Arkansas. June 15,

Transcription

1 Arkansas June 15,

2 Arkansas State Advisory Forum AIS Bill Donnell Video Excerpt Countrywide Workers Compensation System Arkansas Workers Compensation System and Filing Activity Commissioner Allen Kerr, Arkansas Insurance Department Countrywide and Arkansas Economic Outlook Legislative Issues: Countrywide and Arkansas Emerging Issue: 2017 Medical Marijuana Update Residual Market: Countrywide and Arkansas Q & A 2

3 AIS Presentation Video Excerpt Bill Donnell NCCI President and CEO

4 Countrywide Workers Compensation System

5 Countrywide Workers Compensation System An Overview After five years of growth, premium is flat in the most recent year The combined ratio continues to show favorable results Frequency declined again at the latest point Medical and indemnity severity are increasing modestly 5

6 WC Net Written Premium Private Carriers and State Funds $ Billions State Funds ($B) Private Carriers ($B) p Calendar Year p Preliminary Source: NAIC s Annual Statement data; includes state insurance fund data for the following states: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, and UT Each calendar year total for state funds includes all funds operating as a state fund in that year 6

7 WC Direct Written Premium (DWP) Change by Component Private Carriers NCCI States Change in Direct Written Premium: 0.0% 2016 vs Payroll +4.0% Loss Cost and Mix -2.7% Carrier Discounting -1.4% State Fund Conversion to Private Carrier +1.0% Other Factors -0.8% Sources: DWP Change: NAIC s Annual Statement Statutory Page 14 for all states where NCCI provides ratemaking services Components: NCCI Policy data 7

8 Increases in Payroll Continue to Drive Premium Growth Forecast Change Payroll Wage Rate +4.5% Employment +2.5% +1.9% 4% 4% 3% 3% 2% 2% 1% 1% 0% 0% -1% Prof. & Business Services Trade, Transport., & Utilities Education & Health Services Financial Activities Construction Manufacturing Construction Leisure & All Other Hospitality -1% Prof. & Business Services Trade, Transport., & Utilities Education & Health Services Financial Activities Manufacturing Leisure & All Other Hospitality Sources: Moody s Analytics and NCCI 8

9 Percent 5 WC Approved Changes in Bureau Premium Level By Effective Year for NCCI States p Calendar Year p Preliminary Source: NAIC s Annual Statement Statutory Page 14 Bureau premium level changes reflect approved changes in advisory rates, loss costs, assigned risk rates, and rating values, as of 5/12/2017, relative to those previously approved in NCCI states only IN and NC are filed in cooperation with state rating bureaus 9

10 Percent WC Impact of Discounting on Premium Private Carriers NCCI States p Policy Year p Preliminary Sources: NAIC s Annual Statement Statutory Page 14 and NCCI s Financial Call data NCCI benchmark level does not include a profit and contingency provision or expense constant Based on data for all states where NCCI provides ratemaking services, excluding TX 10

11 WC Impact of Discounting on Premium Private Carriers NCCI States Dividends Schedule Rating Rate/Loss Cost Departure p Policy Year p Preliminary Sources: NAIC s Annual Statement Statutory Page 14 and NCCI s Financial Call data Dividend ratios are based on calendar year statistics NCCI benchmark level does not include a profit and contingency provision or expense constant Based on data for all states where NCCI provides ratemaking services, excluding TX 11

12 Percent WC Combined Ratio Underwriting Gain Achieved Private Carriers 3% lower p Calendar Year p Preliminary Source: NAIC s Annual Statement data 12

13 WC Combined Ratio Components Private Carriers Percent Dividends 1 1 Underwriting Expense Ratio Loss Adjustment Expense (LAE) Ratio Loss Ratio p Calendar Year p Preliminary Source: NAIC s Annual Statement data 13

14 WC Net Combined Ratios Calendar Year vs. Accident Year As Reported Private Carriers Percent 120 Calendar Year Accident Year p p Preliminary Source: NAIC s Annual Statement data Accident Year information is reported as of 12/31/2016 Includes dividends to policyholders 14

