To Members of the Governing Committee, WCIRB Members and All Interested Parties: This meeting is Open to the Public.

Transcription

1 Governing Committee Meeting Agenda Date Time Location Staff Contact December 13, :30 AM WCIRB California Eric S. Riley 1221 Broadway, Suite 900 Oakland, CA 1221 Broadway, Suite 900 Oakland, CA Fax Released: December 6, 2017 To Members of the Governing Committee, WCIRB Members and All Interested Parties: This meeting is Open to the Public. I. Approval of Minutes Meeting held September 6, 2017 II. Additions to the Agenda III. Ratification of Actions of WCIRB Committees A. Actuarial Committee Meetings Held August 2, 2017 and September 5, 2017 (without attachments) B. Classification and Rating Committee Meeting Held June 14, 2017 (without attachments) IV. Unfinished Business A. January 1, 2018 Pure Premium Rate Filing B. January 1, 2018 Regulatory Filing (oral report) V. New Business A. Study of Workers Compensation Earthquake Exposure B. Potential 2018 Actuarial Research and Study Projects C. WCIRB Data Quality Programs D. Schedule of 2018 Meetings VI. Next Meeting Date: April 4, 2018 (tentative) VII. Adjournment Antitrust Notice As members of the Workers Compensation Insurance Rating Bureau of California (WCIRB), you are bound, when involved in meetings or other activities of the WCIRB, to limit your actions (and discussions other than social ones) to matters relating to the business of the WCIRB California. Matters that do not relate directly to WCIRB California business should be avoided. Members should particularly avoid discussions or conduct that could be construed as intended to affect competition (or access to markets). Thus, as members, you should not discuss or pursue the business interests of individual insurers or others, including, in particular, the plans of individual members involving, or the possibility or desirability of (a) raising, lowering, or stabilizing prices (premiums or commissions); (b) doing business or refusing to do business with particular, or classes of, insurers, reinsurers, agents, brokers, or insureds, or in particular locales; or (c) potential actions that would affect the availability of products or service either generally or in specific markets or locales. 1

2 Governing Committee Meeting Agenda for December 13, 2017 Released: December 6, 2017 Notice The information in this Agenda was developed by the Workers Compensation Insurance Rating Bureau of California (WCIRB) for the purpose of assisting the WCIRB Governing Committee. The WCIRB cannot make any guarantees if this information is used for any other purpose and the WCIRB shall not be liable for any damages, of any kind, whether direct, indirect, incidental, punitive or consequential, arising from the use of or reliance upon this information for any other purpose Workers Compensation Insurance Rating Bureau of California. All rights reserved. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including, without limitation, photocopying and recording, or by any information storage or retrieval system without the prior written permission of the Workers Compensation Insurance Rating Bureau of California (WCIRB), unless such copying is expressly permitted in this copyright notice or by federal copyright law. No copyright is claimed in the text of statutes and regulations quoted within this work. Each WCIRB member company, including any registered third party entities, (Company) is authorized to reproduce any part of this work solely for the following purposes in connection with the transaction of workers compensation insurance: (1) as necessary in connection with Company s required filings with the California Department of Insurance; (2) to incorporate portions of this work, as necessary, into Company manuals distributed at no charge only to Company employees; and (3) to the extent reasonably necessary for the training of Company personnel. Each Company and all agents and brokers licensed to transact workers compensation insurance in the state of California are authorized to physically reproduce any part of this work for issuance to a prospective or current policyholder upon request at no charge solely for the purpose of transacting workers compensation insurance and for no other purpose. This reproduction right does not include the right to make any part of this work available on any website or any form of social media. Workers Compensation Insurance Rating Bureau of California, WCIRB, WCIRB California, WCIRB Connect, WCIRB Inquiry, WCIRB CompEssentials, X-Mod Direct, escad and the WCIRB California logo (WCIRB Marks) are registered trademarks or service marks of the WCIRB. WCIRB Marks may not be displayed or used in any manner without the WCIRB s prior written permission. Any permitted copying of this work must maintain any and all trademarks and/or service marks on all copies. To seek permission to use any of the WCIRB Marks or any copyrighted material, please contact the WCIRB at customerservice@wcirb.com. 2

3 Actuarial Committee Meeting Minutes Date Time Location Staff Contact August 2, :30 AM WCIRB California David M. Bellusci 1221 Broadway, Suite 900 Oakland, CA 1221 Broadway, Suite 900 Oakland, CA Fax Released: August 11, 2017 Revised: September 15, 2017 Members Carolyn Bergh* Laura Carstensen Jim Gebhard Joanne Ottone Jill Petker Mark Priven Kate Smith Chris Westermeyer Doug Zearfoss Representing Hartford Insurance Company Zurich North America Farmers Insurance Group of Companies Berkshire Hathaway Homestate Companies Liberty Mutual Group Public Members of Governing Committee State Compensation Insurance Fund Travelers Employers Insurance Group California Department of Insurance Ron Dahlquist Giovanni Muzzarelli WCIRB Bill Mudge David Bellusci Ward Brooks Tony Milano Linda Radler Chris Wong * Participated via teleconference The meeting of the Actuarial Committee was called to order at 9:30 AM, with Mr. David Bellusci, Executive Vice President and Chief Actuary, presiding. * * * * * Approval of Minutes The Minutes of the meeting held on June 16, 2017, were distributed to the Committee members in advance of the meeting for review. As there were no corrections to the Minutes, a motion was made, seconded and unanimously approved to adopt the Minutes as written. 1

