.5

-2.9-3.6

-0.8

8.3

0.1

7.8

-12.8

-6.9

-4.3

-7.9

-3.2

6.1

-0.5

-4.0

-20

-15

-10

-5

0

5

10

2005 2006 2007 2008 2009 2010 2011 2012

Accident Year

Bay Area

Los Angeles / LA Basin

Other Regions

%

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Preliminary

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Change in Indemnity Claim Frequency2010 Compared to 2012

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Impact of Recession

Comparison to Countrywide

2010 Frequency Change 2012 Frequency Change

California Consistent with National Trends

California Differs from National Trends

Increase in Cumulative Injuries (not Filed During

Recession)

Increase in Newly-Hired Workers During Recovery

Industries Most Affected

Regions Most Affected

Sectors Most Impacted By Recession (e.g., Construction,

Real Estate)

Broad-Based (e.g., Manufacturing, Entertainment,

Other Industries)

Broad-Based Across all California

Isolated to Los Angeles

Area Regions

Claims Most Affected

Smaller Indemnity Claims that May Otherwise Have Been

Medical-Only

Larger Permanent Disability Claims, Many Involving

Multiple Body Parts

Shifting Industrial Mix

Loss of Construction Employment Significantly

Dampening Frequency

Reversal of Dampening

Impact During Recovery


Liens – WCIRB Prospective Estimate

Total Impact of SB 863 Lien Provisions Estimated to Decrease Costs by 2.5% ($480M)

Assumed 260,000 Liens (41%) Eliminated by Filing Fee and Statute of Limitations

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398.3

135.3166.1

292.8

465.7

63.925.9 35.9 40.4

65.5

19.8

21.9

30.4

47.3

5.2

4.2 5.1 5.7

0

100

200

300

400

500

2011 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13

Los Angeles Area

Rest of State

1.2 million liens filed in 2012

180K liensfiled in 2013

460K liensfiled in 2011

Liens Filed Counts by Region

Calendar Year/Quarter

Source: EAMS Liens Data

In Thousands

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Spinal Surgical Implant - WCIRB Estimated Cost Impact

Elimination of Separate Reimbursements for Implantable Hardware Estimated to Decrease Costs by 0.6% ($110M)

Estimate Based on CWCI Study of Multiple Reimbursements– Duplicate payments added $20,000 to each procedure

Post-Reform Emerging Costs - Calculated Billed and Paid Amounts for the 7 DRGs Pre- and Post-1/1/13

# Episodes % DRGS 454 & 455

Total $ Paid Avg. $ PaidPer Episode

Pre-1/1/13 214 84% $5,870,125 $27,430

Post-1/1/13 52 85% $628,504 $12,087

Change -56%

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Changes to ASC Fees Estimated to Decrease Costs by 0.4% ($80M) Some ASC Fees Reimbursed Under Contract Levels Below Current Fee

Schedule Assumed Reduction in ASC Facility Fees of 25% Post-Reform Emerging Costs - Examined ASC Episodes of Care for the 30

Most Highly Reimbursed Procedure Codes (67% of All ASC Costs)

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ASC SurgeriesTop 30 Paid Codes

% of all ASC $in Top 30 Codes

# ofEpisodes

$ Paid $ Paid per Episode

Services Pre-1/1/13 65% 11.435 $37,628,741 $3,291

Services Post-1/1/13 68% 5,497 $13,430.373 $2,443

Change -26%

Ambulatory Surgical Center – WCIRB Estimated Cost Impact


Independent Medical Review – WCIRB Prospective Estimate

Total Quantifiable Impact of SB 863 IMR Provisions Estimated to Decrease Costs by 2.1% ($390M)

IMR Frictional Cost Saving Assumptions– 30,000 medical liens for UR disputes replaced by IMR reports– 21,000 QMEs for medical treatment replaced by IMR reports– 9,000 expedited hearings eliminated

Reduction in Delays for Medical Treatment Assumed to Reduce TD Duration & Litigation

No Estimate for IMR Impact on Medical Treatment Levels Provided

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86 178 256 350

4,410

15,73114,990

13,999

13,171

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

Jan-Mar Apr May Jun Jul Aug Sep Oct Nov

Number of IMR Requests by Month

Source: DWC

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

SB 863 ProvisionsWCIRB Prospective

Cost Estimates(Impact on Statewide Claim

Costs)

Preliminary Monitoring

Results(Impact on Savings

Estimates)

2013 & 2014 PD Benefit Level Changes +$1.2Elimination of PD Add-ons ($0.2) TBDThree-Tiered Weekly PD Benefits ($0.1) TBDLiens ($0.5)Surgical Implant Hardware ($0.1)ASC Fees ($0.1)IMR (Impact on Frictional Costs & TD Duration) ($0.4)Ogilvie Decision ($0.2) TBDMPN Strengthening ($0.2) TBDIMR ( Impact on Medical Treatment) TBD TBDIBR TBD TBDRBRVS Fee Schedule +$0.3 TBD

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california workers’ compensation workers’ compensation dwc 21st annual educational conference...

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