15 Percent 5 WC Lost-Time Claim Frequency Change in Lost-Time Claims per $1M Pure Premium Private Carriers and State Funds NCCI States 0-5 Average Annual Change: 3.6% ( ) p Accident Year 2010 and 2011 adjusted primarily for significant changes in audit activity p Preliminary based on data valued as of 12/31/2016 Source: NCCI s Financial Call data, developed to ultimate, premium adjusted to current wage and voluntary pure premium level, excludes high-deductible policies; based on data through 12/31/2015 Values displayed reflect the methodology underlying the most recent rate/loss cost filing Includes all states where NCCI provides ratemaking services; WV is excluded through

16 WC Average Medical Lost-Time Claim Severity Private Carriers and State Funds NCCI States Severity ($ Thousands) % +5% $27.7 $ p Accident Year p Preliminary based on data valued as of 12/31/2016 Source: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies; based on data through 12/31/2015 Values displayed reflect the methodology underlying the most recent rate/loss cost filing Includes all states where NCCI provides ratemaking services; WV is excluded through

17 Changes in Medical Lost-Time Claim Severity by Component Private Carriers and State Funds NCCI States +72% +56% Change in the Medical Utilization Component +47% +27% Change in Overall Medical Severity +16% Change in the Medical Price Component +20% +14% +2% +12% 1995 to to to 2016p p Preliminary based on data valued as of 12/31/2016 Sources: Severity: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies; based on data through 12/31/2015 Values displayed reflect the methodology underlying the most recent rate/loss cost filing Includes all states where NCCI provides ratemaking services; WV is excluded through 2007 PHC Chain-Weighted Price Index: Centers for Medicare & Medicaid Services 17

18 Severity ($ Thousands) WC Average Indemnity Claim Severity Private Carriers and State Funds NCCI States % +3% $23.2 $ p Accident Year p Preliminary based on data valued as of 12/31/2016 Source: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies; based on data through 12/31/2015 Values displayed reflect the methodology underlying the most recent rate/loss cost filing Includes all states where NCCI provides ratemaking services; WV is excluded through

19 Relative Growth Rates Indemnity Severity vs. Wage Inflation Private Carriers and State Funds NCCI States +65% +33% Change in Indemnity Severity in Excess of Wage Inflation +34% +9% Change in Overall Indemnity Severity +32% Change in Wage Inflation +25% +7% +19% -12% 1995 to to to 2016p p Preliminary based on data valued as of 12/31/2016 Sources: Severity: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies; based on data through 12/31/2015 Values displayed reflect the methodology underlying the most recent rate/loss cost filing Includes all states where NCCI provides ratemaking services; WV is excluded through 2007 US Average Weekly Wage: and , Quarterly Census of Employment and Wages; , NCCI; 2016p, NCCI and Moody s Analytics 19

20 Arkansas Workers Compensation System

21 Arkansas Workers Compensation System An Overview Premium volume is down slightly Underwriting gains indicated in each of the last five years Frequency continues its long-term decline 21

22 Arkansas Workers Compensation Premium Volume Direct Written Premium in $ Millions p p Preliminary Source: NAIC s Annual Statement data Calendar Year 22

23 Impact of Discounting on Workers Compensation Premium in Arkansas 13.5% 12.4% 2.6% 5.3% 9.5% 7.6% 3.8% 4.6% 10.7% Percent -0.1% -1.0% -1.1% -3.2% -1.3% -13.6% -20.3% p Policy Year Dividends Schedule Rating Rate/Loss Cost Departure p Preliminary Based on data through 12/31/2015 Dividend ratios are based on calendar year statistics 23

24 Arkansas Accident Year Combined Ratios by Component 91% 0% 88% 89% 0% 0% 84% 80% 0% 0% 37% 36% 36% 36% 35% 54% 52% 53% 48% 45% Sources: NCCI s financial data and NAIC s Annual Statement data Loss Ratio Expense Ratio Dividend Ratio Accident Year 24