4 Actuarial Committee Meeting Minutes for August 2, 2017 Released: August 11, 2017 Notice The information in these Minutes was developed by the Workers Compensation Insurance Rating Bureau of California (WCIRB) for the purpose of assisting the WCIRB Actuarial Committee. The WCIRB cannot make any guarantees if this information is used for any other purpose and the WCIRB shall not be liable for any damages, of any kind, whether direct, indirect, incidental, punitive or consequential, arising from the use of or reliance upon this information for any other purpose Workers Compensation Insurance Rating Bureau of California. All rights reserved. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including, without limitation, photocopying and recording, or by any information storage or retrieval system without the prior written permission of the Workers Compensation Insurance Rating Bureau of California (WCIRB), unless such copying is expressly permitted in this copyright notice or by federal copyright law. No copyright is claimed in the text of statutes and regulations quoted within this work. Each WCIRB member company, including any registered third party entities, (Company) is authorized to reproduce any part of this work solely for the following purposes in connection with the transaction of workers compensation insurance: (1) as necessary in connection with Company s required filings with the California Department of Insurance; (2) to incorporate portions of this work, as necessary, into Company manuals distributed at no charge only to Company employees; and (3) to the extent reasonably necessary for the training of Company personnel. Each Company and all agents and brokers licensed to transact workers compensation insurance in the state of California are authorized to physically reproduce any part of this work for issuance to a prospective or current policyholder upon request at no charge solely for the purpose of transacting workers compensation insurance and for no other purpose. This reproduction right does not include the right to make any part of this work available on any website or any form of social media. Workers Compensation Insurance Rating Bureau of California, WCIRB, WCIRB California, WCIRB Connect, WCIRB Inquiry, X-Mod Direct, escad and the WCIRB California logo (WCIRB Marks) are registered trademarks or service marks of the WCIRB. WCIRB Marks may not be displayed or used in any manner without the WCIRB s prior written permission. Any permitted copying of this work must maintain any and all trademarks and/or service marks on all copies. To seek permission to use any of the WCIRB Marks or any copyrighted material, please contact the WCIRB at customerservice@wcirb.com. 2

5 Actuarial Committee Meeting Minutes for August 2, 2017 Item AC Review of WCIRB Trending Methodology The Agenda materials included an updated retrospective analysis of trending methodologies, which was last reviewed in detail by the Committee in Staff summarized the overall approach and results. Staff noted that, unlike the prior post-reform period, the trending methods based on the on-level loss ratios generally did not perform as well as the separate frequency and severity methods in the post-senate Bill No. 863 period (accident years 2015 and 2016). A Committee member noted that some of the higher error terms for older years that were based on the prior (2012) study for the frequency and severity method may be partially a result of using the full frequency model constant in that study rather than the tempered constant currently used. Staff has subsequently confirmed that the full frequency model constant was used as the basis for the frequency and severity method in that study. A Committee member noted that methods based on trending from the latest year generally outperformed the comparable methods based on trending from the latest two years in the most recent periods. Staff noted that, generally, trending from the latest two years has recently been recommended due to the immaturity of the most recent accident year, which is typically valued as of 12 months or 15 months in pure premium rate filings and the potential to be overly responsive to the latest year when there is a potential turning point in the trend. As a result, staff suggested this approach be further studied before it is recommended. After discussion, the Committee accepted staff s analysis. 3

6 Actuarial Committee Meeting Minutes for August 2, 2017 Item AC Update on New Drug Formulary At the meeting of April 3, 2017, staff provided the Committee with an overview of the status and timeline for the drug formulary being developed pursuant to Assembly Bill No.1124 (AB 1124). This included a discussion of the structure of the draft formulary that was proposed by the Department of Industrial Relations (DIR) as well as its ancillary rules. Staff updated the Committee as to the current status of DIR regulations related to the formulary. The Committee was advised that the most recent comment period ended August 2, 2017 and it is now expected that the formulary will most likely apply to drugs dispensed for outpatient use on or after January 1, 2018 regardless of the date of injury. The Committee discussed the economic impact figures released by the DIR including some of the assumptions used to calculate the DIR s expected decrease in California workers compensation prescription drug spending that was published earlier this year. The Committee noted that from an overall system cost impact, the DIR estimated savings were modest but that, with the lack of price controls, the ultimate cost impact would depend on how the presence of the formulary will impact how drugs are being prescribed in the California system. Staff also summarized the process envisioned to evaluate the cost impact of the new formulary once the final regulations are adopted. 4

