WEST VIRGINIA. August 23,

Transcription

1 WEST VIRGINIA August 23,

2 West Virginia Workers Compensation State Advisory Forum Guest Speaker: Jane Cline West Virginia and Countrywide Outlook and Observations Filing Activities and Claim Frequency Economic Environment Nationwide and West Virginia Indemnity and Medical Severity Legislative Issues West Virginia and Nationwide West Virginia Residual Market The Affordable Care Act and Workers Compensation Q & A Closing Remarks 2

3 West Virginia Snapshot A Mixed Bag Loss Cost Decreases Continue Quiet Legislative Session 69% Total Decrease Since January 2006 Gubernatorial Election Frequency Continues to Decline Economic Recession 3

4 Jane Cline Director of Public Policy, Spilman Thomas & Battle

5 West Virginia and Countrywide Outlook and Observations

6 West Virginia Workers Compensation System An Overview Projected underwriting gains Lost-time claim frequency continues to decrease Average claim costs are significantly lower than countrywide Decline in size of residual market 6

7 West Virginia Workers Compensation Premium Volume Direct Written Premium in $ Millions $486 $406 $375 $394 $374 $337 $319 $ Calendar Year Source: NAIC s Annual Statement data 7

8 West Virginia Accident Year Combined Ratios p Accident Year p Preliminary Sources: NCCI s financial data and NAIC s Annual Statement data 8

9 Impact of Discounting on Workers Compensation Premium in West Virginia Percent Policy Year Rate/Loss Cost Departure Schedule Rating Dividends Based on data through 12/31/2015 Dividend ratios are based on calendar year statistics 9

10 State of the Countrywide Workers Compensation Market Combined ratios: Underwriting gains achieved on both calendar year and accident year bases Net written premium volume increased for the fifth consecutive year Lost-time claim frequency again decreased Lost-time claim severity changes were small increasing for indemnity and decreasing for medical Residual market premium remains manageable 10

11 $ Billions Countrywide Workers Compensation Net Written Premium Growth Continued State Funds ($B) Private Carriers ($B) Private Carriers and State Funds p Calendar Year p Preliminary Source: 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 11

12 United States Employment Levels Index: 2010 = 100 Index of Payroll Index of Construction Employment Index of Real GDP Index of Employment Index of Manufacturing Employment Sources: US Bureau of Labor Statistics and US Bureau of Economic Analysis 12

13 Percent Countrywide Workers Compensation Combined Ratio Components Private Carriers Dividends Underwriting Expense Ratio Loss Adjustment Expense (LAE) Ratio Loss Ratio p Calendar Year p Preliminary Source: Annual Statement data 13

14 Countrywide Workers Compensation Net Combined Ratios Calendar Year vs. Accident Year as Reported Private Carriers p Calendar Year Accident Year p Preliminary Source: NCCI analysis based on Annual Statement data Accident year information is reported as of 12/31/2015 Includes dividends to policyholders 14

15 Results Vary From State to State Accident Year 2014 Combined Ratios WV OK TX AR KS DC IL SD NH NV IN MT NM IA MS NE AZ FL NC VT CT TN ID UT LA MO VA AL SC GA HI CO RI AK KY MD ME OR Data is evaluated as of 12/31/

16 Percent Countrywide Workers Compensation Impact of Discounting on Premium NCCI States Private Carriers p Policy Year p Preliminary Sources: Annual Statement Statutory Page 14 and NCCI s Financial Call data NCCI benchmark level does not include a profit and contingency provision Based on data valued as of 12/31/2015 for all states where NCCI provides ratemaking services, excluding TX 16

17 Countrywide Workers Compensation Impact of Discounting on Premium NCCI States Private Carriers Dividends Schedule Rating Rate/Loss Cost Departure p Policy Year p Preliminary Sources: 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 Based on data valued as of 12/31/2015 for all states where NCCI provides ratemaking services, excluding TX 17

18 Filing Activities

19 Countrywide Workers Compensation Approved Changes in Bureau Premium Level By Effective Year for NCCI States Percent 5 Cumulative Change of 20.1% ( p) p Calendar Year p Preliminary Bureau premium level changes reflect approved changes in advisory rates, loss costs, assigned risk rates, and rating values, relative to those previously approved in NCCI states only IN and NC are filed in cooperation with state rating bureaus 19