25 Arkansas Workers Compensation Lost-Time Claim Frequency Lost-Time Claims Cumulative Change of 50.9% ( ) -0.2% -1.7% -1.5% -1.8% -2.7% Percent Change -6.1% -5.2% -6.1% -5.3% -6.0% -7.3% -7.0% -7.9% -9.9% Policy Year Based on data through 12/31/2015, developed to ultimate 25

26 Arkansas Average Indemnity Claim Severity Lost-Time Claim Severity in $ Thousands Cumulative Change of +46.1% ( ) 11.0% 4.6% 2.6% 7.6% 3.0% -5.5% -2.6% 16.5% 1.8% -0.2% -5.0% -0.8% 4.7% 3.0% $17.8 $17.0 $15.3 $14.9 $14.2 $14.3 $15.1 $15.1 $14.9 $12.7 $13.1 $13.9 $13.5 $12.5 $ Policy Year Based on data through 12/31/2015, on-leveled and developed to ultimate 26

27 Arkansas Average Medical Claim Severity Lost-Time Claim Severity in $ Thousands Cumulative Change of +75.5% ( ) 20.9% 0.0% 3.7% $15.5 $ % $ % $ % $ % $ % $ % $ % 4.9% 6.4% -2.6% $25.2 $25.9 $24.3 $23.2 $ % 3.7% $26.2 $ Policy Year Based on data through 12/31/2015, on-leveled and developed to ultimate 27

28 Arkansas Filing Activity Voluntary Loss Cost and Assigned Risk Rate Changes -1.4% -2.1% -3.0% -1.6% -4.3% -7.4% -6.7% -8.5% -8.4% -10.6% Voluntary Assigned Risk 28

29 Arkansas July 1, 2017 Loss Cost Filing Overall Loss Cost Level Change 8.4% Change in Experience Change in Trend Change in Benefits Change in LAE 7.1% 2.2% +0.4% +0.3% 29

30 Arkansas July 1, 2017 Filing Average Changes by Industry Group Overall Change 8.4% Manufacturing 8.4% Contracting 9.2% Office & Clerical 10.4% Goods & Services 8.0% Miscellaneous 7.0% 30

31 Cumulative Loss Cost Level Change (%) Arkansas Cumulative Approved Loss Cost Level Change /01 7/02 7/03 7/04 7/05 7/06 7/07 1/08 7/08 7/09 7/10 7/11 7/12 7/13 7/14 7/15 7/16 7/ Effective Date 31

32 Percent Current NCCI Voluntary Market Loss Cost/Rate Level Changes Excludes Law-Only Filings WV NC IL AZ TN AL CT NV OK MD LA IN NH NM UT AR KS VT MT TX OR MS VA KY FL IA RI ME NE DC MO CO AK ID SD GA HI SC Approved Pending Reflects the most recent experience filing in each jurisdiction Due to the timing of the individual loss cost/rate filings, the figures shown may include changes from prior filing seasons

33 Current Voluntary Market Loss Cost Level Changes in Nearby States Missouri 1/1/17 3.7% Kentucky 10/1/16 5.0% Mississippi 3/1/17 6.1% Texas 7/1/17 7.8% Arkansas 7/1/17 8.4% Louisiana 5/1/17 9.8% Oklahoma 1/1/ % Alabama 3/1/ % Tennessee 3/1/ % 33

34 Current Average Voluntary Pure Loss Costs Using Arkansas Payroll Distribution Pure Loss Cost All Classes AR LA MO MS OK TN TX Region Country Based on the latest NCCI approved rates and loss costs in the various states 34

35 A Cautionary Tale: The Danger of Comparing Average Loss Costs Across States

36 Commissioner Allen Kerr Arkansas Insurance Department

37 Countrywide and Arkansas Economic Outlook

38 National Economic Highlights and Their Impact on Workers Compensation National Economic Indicator Private employment growth is expected to continue to slow Potential Impact on the Workers Compensation Market Premium increases from higher payroll and higher expected claim frequency for new workers Wage growth is poised to accelerate Upward pressure on payroll and premium as well as indemnity severity Medical inflation is forecast to slow slightly but still be above 3% Interest rates are expected to increase Increased pressure on medical costs per claim Higher interest rates mean better returns on invested funds 38