7 Actuarial Committee Meeting Minutes for August 2, 2017 Item AC /31/2017 Experience Review of Methodologies The Agenda materials contained an updated analysis of March 31, 2017 experience, which was first reviewed by the Committee at the June 16, 2017 meeting. The Committee was advised that the principal changes in the analysis included in the Agenda materials from that reviewed at the June 16, 2017 meeting included (a) updated wage projections based on UCLA s June 2017 forecasts, (b) updated claim frequency projections, and (c) an annual medical severity trend of 3% preliminarily recommended by the Committee at the June 16, 2017 meeting compared to the 2.5% reflected in the June 16, 2017 Agenda materials. The Committee reviewed loss development and noted that the paid and incurred loss development patterns reflected in the Agenda materials were consistent with those reviewed at the June 16, 2017 meeting. The Committee also noted that indemnity claim settlement rates continue to increase in the most recent quarters. The Committee reviewed the loss development projections, including the alternative loss development projections included in the August 2, 2017 Agenda materials (Item AC ). It was noted that the projections based on unadjusted incurred development continue to be significantly lower than the corresponding projections based on paid development. It was noted that average case reserve levels shifted significantly over the last year and that the incurred loss development projection that adjusts for changes in average case reserve levels was closer to the paid loss development projections. However, it was noted that this methodology is very sensitive to the factors and assumptions applied in the computation and only applies the adjustment for early evaluations while there is evidence of case reserve level shifts in both earlier and more mature evaluations. With regards to paid loss development, the Committee was reminded that the study of the claim settlement rate adjustment to paid loss development reviewed by the Committee earlier this year indicated that the adjustment has improved the accuracy of the projection during periods of significant claim settlement rate changes and claim settlement rates continue to increase. After discussion, a motion was made and seconded to recommend basing the projected policy year 2018 indemnity loss ratio on the loss development methodology reflected in the Agenda materials (latest year paid adjusted for reforms and changes in claim settlement rates), but with the refinements to incurred loss development recommended based on staff s most recent study of longer-term loss development (see the August 2, 2017 Actuarial Minutes for Item AC ). The motion passed unanimously. A second motion was made and seconded to also recommend basing the projected policy year 2018 medical loss ratio on the loss development methodology reflected in the Agenda materials, but with the same refinements to incurred loss development as for indemnity. The motion passed with eight in favor and one opposed. The Actuary representing the Public Members of the Governing Committee who opposed this motion indicated that he believed giving some weight to the latest-year incurred medical projection adjusted for changes in case reserve levels was appropriate and recommended averaging this method with the method recommended by the other Committee members. The Committee noted that the average annual rate of growth forecast by the UCLA Anderson School of Business for 2016 through 2019 is on average modestly lower than the growth projected in the July 1, 2017 Pure Premium Rate Filing. Staff informed the Committee that a review of the wage level trends used for aggregate ratemaking is scheduled for later this year. The Committee discussed the frequency and severity projections reflected in the Agenda materials. Several Committee members noted that the longer-term average rate of growth in on-level indemnity severities of 0% includes the recession period of flat to declining trends as well as modest increases over 5

8 Actuarial Committee Meeting Minutes for August 2, 2017 the last two years subsequent to the implementation of Senate Bill No. 863 permanent disability increases. A meeting participant observed that the 1.6% on-level indemnity severity growth indicated for accident year 2016 is the fourth consecutive year of increasing severity growth. The Committee discussed the most appropriate indemnity severity trend to project into the future given the historical and recent emerging rates of growth. After discussion, the consensus of the Committee was that a 1% onlevel indemnity severity trend was responsive to the most recent two years of increases while still giving some consideration to the flat trends in the prior period. The Committee next discussed the medical severity trend projection. It was noted that the 2016 on-level medical severity change of approximately 6% is much higher than the modest trends experienced in the last several prior years. However, a Committee member suggested caution against giving too much weight to a single year given the recent declines in medical cost levels. After discussion, the consensus of the Committee was that the on-level medical severity trend of 3% reflected in the August 2, 2017 Agenda materials based on the longer-term average rate of growth was appropriate. The Committee did express concern that a significantly higher medical severity trend assumption may be appropriate if accident year 2017 medical severity emerges at a significantly higher level than accident year The Committee reviewed the alternative trend projections included in the August 2, 2017 Agenda materials (Item AC ) as well as the findings of staff s recent update to the retrospective evaluation of the performance of a number of alternative trending methodologies (Item AC ) included in the August 2, 2017 Agenda materials. It was noted that the projections based on combined loss ratio trends for recent years were generally consistent with those based on separate frequency and severity projections. After discussion, the consensus of the Committee was that the trending methodology based on the separate frequency and severity projections continues to be appropriate. A motion was made and seconded to recommend basing the projected policy year 2018 loss ratio on the trending methodology reflected in the Agenda materials, but with a 1% indemnity severity projection. The motion passed with eight in favor and one opposed. The Actuary representing the Public Members of the Governing Committee who opposed this motion indicated that he believed a combined loss ratio trend applied to the latest year was more appropriate in that a combined loss ratio approach is not affected by the interrelationships of frequency and severity and projections based on the latest year have recently outperformed those based on the average of the latest two years. 6