20 NCCI Voluntary Market Filing Activity Number of State Loss Cost/Rate Filings by Filing Season /2013 Season 2013/2014 Season 2014/2015 Season 2015/2016 Season Less Than 0% No Filing 0% and Greater 20

21 2015/2016 Filing Cycle NCCI Voluntary Market Filing Activity Data for 38 states has been reviewed 27 states have filed a decrease 10 states have filed a change of 0% or greater 1 state has not submitted a filing Range of voluntary filings: 14.8% to +3.4% Based on data evaluated as of 12/31/

22 Percent Current NCCI Voluntary Market Loss Cost/Rate Level Changes Excludes Law-Only Filings OKWV IL AZ KS NC TX AL MS RI NM NH NV VA MD OR KY FL AR CT MT LA AK UT MO CO SD NE TN ME ID DC HI IN SC VT IA GA 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 22

23 Current Approved Voluntary Market Rate /Loss Cost Changes -- Southeastern NAIC Zone *Pending Georgia 3/1/ % South Carolina 9/1/ % Tennessee 3/1/16 0.9% Louisiana 5/1/16 2.7% Arkansas 7/1/16 4.3% Florida 1/1/16 4.7% Kentucky* 10/1/16 5.0% Virginia* 4/1/17 5.5% Mississippi 3/1/16 7.9% Alabama 3/1/16 8.2% North Carolina 4/1/ % West Virginia 11/1/ % 23

24 Law and Judicial Impacts Alaska 5/1/16 3.7% Florida* 10/1/ % Oklahoma 7/1/ % Tennessee 8/28/16 2.7% *Pending 24

25 West Virginia Filing Activity Voluntary Loss Cost and Assigned Risk Rate Changes* 1.9% 0.2% -4.4% -6.0% -8.1% -9.1% -8.8% -8.5% -9.1% -10.1% -12.1% -11.9% -14.7% -14.3% -15.3% -14.4% Voluntary Assigned Risk *Excludes coal mine occupational pneumoconiosis 25

26 Summary of November 1, 2016 Change in Voluntary Loss Costs Industrial Classifications Percentage (Excluding Underground Coal Mining) Change* Experience and Trend 14.2% Benefits +0.2% Loss Adjustment Expenses 0.7% Change in Voluntary Loss Cost Level 14.6% Traumatic Underground Coal Mining (Code 1016) Change in Voluntary Loss Cost Level 15.0% Overall Change in Voluntary Loss Cost Level 14.7% *Excludes coal mine occupational pneumoconiosis 26

27 West Virginia November 1, 2016 Loss Cost Filing (Excluding Traumatic Underground Coal Mine) Overall Loss Cost Level Change 14.6% Changes due to: Experience 11.3% Trend 3.2% Benefits +0.2% LAE 0.7% Experience Period 11.4% Indemnity 2.1% Indemnity (SAWW) +0.4% Loss Development +0.1% Medical 3.9% Medical 0.0% 27

28 Loss Ratio West Virginia Indemnity and Medical Loss Ratios Policy Year Indemnity Medical Based on NCCI s financial data at current benefit level and developed to ultimate 28

29 West Virginia November 1, 2016 Filing Average Changes by Industry Group Manufacturing 15.0% Contracting 17.6% Office and Clerical 11.4% Goods and Services 13.5% Miscellaneous 13.4% Overall 14.6% 29

30 Cumulative Loss Cost Level Change (%) 0 West Virginia Cumulative Average Loss Cost Level Change /06 7/07 7/08 11/09 11/10 11/11 11/12 11/13 11/14 11/15 11/16 Effective Date 30

31 Pure Loss Cost All Classes Current Average Voluntary Pure Loss Costs Using West Virginia Payroll Distribution* TX AR WV IN UT KS DC NV SD MS AZ OR TN HI FL KY VA NE CO MO NC ID AL NM MD SC LA OK GA ME NH RI IA AK MT VT IL CT CW State *Non-coal mine classes only Uses WV November 1, 2015 voluntary market loss costs Based on the latest NCCI approved rates and loss costs in the various states 31