39 Percent 4 Change in Private Employment Private Employment Growth Is About Average Mar 2015 Mar 2016 Mar Arkansas United States Private Nonfarm Employment, seasonally adjusted Frequency of observation: monthly; latest available data point: March 2017; percentage change for the 12 months ending each December Source: US Bureau of Labor Statistics (BLS), 39

40 Percent 4 Change in Average Weekly Wages Wage Growth Is Below the Rest of the Nation Arkansas United States Wages are for Total Private Industry Frequency of observation: annual; latest available data point: 2015 Source: US Bureau of Labor Statistics (BLS), 40

41 Percent Headline Unemployment Rate The Unemployment Rate Is Below Average Mar 2015 Mar 2016 Mar Arkansas United States Headline Unemployment Rate, seasonally adjusted Frequency of observation: monthly; latest available data point: March 2017 Source: US Bureau of Labor Statistics (BLS), 41

42 Change in Employment by Industry Employment in Most Industries Has Increased in the Past 12 Months Industrial Sector 12-Month Percent Change, March 2017 Education and Health Services Professional and Business Services Manufacturing Other Services Trade, Transportation, and Utilities Leisure and Hospitality Financial Activities Construction Information Natural Resources and Mining Government AR , ,500 US +2.3 AR , ,700 US +3.2 AR , ,100 US +0.3 AR , US +1.0 AR , US +0.7 AR , US +1.7 AR , US +2.2 AR , US +2.6 AR , US 1.2 AR , US +0.4 AR , ,800 US +0.7 Percentage change for the latest 12 months as of March 2017 Current Employment Statistics Survey, seasonally adjusted; frequency of observation: monthly Source: US Bureau of Labor Statistics (BLS), Sector Size % Share 12-Month Change 42

43 Arkansas Economic Environment The unemployment rate in Arkansas is below the US rate Employment growth is close to the US rate: Education and Health Services added the most jobs followed by Professional and Business Services which grew at the fastest rate Trade, Transportation, and Utilities is the largest sector in the state, but it grew at the slowest pace The Construction, Information, Natural Resources and Mining, and Government sectors have experienced declines Arkansas wage growth is below the US average 43

44 Legislative Issues: Countrywide and Arkansas 44

45 2017 Overview Countrywide, legislative activity has increased over prior years both in volume and content. Regulation changes thus far concern medical cost management, claim handling, and effectuating enacted legislation. Year to date, there have been fewer workers compensationrelated cases at the state supreme court level than there were in The 2016 General Election resulted in a net gain for Republicans in state government, where they now control both chambers of the legislature and the governor s office in 26 states. 45

46 2017 Workers Compensation Legislative Activity CA OR WA NV ID UT MT WY CO ND SD NE KS MN WI IA MO IL MI IN OH KY WV PA VA NY VT NH CT ME MA DC NJ DE MD RI AZ NM OK AR TN SC NC MS AL GA AK TX LA FL HI 0 10 Bills Introduced Bills Introduced Bills Introduced More Than 30 Bills Introduced As of 5/1/

47 Key Workers Compensation-Related Themes in Introduced Legislation First Responder Presumptions Indemnity Benefits Medical Cost Management Definitions 47

48 Federal Focus on State-Based Workers Compensation System Increased interest in state insurance regulation: Nexus between workers compensation program and Federal benefit programs a. Centers for Medicare & Medicaid Services b. Social Security Disability Insurance Bipartisan Policy Center report Improving U.S. Insurance Regulation calls for considering minimal federal insurance standards for property/casualty (including workers compensation and life insurance lines). CHOICE Act (H.R. 10) would recast the federal focus on insurance issues by combining the Federal Insurance Office with the Financial Stability Oversight Council insurance representative and create the Office of the Independent Insurance Advocate. 48

49 Federal Emerging Issues Regulation of Air Ambulance Services Sen. Jon Tester (MT) introduced legislation to provide state authority Federal Aviation Administration Reauthorization Social Security Disability Insurance(SSDI) Reform SSDI Solutions Initiative recommendations SSDI State Department of Labor Audit Pilot Medicare Set-Aside Reform Legislation to be introduced to bring greater efficiency to MSA Process Congressional Budget Office (CBO) scoring 49