9 Actuarial Committee Meeting Minutes for August 2, 2017 Item AC Third Quarter Review of Diagnostics The Agenda materials included the WCIRB s standard set of diagnostics that are reviewed by the Actuarial Committee and the Claims Working Group (CWG) on a semi-annual basis. Among the diagnostics discussed by the Committee were the following: 1. Permanent disability claims continue to close at a faster rate, while the rate at which temporary disability claims close has remained relatively steady. The Committee was advised that the CWG suggested that the factors driving the acceleration in the settlement rates of permanent disability claims included the independent medical review (IMR) provisions of Senate Bill No. 863 (SB 863) expediting medical treatment dispute resolution, reduced post-sb 863 lien activity, reduced rates of spinal surgeries and decreased uses of opioids. It was noted that recent WCIRB research had indicated that the adjustment to loss development to reflect changing claim settlement improves loss development projections as long as there are continued indications of changing claim settlement rates. 2. The number of expedited hearings remained stable in the first quarter of 2017, continuing the trend from the previous three quarters, after a large increase in the second quarter of The distribution of expedited hearings by type of hearing have also remained relatively stable. The Committee was advised that with recent WCAB decisions, the CWG advised that there will likely be a drop in expedited hearings on medical treatment issues and suggested that staff review the underlying data provided by the Division of Workers Compensation (DWC) with the DWC. 3. Lien filings decreased significantly in the first two quarters of 2017 after rising sharply in the fourth quarter of These changes are likely due to Senate Bill No (SB 1160), which places additional restrictions on lien filings and became effective on January 1, The Committee was advised that the CWG suggested there remained significant uncertainties as to the impact of SB 1160 and the lien filing volume in subsequent quarters should be monitored closely. 4. The number of quarterly incremental indemnity and medical-only claims both increased significantly in the first quarter of A Committee member suggested that this increase in medical-only claim filings may be in part attributable to recent changes to Uniform Statistical Reporting Plan requirements that were intended to clarify the reporting requirements related to first aid claims. 5. The proportion of indemnity claims involving cumulative trauma in the Los Angeles Basin and San Diego areas continue to increase sharply. The percent of first unit statistical report claims for accident year 2015 that were reported as involving cumulative injury was 14% for the Los Angeles Basin area, almost 11% for the San Diego area and only 6% for the remainder of the state. 6. Medical severity showed signs of continuing increase in the first quarter of Accident year 2016 paid medical per indemnity claim severity as of the first quarter of 2017 increased 6.6% over that for accident year 2015 as of the first quarter of Incremental paid medical severity growth for recent accident years in the first quarter of 2017 was also up significantly. It was noted that very recent indicators of medical severity growth are above the level projected in recent pure premium rate filings. 7

10 Actuarial Committee Meeting Minutes for August 2, 2017 Item AC /1/2018 Filing Loss Adjustment Expense Experience Review The Agenda materials included an analysis of the projected policy year 2018 ratio of loss adjustment expense (LAE) to loss based on calendar year unallocated loss adjustment expense (ULAE) experience through calendar year 2016 and accident year allocated loss adjustment expense (ALAE) and medical cost containment program (MCCP) experience as of March 31, The Committee was reminded of the changes to the WCIRB s 2015 Expense Call related to ULAE on large deductible policies and claims handled by third party administrators. It was noted that the calendar year 2016 ULAE amounts reflected in the Agenda materials were adjusted based on the same process as reflected in the January 1, 2017 Pure Premium Rate Filing. Staff noted that the methodology used to apportion countrywide ULAE amounts to California (based on paid losses in the Agenda materials) will be reviewed later this year. The Committee was reminded that the ULAE projection included in the Agenda materials was based on the average of (a) a projection based on the relationship of paid ULAE to open indemnity claims and (b) a projection based on the relationship of paid ULAE to paid losses. Staff noted that, as in the January 1, 2017 Pure Premium Rate Filing, average ULAE amounts were based on private insurers while all other information was on a statewide basis. Staff noted that inasmuch as adjusted ULAE data based on the WCIRB s 2015 Expense Call changes are now available for two calendar years (2015 and 2016), the ULAE projections included in the Agenda materials were based on the average of the latest two calendar years rather than the latest calendar year only (which was reflected in the January 1, 2017 and July 1, 2017 Pure Premium Rate Filings when only one year of ULAE information reported in accordance with the expanded call was available). After discussion, a motion was made and seconded to base the policy year 2018 ULAE projection on the methodologies reflected in the Agenda materials. The motion passed unanimously. The Committee next discussed the projections of ALAE (excluding MCCP). The Committee was reminded that, beginning with independent medical review (IMR) and independent bill review (IBR) fees paid in 2016, the cost of IMR and IBR is no longer reported in MCCP though it continues to be reported in ALAE. Staff noted that the change in IMR and IBR reporting results in a distortion in ALAE and MCCP payment patterns when reviewing the components separately. Staff presented a recommended adjustment to correct for this distortion, which was based on compiling a triangle of IMR and IBR payments by accident year and transaction quarter based on information provided by the Division of Workers Compensation, adjusted to reflect current insurer market shares. Staff recommended that all pre-2016 ALAE (excluding MCCP) payments be adjusted to include IMR and IBR fees paid prior to January 1, 2016 to be consistent with post-2016 paid ALAE which includes these costs. The consensus of the Committee was that this adjustment was appropriate. It was noted that ALAE cost trends, after adjusting for IMR and IBR costs, continue to moderate through the first quarter of 2017 after several years of sharp growth following Senate Bill No The Committee was reminded that the ALAE projection included in the Agenda materials was based on the relationship between projected ultimate ALAE for private insurers and statewide ultimate indemnity claim counts. The Committee was reminded that the projected ALAE severity trend reflected in the Agenda materials (4%) was based on the average of the longer-term and shorter-term average rates of growth in calendar year ALAE per open indemnity claim and accident year ultimate ALAE per indemnity claim for private insurers the methodology reflected in the last several pure premium rate filings. After discussion, a motion was made and seconded to base the policy year 2018 ALAE projection on the methodologies reflected in the Agenda materials with the adjustment for IMR and IBR costs recommended by staff. The motion passed unanimously. 8