32 West Virginia Current Average Voluntary Pure Loss Costs by Industry Group $2.54 $2.57 $0.89 $1.30 $1.11 $0.17 All Classes Manufacturing Contracting Office & Clerical Goods & Services Miscellaneous Uses WV November 1, 2015 Voluntary Market Loss Costs Includes Surface Coal Mine; excludes Underground Coal Mine 32

33 Claim Frequency Countrywide and West Virginia

34 Frequency per Million of On-Leveled Premium West Virginia Claim Frequency Policy Year Calendar-Accident Year Based on NCCI s financial data evaluated as of 12/31/2015 Frequency of lost-time claims adjusted to a common wage level 34

35 Claim Frequency 1,250 West Virginia Average Lost-Time Claim Frequency Frequency per 100,000 Workers Lost-Time Claims 1, WV AL KY MD NC SC TN VA CW Based on NCCI s Statistical Plan data 35

36 Percent Countrywide Workers Compensation Lost-Time Claim Frequency Change in Lost-Time Claims per $1M Pure Premium Private Carriers and State Funds 10 5 Average Annual Change of 3.6% ( ) p Accident Year 2010 and 2011 adjusted primarily for significant changes in audit activity p Preliminary based on data valued as of 12/31/2015 Source: NCCI s Financial Call data, developed to ultimate and adjusted to current wage and voluntary loss cost level, excludes highdeductible policies; : based on data through 12/31/2014 Includes all states where NCCI provides ratemaking services; WV is excluded through 2014, but included in

37 Frequency Index Countrywide Lost-Time Claim Frequency by Size of Total Loss Quintiles K 3K 10K 10K 20K 20K 50K 50K Over p Accident Year p Preliminary Source: NCCI s Statistical Plan data Frequency is lost time claims at 1st report per $1M premium at current wage and NCCI pure loss cost level Prior to assigning individual claims to size of loss categories, reported loss amounts are adjusted for inflation through 2014 For all states where NCCI provides ratemaking services 37

38 Frequency Countrywide Lost-Time Claim Frequency by Part-of-Body Groupings Accident Year p Cumulative Changes ( ): +21% -1% -17% +2% -9% -10% -14% -18% -18% -6% -10% -10% -7% -4% p Preliminary Source: NCCI s Statistical Plan data Frequency is lost time claims at 1st report per $1M premium at current wage and NCCI pure loss cost level For all states where NCCI provides ratemaking services 38

39 Key Takeaways Claim Frequency Changes in claim frequency is a key cost driver Frequency continues to decline Higher frequency compared with other states in the region 39

40 Nationwide Economic Outlook

41 National Economic Highlights and Their Impact on Workers Compensation National Economic Indicator Private employment is expected to continue to grow slowly Wage growth is poised to accelerate Medical inflation is trending up In December 2015, the Federal Reserve began raising the federal funds rate Potential Impact on the Workers Compensation Market Premium increases from higher payroll and higher expected claim frequency for new workers Upward pressure on payroll and premium as well as indemnity severity Increased pressure on medical costs per claim Higher interest rates mean better returns on invested funds 41

42 Forecast Is for Continued but Slowing Growth Near 2% in the Private Sector Annual Growth Rate Percent 3 US Private Employment Growth f 2017f f Forecast Private Nonfarm Employment Frequency of observation: annual; latest historical data point: 2015; forecast years: 2016 and 2017 Sources: US Bureau of Labor Statistics (BLS) and Moody s Analytics 42

43 Annual Growth Rate Percent 5 Wages Are Forecast to Accelerate Significantly by 2017 US Average Weekly Wage Growth f 2017f f Forecast Wages are for Total Private Industry Frequency of observation: annual; latest historical data point: 2015 (preliminary); forecast years: 2016 and 2017 Sources: US Bureau of Labor Statistics (BLS), Moody s Analytics, and NCCI 43