50 Arkansas Legislative Activity HB 1249/Act 562 Primarily establishes parameters for carrying a concealed handgun Specifically disallows public university employees from receiving workers compensation benefits for injuries resulting from their own negligent acts in possessing or using a concealed handgun HB 1262/Act 154 When an employer establishes a qualified drug-free workplace program, an employee whose test shows a drug or alcohol present in an amount that exceeds prescribed levels may be precluded from workers compensation benefits and/or terminated Eliminates the provision allowing a terminated employee to contest the test results before the Department of Labor 50

51 Arkansas Legislative Activity HB 1813/Act 658 Under the workers compensation law, provides for the treatment of rabies upon exposure SB 760/Act 1058 Clarifies the law regarding final settlements: Establishes the ability to petition for partial settlement of all issues other than future medical when the claimant is eligible for Medicare Upon entry of a final full or final partial settlement, the Commission no longer has jurisdiction over the claim (except future medical expense claims for a final partial settlement). HB 1586 (Died in Senate) Establishes duration limit of 450 weeks for permanent total disability claims Under the workers compensation law, provides for the treatment of rabies upon exposure 51

52 Arkansas Regulatory Activity Proposed Rule , Arkansas Workers Compensation Drug Formulary Effective for claims with injury date on or after Sept. 1, 2017 Includes all FDA-approved drugs Establishes a process for filling workers compensation prescriptions, including reviewing and prescribing opioid medications Implements a dispute resolution process between a provider and the reviewing pharmacists or pharmacy benefit manager Implements a Medical Cost Containment Division (MCCD) with review and decision making responsibility Right to appeal from MCCD to Administrative Law Judge Provides for rule review and yearly analysis 52

53 EMERGING ISSUE Legalization of Marijuana and the Impact on Workers Compensation

54 Federal Activity US Drug Enforcement Administration Federal funds will not be used to prevent state implementation of medical marijuana laws Controlled Substances Act Unclear as to what will happen August 2016 May 2017 Currently 2017 and Beyond Will not classify marijuana House Resolution 244 Marijuana is an illegal Schedule I drug Current Administration 54

55 State Activity Medical Marijuana Recreational Marijuana 29 8 Plus Washington, D.C. have legalized medical marijuana Plus Washington, D.C. have legalized recreational marijuana 55

56 Colorado Supreme Court Coats v. Dish Network (2015) Employers can lawfully terminate workers for using marijuana outside of work hours even though the drug is LEGAL in the state. 56

57 New Mexico Court of Appeals Vialpando v. Ben s Automotive Services and Redwood Fire & Casualty (2014) An insurer MUST reimburse a qualified work comp claimant for the cost of medical marijuana to treat low back pain Appealed to NM Supreme Court: Certiorari denied 57

58 New Mexico Court of Appeals Maez v. Riley Industrial Lewis v. American General Media (2015) An employer is required to reimburse a qualified claimant for medical marijuana if the drug is reasonable and necessary medical care for treatment of a work injury. 58

59 United States District Court 59

60 United States District Court 60

61 United States Supreme Court States of Nebraska and Oklahoma v. State of Colorado (2016) The states challenged that Colorado law violates the Supremacy Clause of the US Constitution The Court declined to hear the case 61

62 Connecticut Workers Compensation Commission Decision Petrini v. Marcus Dairy, Inc. and Gallagher Bassett Service (2016) Upheld decision that the claimant s use of medical marijuana for pain management constitutes reasonable and necessary medical treatment Appealed to Connecticut Court of Appeals 62

63 Maine WC Board Decisions (2016) Maine WC Board: Noll v. Lepage Bakeries, Inc. and Cannon Cochran Management Services Bourgoin v. Twin Rivers Paper Co., LLC and Sedgwick CMS Self-insured employer is to reimburse costs for reasonable and proper use of medical marijuana under state s WC and medical marijuana law Appealed to ME Supreme Judicial Court: Certiorari denied in Noll; granted in Bourgoin 63