11 Actuarial Committee Meeting Minutes for August 2, 2017 The Committee reviewed the projection of MCCP costs. Staff noted that the adjustment for IMR and IBR costs is also recommended for MCCP and thereby remove all IMR and IBR fees paid prior to January 1, 2016 from MCCP, since these costs are no longer included in MCCP costs. It was noted that after the adjustment for IMR and IBR costs, paid MCCP development continues to decrease, likely related to recent declines in paid medical loss development and the recent increases in indemnity claim settlement rates. The Committee was reminded that the MCCP projection included in the Agenda materials was based on a similar method to that used to project ALAE excluding MCCP costs and is based on statewide data. It was noted that the projected MCCP severity trend based on the average rates of growth in calendar year MCCP per open indemnity claim and accident year ultimate MCCP per indemnity claim after reflecting the adjustment for IMR and IBR costs was approximately 0%, consistent with the MCCP severity trend reflected in the July 1, 2017 Pure Premium Rate Filing. After discussion, a motion was made and seconded to base the policy year 2018 MCCP projection on the methodologies reflected in the Agenda materials with the adjustment for IMR and IBR costs recommended by staff. The motion passed unanimously. 9

12 Actuarial Committee Meeting Minutes for August 2, 2017 Item AC /1/2018 Filing Review of Alternative Loss Projection Methodologies The Agenda materials included a number of alternative loss development and trending methodologies that had been reflected in prior WCIRB pure premium rate filings or discussed at prior Actuarial Committee meetings. The Committee reviewed summaries of the alternative loss projection methodologies during the discussion of loss development and trending methodologies in the context of its review of March 31, 2017 experience. (Please refer to the August 2, 2017 Actuarial Minutes for Item AC ) 10

13 Actuarial Committee Meeting Minutes for August 2, 2017 Item AC Study of Longer-Term Loss Development The Committee was reminded that at recent Actuarial Committee meetings, the Committee noted the recent volatility in incurred loss development patterns and its impact on the loss development projected for the very mature periods for which the WCIRB projection is based on incurred development. Staff summarized the analysis of loss development at these longer-term periods that was included in the Agenda materials. Staff noted that incurred age-to-age development has been significantly more volatile than paid development, particularly at later maturities. It was also noted that the WCIRB s current approach to utilize a three-year average of age-to-age development for these more mature periods (after approximately 108 months) still produces significant variance in projected incurred medical development over time. Staff recommended using a six-year average of incurred age-to-age factors for this period, which decreases the variance significantly but is still responsive to long-term trends in incurred development patterns. The consensus of the Committee was that this approach was appropriate for incurred indemnity and incurred medical development. Staff noted that a six-year average did not produce significant reductions in the volatility of paid development after 108 months and continued to recommend using a three-year average for these periods. Staff summarized the approach for selecting the loss development tail factor based on fitting an inverse power curve to six-year average of incurred development at later maturities. Staff noted that the six-year average of factors used in the fit continues to minimize the variance in the tail factor and did not recommend any change to that approach. Staff noted that although longer-term incurred indemnity development has been stable over time, longer-term incurred medical development has significantly decreased recently. It was noted that the period used to fit the inverse power curve (development years 10 through 29) for the December 31, 2016 evaluation shows flat medical development with factors often below 1.0 rather than the asymptotically declining shape assumed by the inverse power curve. The Committee discussed the factors driving this recent anomalous incurred medical development and whether it is appropriate to include it in the fitting of the tail development factor. After discussion, the consensus of the Committee was that staff s recommendation to exclude the most recent evaluation of incurred development from the fitting of the inverse power curve tail factor was appropriate. During the discussion of tail development, a Committee member noted that paid development should also fit well to the inverse power curve. Staff noted that preliminary fits of the inverse power curve to paid development were promising, but did not recommend utilizing a paid development tail at this time until the factors driving later-term deviations of paid and incurred development patterns (last reviewed in 2014) could be further studied. 11

14 Actuarial Committee Meeting Minutes for August 2, 2017 The meeting was adjourned at 1:25 PM. Note to Committee Members: These Minutes, as written, have not been approved. Please refer to the meeting scheduled for September 5, 2017 for approval and/or modification. 12