44 The US Unemployment Rate Continues to Decline, but Is Higher When Marginally Attached Workers Are Included Percent US Headline Unemployment Rate and U U-6 Unemployment Headline Unemployment U-6 measures the number of the unemployed, the marginally attached, and the part-time for economic reasons Headline (official) Unemployment Rate and U-6 are seasonally adjusted Frequency of observation: monthly; latest available data point: June 2016 Sources: Moody s Analytics and US Bureau of Labor Statistics (BLS) 44

45 Percent 4 Medical Inflation Is Forecast to Accelerate This Year and Next US Medical Consumer Price Index Growth Rate f 2017f f Forecast Medical Care Consumer Price Index, Urban Consumers Frequency of observation: annual; latest historical data point: 2015; forecast years: 2016 and 2017 Sources: US Bureau of Labor Statistics and Moody s Analytics 45

46 Interest Rates Are Expected to Increase in Year Treasury Notes Percent f f Forecast Frequency of observation: interest rate as of June Latest historical data point: June 2016 Sources: Federal Reserve Board and Moody s Analytics 46

47 Current Economic Headlines National Economic Highlights and Their Impact on Workers Compensation National Economic Indicator Oil and natural gas prices are low. Economic weakness in Europe and China should keep the dollar strong. Housing starts are increasing. Potential Impact on the Workers Compensation Market Low energy prices benefit most producers a positive for workers compensation since manufacturing accounts for 16% of premiums. However, layoffs in the energy sector negatively impact energy-dependent states. A strong dollar may cut employment in exportcentric industries, particularly equipment manufacturing and technology. This is a negative due to the large share of premiums in manufacturing. New residential construction should boost demand for construction workers a positive since construction accounts for 24% of premiums. 47

48 Oil Prices Are Forecast to Accelerate Next Year US $ per Barrel 125 West Texas Intermediate $95 $94 $98 $93 50 $49 $45 $ f 2017f f Forecast Petroleum Crude Oil Spot Price: West Texas Intermediate Frequency of observation: annual; latest historical data point: 2015; forecast years: 2016 and 2017 Sources: US Energy Information Administration (EIA) and Moody s Analytics 48

49 How Does the West Virginia Economy Compare?

50 Change in Private Employment Private Employment Has Declined in West Virginia Percent 3 May 2014 May 2015 May West Virginia United States Private Nonfarm Employment, seasonally adjusted Frequency of observation: monthly; latest available data point: May 2016; percentage change for the 12 months ending each May Source: US Bureau of Labor Statistics (BLS), 50

51 Change in Private Employment Comparison of Private Employment Growth Across States 51 Private Nonfarm Employment, seasonally adjusted Frequency of observation: monthly; latest available data point: May 2016; percentage change for the 12 months ending May 2016 Source: US Bureau of Labor Statistics (BLS), 51

52 Change in Employment by Industry Employment in Most Industries Has Decreased in the Past 12 Months Industrial Sector 12-Month Percent Change, May 2016 Sector Size % Share 12-Month Change Government Education and Health Services Financial Activities Professional and Business Services Leisure and Hospitality Trade, Transportation, and Utilities Manufacturing Other Services Construction Information Natural Resources and Mining WV , ,600 US +0.5 WV , ,500 US +3.0 WV , US +2.0 WV , US +2.7 WV , US +2.5 WV , US +1.6 WV , US 0.3 WV , US +1.0 WV , ,700 US +3.4 WV , ,000 US 0.1 WV , ,800 US 15.4 Percentage change for the latest 12 months as of May 2016 Current Employment Statistics Survey, seasonally adjusted; frequency of observation: monthly Source: US Bureau of Labor Statistics (BLS), 52

53 Change in Average Weekly Wages Wage Growth Is Below the Rest of the Nation Percent West Virginia United States Wages are for Total Private Industry Frequency of observation: annual; latest available data point: 2015 (preliminary) Source: US Bureau of Labor Statistics (BLS), 53

54 Headline Unemployment Rate The Unemployment Rate Is Above the National Average Percent May 2014 May 2015 May West Virginia United States Headline Unemployment Rate, seasonally adjusted Frequency of observation: monthly; latest available data point: May 2016 Source: US Bureau of Labor Statistics (BLS), 54