64 Other Activity Five states (Connecticut, Maine, Minnesota, New Jersey, and New Mexico) allow reimbursement for WC under certain circumstances New Mexico: Adopted a fee schedule to provide for reimbursement of medical marijuana to injured workers effective January 1, 2016 Introduced legislation (SB 371/HB 527) in 2017 requiring employers/carriers to pay for medical marijuana for injured workers did not pass North Dakota: Passed legislation (HB 1156) in 2017 prohibiting payment of WC benefits for medical marijuana 64

65 Workplace Challenges Currently, employers have not been restricted from enforcing drug-free workplace policies. Employees who can legally use medical marijuana while off duty may still face consequences for arriving at work with detectible amounts of marijuana in their system. There is a question as to whether lingering side effects may impact performance of regular work duties. 65

66 Insurance Challenges Insurers are receiving requests to pay for medical marijuana. Reimbursement issues: Centers for Medicare & Medicaid Services and absence of National Drug Code. Given friction between state and federal law, states and state courts are faced with the challenge of whether to approve medical marijuana treatment for work-related injuries. 66

67 Questions Raised by WC Stakeholders What is the impact on Medicare Set-Aside Allocations since marijuana is still illegal under federal law? Should workers comp insurers be required to reimburse for medical marijuana if the drug is determined to be reasonable and necessary to treat a work-related injury? Will the trend to legalize marijuana impact the legalization of other drugs like cocaine and heroin? 67

68 Questions Raised by WC Stakeholders When a state legalizes marijuana, what is the potential impact on neighboring states? Should employers in states where marijuana is legal consider allowing its use on the job? How would that impact drug-free workplace credits? Is it fair to punish employees with legal prescriptions for marijuana? Compare/contrast to how we treat workers taking opioids. What is the potential for increased accidents and injuries for marijuana users? How does this impact their co-workers? 68

69 Questions Raised by WC Stakeholders Is marijuana a safer alternative to opioids for pain management? Is it a less expensive alternative to other drugs? Should states consider fee schedules for marijuana (like New Mexico)? How are appropriate dosage levels determined? 69

70 Legalization of Marijuana Summary States are increasingly legalizing marijuana in some form for medical use. Courts are increasingly dealing with contested cases of medical marijuana in the work environment. Marijuana is still illegal under federal law and remains a Schedule I drug. 70

71 Residual Market: Countrywide and Arkansas

72 Where Does NCCI Provide Residual Market Services? 72

73 Residual Market Video Excerpt Jim Nau, General Manager NCCI Residual Markets

74 $ Millions Arkansas Total Residual Market Plan Estimated Premium Volume Premium in $ Millions as of 12/31/2016 $30M $25M $23M $24M $24M $22M $20M $15M $10M $17M $13M $10M $10M $12M $18M $5M $0M Policy Year 74

75 Arkansas Residual Market Share Plan Premium as a Percentage of Direct Written Premium 12% 10% 10.1% 10.4% 10.1% 9.8% 8.5% 8% 6% 4% 2% 0% Calendar Year *Preliminary 75

76 Arkansas Total Residual Market Plan Policy Counts As of 12/31/2016 8,000 7,000 6,000 5,000 6,125 5,256 4,667 4,362 4,828 5,519 6,405 6,425 6,754 7,076 4,000 3,000 2,000 1, Policy Year 76

77 Arkansas Average Size Accounts for Residual Market Policies and Estimated Premium As of 12/31/2016 Premium Range Policy Count % of Policies Total Premium % of Premium Average Policy Size $0 $2,499 5, % $5,328, % $1,019 $2,500 $4, % $3,384, % $3,540 $5,000 $9, % $3,530, % $6,949 $10,000 $19, % $3,421, % $13,471 $20,000 $49, % $2,789, % $29,056 $50,000 $99, % $1,765, % $70,609 $100,000 $199, % $1,065, % $118,419 $200, % $285, % $285,792 Total 7, % $21,571, % $3,049 77