15 Actuarial Committee Meeting Minutes Date Time Location Staff Contact September 5, :30 AM WCIRB California David M. Bellusci 1221 Broadway, Suite 900 Oakland, CA 1221 Broadway, Suite 900 Oakland, CA Fax Released: September 15, 2017 Members Carolyn Bergh* Laura Carstensen Jim Gebhard* Joanne Ottone* Jill Petker* Mark Priven Kate Smith* Chris Westermeyer* Doug Zearfoss Representing Hartford Insurance Company Zurich North America Farmers Insurance Group of Companies Berkshire Hathaway Homestate Companies Liberty Mutual Group Public Members of Governing Committee State Compensation Insurance Fund Travelers Employers Insurance Group California Department of Insurance Giovanni Muzzarelli WCIRB Bill Mudge David Bellusci Ward Brooks Tony Milano * Participated via teleconference The meeting of the Actuarial Committee was called to order at 9:30 AM, with Mr. David Bellusci, Executive Vice President and Chief Actuary, presiding. * * * * * Correction to Minutes The Minutes of the Actuarial meeting held on August 2, 2017 were distributed to the Committee members in advance of the meeting for review. A correction was noted with respect to Item AC , where the last paragraph on page 7 of the Minutes should read Accident year 2016 paid medical per indemnity claim severity as of the first quarter of 2017 increased 6.6% over that for accident year 2015 as of the first quarter of As there were no other corrections, the minutes were unanimously approved. 1

16 Actuarial Committee Meeting Minutes for September 5, 2017 Released: September 15, 2017 Notice The information in these Minutes was developed by the Workers Compensation Insurance Rating Bureau of California (WCIRB) for the purpose of assisting the WCIRB Actuarial Committee. The WCIRB cannot make any guarantees if this information is used for any other purpose and the WCIRB shall not be liable for any damages, of any kind, whether direct, indirect, incidental, punitive or consequential, arising from the use of or reliance upon this information for any other purpose Workers Compensation Insurance Rating Bureau of California. All rights reserved. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including, without limitation, photocopying and recording, or by any information storage or retrieval system without the prior written permission of the Workers Compensation Insurance Rating Bureau of California (WCIRB), unless such copying is expressly permitted in this copyright notice or by federal copyright law. No copyright is claimed in the text of statutes and regulations quoted within this work. Each WCIRB member company, including any registered third party entities, (Company) is authorized to reproduce any part of this work solely for the following purposes in connection with the transaction of workers compensation insurance: (1) as necessary in connection with Company s required filings with the California Department of Insurance; (2) to incorporate portions of this work, as necessary, into Company manuals distributed at no charge only to Company employees; and (3) to the extent reasonably necessary for the training of Company personnel. Each Company and all agents and brokers licensed to transact workers compensation insurance in the state of California are authorized to physically reproduce any part of this work for issuance to a prospective or current policyholder upon request at no charge solely for the purpose of transacting workers compensation insurance and for no other purpose. This reproduction right does not include the right to make any part of this work available on any website or any form of social media. Workers Compensation Insurance Rating Bureau of California, WCIRB, WCIRB California, WCIRB Connect, WCIRB Inquiry, X-Mod Direct, WCIRB CompEssentials, escad and the WCIRB California logo (WCIRB Marks) are registered trademarks or service marks of the WCIRB. WCIRB Marks may not be displayed or used in any manner without the WCIRB s prior written permission. Any permitted copying of this work must maintain any and all trademarks and/or service marks on all copies. To seek permission to use any of the WCIRB Marks or any copyrighted material, please contact the WCIRB at customerservice@wcirb.com. 2

17 Actuarial Committee Meeting Minutes for September 5, 2017 Item II Working Group Meeting Summaries The summary of the Claims Working Group meeting held on July 31, 2017 was included in the Agenda materials. Prior to the meeting, a Committee member noted a correction to Item 5, Legislative, Regulatory and Judicial Update, where the first paragraph should read providing that emergency medical treatment and treatment that is for an accepted body part and that is covered by (emphasis added). Noting that correction, the meeting summary was accepted by the Committee. 3