55 West Virginia s Economic Highlights West Virginia s unemployment rate is above the US rate Employment has fallen in the state: Seven of eleven sectors have posted declines Natural Resources and Mining posted a significant decline due to a lower demand for coal Government is the top performing sector in the state West Virginia wage growth is below the US average 55

56 Coal Mining

57 Percent Share US Electricity Generation by Source Natural Gas, Solar, and Wind Are Taking Share From Coal 100% 80% All Other Sources 60% Natural Gas 40% 20% Coal 0% Frequency of observation: monthly; data represented through March 2016 Source: US Energy Information Administration (EIA) 57

58 Wage Growth in Coal Mining: West Virginia Growth of Coal Mining Wages Has Not Kept Pace With Private Industry Wages Wage growth is shown for West Virginia s Average Weekly Wage (AWW) in all industry sectors and in NAICS 2121 Coal Mining All establishment sizes, private ownership Frequency of observation: quarterly; latest available data point: December 2015 (preliminary) Average Annual Rate of Wage Growth, December 2015 compared to 12, 36, and 60 months prior, respectively Source: US Bureau of Labor Statistics, Quarterly Census of Employment and Wages, 58

59 Injury and Illness Rates: West Virginia Incidence Rates for Coal Mining Increased in the Latest Year Injury and Illnesses Cases per 100 Full-Time Equivalent Workers, Total Recordable Cases, and Private Industry Frequency of observation: annual; latest available data point: 2014; Incidence rate for Coal Mining is unavailable for 2014 Source: US Bureau of Labor Statistics (BLS), 59

60 Coal Mining Fatality Rate, Nationwide The Coal Mining Fatality Rate Is Volatile But Trending Lower Frequency of observation: annual; latest available data point: 2015 Source: Mine Safety and Health Administration (MSHA), 60

61 Challenging Outlook for Coal Mining Central Appalachian (CAPP) coal production is in decline. Three main causes are: Increased extraction costs as the best reserves are increasingly mined out. Cheap natural gas encourages fuel switching. Reduction in coal-fired generation capacity. Since 2000, CAPP coal mining has become increasingly expensive, especially underground. The thickest and most accessible coal seams have already been mined out. What remains is harder and more expensive to extract. Source: US Energy Information Administration (EIA) 61

62 West Virginia Coal Mine Loss Costs Effective November 1, 2016 Underground Coal Mine Traumatic: 15.0% Coal Workers Pneumoconiosis (CWP): +47.9%* Combined: +14.9% Surface Coal Mine Traumatic: 14.4 % CWP: +54.8%** Combined: +15.0% *Indicated Underground CWP loss cost: +83.9% **Indicated Surface CWP loss cost: +83.8% 62

63 Indemnity and Medical Severity

64 Medical Benefits Projected to Constitute the Majority of Total Benefit Costs in West Virginia West Virginia Indemnity 42% Medical 58% Region Indemnity 42% Medical 58% Countrywide Indemnity 41% Medical 59% 0% 20% 40% 60% 80% 100% Regional states are AL, KY, MD, NC, SC, TN, and VA Based on NCCI s financial data 64

65 West Virginia Average Medical Claim Severity Lost-Time Claim Severity in $ Thousands % -6.8% +4.6% -2.6% % +1.3% 10 5 $13.4 $14.0 $14.1 $18.9 $17.6 $18.5 $ Policy Year Based on data through 12/31/2015, on-leveled and developed to ultimate 65

66 Medical Average Claim Severity ($ '000s) West Virginia Average Medical Severity Policy Year Adjusted to Current Wage Level Actual Based on NCCI s financial data for lost-time claims at current benefit level and developed to ultimate 66

67 Severity ($ Thousands) Countrywide Workers Compensation Average Medical Cost per Lost-Time Claim Private Carriers and State Funds $ % $ % +7.3% +8.3% +10.1% $10.8 $11.6 $12.9 $ % +3.0% +4.5% +0.4% % -1.0% +7.0% +5.9% +7.8% +5.8% +7.7% +5.4% +8.8% +13.5% $15.7 $17.1 $18.4 $19.4 $ p $22.1 Accident Year $23.4 $25.0 $26.2 $26.3 $26.8 $27.3 $28.0 $28.8 $28.5 p Preliminary based on data valued as of 12/31/2015 Source: NCCI S Financial Call data, developed to ultimate, excludes high-deductible policies; : based on data through 12/31/2014 Includes all states where NCCI provides ratemaking services; WV is included in 2014 and subsequent 67