78 Policy Year Arkansas Residual Market Reinsurance Pool Net Operating Results Estimated Net Operating Gain/(Loss) Projected to Ultimate as of 12/31/ $1, $3, $7, ($613) -$2,000 $0 $2,000 $4,000 $6,000 $8,000 $10,000 Operating Gain/(Loss) (000's) 78

79 Residual Market Summary National Stable residual market share Manageable operating results Residual market premium declined slightly in 2016 High levels of customer service satisfaction State Decline in premium volume Relatively stable residual market share Self-funded operating results Please visit ncci.com for additional state and countrywide information. 79

80 Q & A

81 Supplemental Information: Loss Cost Filing Support

82 Loss Ratio Arkansas Indemnity and Medical Loss Ratios Indemnity Policy Year Medical Based on NCCI s financial data at current benefit level and developed to ultimate 82

83 What Drives Indemnity and Medical Loss Ratios? Frequency (Claims/ Premium) Indemnity Severity (Loss/Claim) Indemnity Loss Ratio (Loss/Premium) Frequency (Claims/ Premium) Medical Severity (Loss/Claim) Medical Loss Ratio (Loss/Premium) 83

84 Frequency per Million of On-Leveled Premium Arkansas Claim Frequency Policy Year Based on NCCI s financial data Frequency of lost-time claims adjusted to a common wage level 84

85 Indemnity Average Claim Severity ($ '000s) Arkansas Average Indemnity Claim Severity Policy Year Adjusted to Common Wage Level Actual Based on NCCI s financial data for lost-time claims at current benefit level and developed to ultimate 85

86 Medical Average Claim Severity ($ '000s) Arkansas Average Medical Claim Severity Policy Year Adjusted to Common Wage Level Actual Based on NCCI s financial data for lost-time claims at current benefit level and developed to ultimate 86

87 Supplemental National/Regional/State Information

88 Pure Loss Costs All Classes Current Average Voluntary Pure Loss Costs Using Arkansas Payroll Distribution TX AR WV IN UT NV KS DC TN AZ OR MS VA SD KY NC AL HI NE CO LA NM MO OK ID MD NH FL SC IA GA ME RI AK MT VT IL CT CW State Based on the latest NCCI approved rates and loss costs in the various states 88

89 Medical Benefits Constitute the Majority of Total Benefit Costs in Arkansas Arkansas Indemnity 35% Medical 65% Region Indemnity 42% Medical 58% Countrywide Indemnity 41% Medical 59% 0% 20% 40% 60% 80% 100% Regional states are LA, MO, MS, OK, TN, and TX Based on NCCI s financial data 89

90 Arkansas Average Claim Frequency Frequency per 100,000 Workers All Claims TX 624 1,817 Total 2,441 TN 830 2,851 Total 3,681 OK 1,120 2,483 Total 3,603 MS 820 2,163 Total 2,983 MO 992 2,122 Total 3,114 LA 644 1,675 Total 2,319 AR 574 2,315 Total 2, Lost Time Medical Only Based on NCCI s Statistical Plan data 90

91 Average Indemnity Claim Severity in the Region Lost-Time Claim Severity in $ Thousands AR LA MO MS OK TN TX Based on NCCI s financial data for lost-time claims 91

92 Average Medical Claim Severity in the Region Lost-Time Claim Severity in $ Thousands AR LA MO MS OK TN TX Based on NCCI s financial data for lost-time claims 92

93 Arkansas Arkansas Distribution of Claims by Injury Type 80% 12% 8% 0.1% Region 73% 16% 11% 0.2% Countrywide 76% 15% 9% 0.2% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Medical Only Temporary Total Permanent Partial Fatal & Permanent Total Regional states are LA, MO, MS, OK, TN, and TX Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist 93

94 Arkansas Indemnity Loss Distribution by Injury Type Arkansas 30% 61% 0% 9% Region 31% 55% 3% 11% Countrywide 31% 60% 4% 5% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Temporary Total Permanent Partial Permanent Total Fatal Regional states are LA, MO, MS, OK, TN, and TX Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist 94

95 Arkansas Medical Loss Distribution by Injury Type Arkansas 30% 54% 0% 15% 1% Region 28% 53% 7% 11% 1% Countrywide 29% 48% 9% 13% 1% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Temporary Total Permanent Partial Permanent Total Medical Only Fatal Regional states are LA, MO, MS, OK, TN, and TX Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist 95