18 Actuarial Committee Meeting Minutes for September 5, 2017 Item AC /30/2017 Experience Review of Methodologies The Agenda materials included a summary of accident year experience through June 30, 2017 that included almost 100% of the market and the methodologies reflected in the January 1, 2018 Pure Premium Rate Filing. The Committee was advised that the approximate two percentage point decrease in the projected policy year 2018 loss ratio was due to lower than projected loss development in the second quarter, primarily for the 2015 and 2016 accident years. The Committee noted that both paid and incurred loss development decreased in the second quarter of 2017, after showing signs of potential moderation in the first quarter. Staff noted that the recent development patterns were experienced across a number of insurers. Staff also noted that information from the WCIRB s Medical Data Call suggested an increase in payments for services within the first quarter of 2017 that did not continue into the second quarter. The Committee discussed potential factors driving the change in development patterns, including the recent lien reforms and changes in claim settlement patterns. It was noted that indemnity claim settlement rates continued to increase at a steady rate in the second quarter and the loss development projection methodology reflected in the January 1, 2018 Pure Premium Rate Filing and Agenda materials included an adjustment for changes in claim settlement rates. The Committee next discussed the indemnity claim frequency and claim severity projections. It was noted that the estimated accident year 2016 indemnity claim frequency was unchanged from that reviewed at the August, 2, 2017 meeting, while the 2017 indemnity claim frequency based on six months experience was moderately higher than that for It was noted that the estimated on-level indemnity severity changes for accident years 2015 and 2016 based on June 30, 2017 experience had moderated from those reflected in the January 1, 2018 Pure Premium Rate Filing and were below the 1.0% annual on-level indemnity severity trend reflected in the Filing and Agenda materials. The Committee discussed the appropriate on-level indemnity severity trend projection in light of the June 30, 2017 experience. A Committee member suggested that an annual trend rate of 0.7%, which was the approximate average of the rates of growth for 2015 and 2016, was appropriate. The consensus of the Committee was that this trend rate was appropriate in that 2015 and 2016 reflect the first two years of experience following the full implementation of the indemnity benefit changes enacted in Senate Bill No The Committee next discussed the on-level medical severity trend and noted that the favorable medical loss development experienced for accident year 2016 in the second quarter of 2017 moderated the estimated medical severity for 2016, but the estimated increase for 2016 of 3.8% was still higher than the projected rate of 3.0% reflected in the January 1, 2018 Pure Premium Rate Filing and Agenda materials. The Committee also noted that reported medical claim severities for accident year 2017 through six months show increases generally consistent with those experienced for accident year As a result, the consensus of the Committee that the annual on-level medical severity trend of 3.0% continued to be appropriate. The Committee discussed the recommended methodologies to base any amendment to the projected policy year 2018 loss ratio based on June 30, 2017 experience. After discussion, a motion was made and seconded to recommend the methodologies reflected in the January 1, 2018 Pure Premium Rate Filing and Agenda materials but with a 0.7% indemnity severity trend. The motion passed with eight in favor and one opposed. The actuary representing the Public Members of the Governing Committee who opposed the motion indicated that the differences in his recommended methodology from that recommended by the majority of the Actuarial Committee were consistent with those discussed at the August 2, 2017 meeting. 4

19 Actuarial Committee Meeting Minutes for September 5, 2017 Item AC Basis of Apportioning Countrywide ULAE to California The Committee was reminded that, in 2015, the Committee adopted an approach to address the longstanding large differential between Unallocated Loss Adjustment Expense (ULAE) ratios reported by private insurers writing business primarily in California and those reported by insurers writing business in other states in addition to California. The adopted approach involved changes to the WCIRB s Expense Call to collect additional countrywide information in order derive a more appropriate California paid ULAE for ratemaking purposes. At that time, it was noted that the use of paid losses as the basis of apportioning countrywide ULAE to California may understate California ULAE since it is only partially reflective of the extended duration claims are open in California relative to other states and that this issue should be revisited in the future. Staff summarized its review of potential alternative bases to apportion countrywide ULAE to California based on a review of correlations between paid ULAE and the alternative bases by insurer in part using data from informal surveys of several large national insurers. Staff noted that the number of indemnity claims open at the beginning of the year were significantly more correlated with paid ULAE amounts than the current basis of paid losses as well as the alternative bases tested. In addition, staff noted that a basis of open indemnity claim counts is responsive to the longer duration of claims in California, which drives much of the differences between costs in California compared to those in other states. Staff also noted that based on its informal survey of insurers, open indemnity claim counts were generally readily available to provide on a countrywide basis if requested, while some alternative apportionment bases such as medical transaction counts could not be provided on a countrywide basis for many insurers. Staff also noted that, based on countrywide open indemnity claim count information provided by a few large insurers, apportioning countrywide ULAE on this basis potentially has a significant impact on the paid ULAE for national insurers. The Committee discussed the appropriate basis for apportioning countrywide ULAE to California. A Committee member suggested total case reserves as an alternative basis. Staff acknowledged that case reserves may account for differences in the complexity in handling different sizes of claims, but expressed concern with using case reserve estimates as the basis given the differences in case reserve practices among insurers. After a lengthy discussion, the consensus of the Committee was that using open indemnity claim counts as a basis for apportioning countrywide ULAE to California would improve the accuracy of the ULAE data used for projecting pure premium rates. The Committee reviewed a draft of the changes to the WCIRB s Expense Call to collect information on countrywide indemnity claim counts open at the beginning of the calendar year and provided some feedback. The consensus of the Committee was that these changes, after reflecting the Committee s feedback, should be implemented for the WCIRB s 2017 Expense Call to be issued early next year. 5

20 Actuarial Committee Meeting Minutes for September 5, 2017 The meeting was adjourned at 10:45 AM. Note to Committee Members: These Minutes, as written, have not been approved. Please refer to the meeting scheduled for December 6, 2017 for approval and/or modification. 6

21 Classification and Rating Committee Meeting Minutes Date Time Location Staff Contact June 14, :45 AM WCIRB California Brenda Keys 1221 Broadway, Suite 900 Oakland, CA 1221 Broadway, Suite 900 Oakland, CA Fax Released: June 20, 2017 Members Present National Union Fire Insurance Company of Pittsburgh PA Pacific Compensation Insurance Company Republic Indemnity Company of America Security National Insurance Company State Compensation Insurance Fund Travelers Indemnity Company Zenith Insurance Company Represented By Ellen Sonkin Christine Closser Reggie Fradkin Matt Zender Randy Hogan Steve Carmassi Sarah Elston California Department of Insurance Patricia Hein Brentley Yim WCIRB Brenda Keys, Chair Bill Mudge David Bellusci Ward Brooks Jordan Ge Brian Gray Eric Riley The meeting of the Classification and Rating Committee was called to order at 9:45 AM, with Ms. Brenda Keys, Senior Vice President and Chief Legal Officer, presiding. * * * * * Approval of Minutes The Minutes of the meeting held on June 1, 2017 were distributed to the Committee members in advance of the meeting for review. As there were no corrections to the Minutes, a motion was made, seconded and unanimously approved to adopt the Minutes as written. 1

22 Classification and Rating Committee Meeting Minutes for June 14, 2017 Released: June 20, 2017 Notice The information in these Minutes was developed by the Workers Compensation Insurance Rating Bureau of California (WCIRB) for the purpose of assisting the WCIRB Classification and Rating Committee. The WCIRB cannot make any guarantees if this information is used for any other purpose and the WCIRB shall not be liable for any damages, of any kind, whether direct, indirect, incidental, punitive or consequential, arising from the use of or reliance upon this information for any other purpose Workers Compensation Insurance Rating Bureau of California. All rights reserved. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including, without limitation, photocopying and recording, or by any information storage or retrieval system without the prior written permission of the Workers Compensation Insurance Rating Bureau of California (WCIRB), unless such copying is expressly permitted in this copyright notice or by federal copyright law. No copyright is claimed in the text of statutes and regulations quoted within this work. Each WCIRB member company, including any registered third party entities, (Company) is authorized to reproduce any part of this work solely for the following purposes in connection with the transaction of workers compensation insurance: (1) as necessary in connection with Company s required filings with the California Department of Insurance; (2) to incorporate portions of this work, as necessary, into Company manuals distributed at no charge only to Company employees; and (3) to the extent reasonably necessary for the training of Company personnel. Each Company and all agents and brokers licensed to transact workers compensation insurance in the state of California are authorized to physically reproduce any part of this work for issuance to a prospective or current policyholder upon request at no charge solely for the purpose of transacting workers compensation insurance and for no other purpose. This reproduction right does not include the right to make any part of this work available on any website or any form of social media. Workers Compensation Insurance Rating Bureau of California, WCIRB, WCIRB California, WCIRB Connect, WCIRB Inquiry, X-Mod Direct, escad and the WCIRB California logo (WCIRB Marks) are registered trademarks or service marks of the WCIRB. WCIRB Marks may not be displayed or used in any manner without the WCIRB s prior written permission. Any permitted copying of this work must maintain any and all trademarks and/or service marks on all copies. To seek permission to use any of the WCIRB Marks or any copyrighted material, please contact the WCIRB at customerservice@wcirb.com. 2

23 Classification and Rating Committee Meeting Minutes for June 14, 2017 Item III-C Potential 2017/2018 Classification Research Studies and Projects The Committee was provided a list of potential classification research studies. This list was compiled based on Committee suggestions, customer input and WCIRB staff analyses. Staff solicited the Committee s feedback regarding the completeness and relative priority of the studies and projects under consideration. Staff summarized the studies being proposed as classification research projects for The Committee was advised that the five-year project to review all of the standard classifications contained in the California Workers Compensation Uniform Statistical Reporting Plan 1995 (USRP) has been completed, but since a number of formatting and phraseology standards emerged during this project, staff intends to review all of the classifications for consistency to ensure that they reflect the current standards. In addition, staff will continue to propose enhancements for clarity and provide direction about how related operations should be classified. Staff also advised the Committee that some of the classifications reviewed as part of the enhancement project will require additional study and have been included on the list of potential future classification research studies. A Committee member suggested that some of the WCIRB s classification changes proposed for 2018 create a greater need to study classification processes related to the hospitality industry. After discussing the issue, the Committee agreed that, while such a study is appropriate given (1) its breadth and scope, which would also involve the restaurant industry, (2) the value in having a full year to gather data on the 2018 changes, and (3) the resources committed to the ongoing colleges and schools study, the study of the hospitality industry could be deferred for a year. Following staff s presentation and the Committee s discussion, the consensus of the Committee was that the following classification studies should be conducted in for inclusion in the January 1, 2019 Regulatory Filing: 1. Payroll/Remuneration Reporting Rules 2. Classifications 8868/9101, Colleges or Schools private (continued multi-year study) 3. Classifications 7600, Telecommunications Companies, and 7606, Cable Television Companies 4. Classification 8265(2), Junk Dealers and the Salvage Material Dealers Industry Group 5. Dual Wage Classifications 5467/5470, Glaziers 6. Classifications Combined for Ratemaking 7500, Gas Works / 7520, Water Companies 7. Tasting Rooms and Food Preparation at Wineries/Breweries 8. Expansion of Maximum Payroll Limitations 9. Aircraft Operations 10. Review of all classifications to ensure they reflect current standards and, as needed, propose enhancements for clarity and provide direction about how related operations should be classified. 3