96 Q & A

97 Glossary

98 Glossary Assigned Risk Adjustment Program (ARAP) An assigned risk market program that surcharges residual market risks based on the magnitude of their experience rating modification. Calendar Year (CY) Experience of earned premium and loss transactions occurring within the calendar year beginning January 1, irrespective of the contractual dates of the policies to which the transactions relate and the dates of the accidents. Calendar-Accident Year (AY) The accumulation of loss data on all accidents with the date of occurrence falling within a given calendar year. The premium figure is the same as that used in calendar year experience. Claim Frequency The number of claims per unit of exposure; for example, the number of claims per million dollars of premium or per 100 workers. 98

99 Glossary Claim Severity The average cost of a claim. Severity is calculated by dividing total losses by the total number of claims. Combined Ratio The sum of the (1) loss ratio, (2) expense ratio, and (3) dividend ratio for a given time period. Detailed Claim Information (DCI) An NCCI Call that collects detailed information on an individual workers compensation lost-time claim basis, such as type of injury, whether or not an attorney was involved, timing of the claim s report to the carrier, etc. Direct Written Premium (DWP) The gross premium income adjusted for additional or return premiums, but excluding any reinsurance premiums. 99

100 Glossary Indemnity Benefits Payments by an insurance company to cover an injured worker s time lost from work. These benefits are also referred to as wage replacement benefits. Loss Ratio The ratio of losses to premium for a given time period. Lost-Time (LT) Claims Claims resulting in indemnity benefits (and usually medical benefits) being paid to or on behalf of the injured worker for time lost from work. Medical-Only Claims Claims resulting in only medical benefits being paid on behalf of an injured worker. Net Written Premium (NWP) The gross premium income adjusted for additional or return premiums and including any additions for reinsurance assumed and any deductions for reinsurance ceded. 100

101 Glossary Permanent Partial (PP) A disability that is permanent but does not involve a total inability to work. The specific definition and associated workers compensation benefits are defined by statute and vary by jurisdiction. Policy Year (PY) The year of the effective date of the policy. Policy year financial results summarize experience for all policies with effective dates in a given calendar year period. Schedule Rating A debit and credit plan that recognizes variations in the hazard-causing features of an individual risk. Take-Out Credit Program An assigned risk program that encourages carriers to write current residual market risks in the competitive voluntary marketplace. Temporary Total (TT) A disability that totally disables a worker for a temporary period of time. 101

102 Appendix

103 NCCI s Workers Compensation Resources Financial Aggregate Calls Used for aggregate ratemaking Statistical Plan for Workers Compensation and Employers Liability Insurance (Statistical Plan) Used for class ratemaking Detailed Claim Information In-depth sample of lost-time claims Policy Data Policy declaration page information 103

104 Financial Aggregate Calls Collected Annually Policy and calendar-accident year basis Statewide and assigned risk data Premiums, Losses, and Claim Counts Evaluated as of December 31 Purpose Basis for overall aggregate rate indication Research 104

105 Policy Year Financial Aggregate Data Policy Expiration Date Policy Year 2012 Policy Year 2013 Policy Year /1/2012 1/1/ /31/2013 1/1/ /31/2016 Policy Effective Date 105

106 Calendar-Accident Year Financial Aggregate Data Policy Expiration Date Calendar- Accident Year 2013 Calendar- Accident Year 2014 Calendar- Accident Year /1/2013 1/1/ /31/2014 1/1/ /31/2017 Policy Effective Date 106

107 Statistical Plan for Workers Compensation and Employers Liability Insurance (Statistical Plan) Data Experience by Policy Detail Exposure, premium, and experience rating modifications Individual claims by injury type Purposes Classification relativities Experience Rating Plan Research 107

108 Valuation of Statistical Plan Data 1st Report Valuation 2nd Report Valuation 3rd Report Valuation 4th Report Valuation 5th Report Valuation Policy Effective 18 Months 30 Months 42 Months 54 Months 66 Months 108