68 Severity ($ Thousands) Countrywide Workers Compensation Average Medical Cost per Lost-Time Claim Private Carriers and State Funds NCCI States 35 Cumulative Change in Excess of Medical Care Inflation ( p): +55% Cumulative Change ( p): +214% p Accident Year p Preliminary based on data valued as of 12/31/2015 Sources: Severity: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies; : based on data through 12/31/2014 US Medical CPI: US Bureau of Labor Statistics Includes all states where NCCI provides ratemaking services; WV is included in 2014 and subsequent 68

69 Countrywide Relative Growth Rates Medical Severity vs. Medical Care Inflation Private Carriers and State Funds NCCI States Cumulative Change in Lost-Time Medical Claim Severity Cumulative Change in US Medical Consumer Price Index (CPI) 1995 to to to 2015p Severity Growth > US MCPI Growth Severity Growth > US MCPI Growth US MCPI Growth > Severity Growth p Preliminary based on data valued as of 12/31/2015 Sources: Severity: NCCI s Financial Call data, developed to ultimate; excludes high-deductible policies; : based on data through 12/31/2014 US Medical CPI: US Bureau of Labor Statistics Includes all states where NCCI provides ratemaking services; WV is included in 2014 and subsequent 69

70 Cost per Case ($ '000s) West Virginia vs. Countrywide Average Medical Claim Severity p 2015p Accident Year West Virginia Countrywide p Countrywide figure is preliminary Source: NCCI s financial data valued as of 12/31/2015, except for Countrywide from 2011 to 2014 (valued as of 12/31/2014) Data not adjusted to a common wage or benefit level; medical-only losses excluded 70

71 Average Medical Claim Severity in the Region Policy Year Lost-Time Claim Severity in $ Thousands WV AL KY MD NC SC TN VA Lost-time claim counts developed to ultimate Losses developed to ultimate and brought to the current wage and loss cost level WV, KY, MD, NC, TN, and VA are based on NCCI s Financial Call data for Policy Year 2014 valued as of 12/31/2015 AL and SC are based on NCCI s Financial Call data for Policy Year 2013 valued as of 12/31/

72 West Virginia Average Indemnity Claim Severity Lost-Time Claim Severity in $ Thousands % -6.5% 4.0% 9.7% 2.6% -5.4% 10 5 $14.5 $14.1 $13.2 $13.7 $15.1 $15.5 $ Policy Year Based on data through 12/31/2015, on-leveled and developed to ultimate 72

73 Indemnity Average Claim Severity ($ '000s) West Virginia Average Indemnity Severity Policy Year Adjusted to Current Wage Level Actual Based on NCCI s financial data for lost-time claims at current benefit level and developed to ultimate 73

74 Countrywide Workers Compensation Average Indemnity Cost per Lost-Time Claim Severity ($ Thousands) 25 Private Carriers and State Funds +9.3% +0.6% +2.9% +1.5% +1.0% -2.2% +0.9% -0.1% $ % +9.0% +5.9% +7.7% $10.4 $11.2 $12.2 $ % $ % +9.2% +3.1% +4.6% +3.1% +1.0% $16.2 $16.7 $17.5 $17.6 $ p $ % $20.5 $22.4 $22.6 $22.1 $22.2 $22.2 $22.9 $23.2 $23.5 Accident Year p Preliminary based on data valued as of 12/31/2015 Source: NCCI s Financial Call data, developed to ultimate; excludes high-deductible policies; : based on data through 12/31/2014 For all states where NCCI provides ratemaking services, excluding WV 74

75 25 Countrywide Workers Compensation Average Indemnity Cost per Lost-Time Claim Severity ($ Thousands) Private Carriers and State Funds NCCI States Cumulative Change in Excess of Wage Growth ( p): +23% Cumulative Change ( p): +138% p 15p Accident Year p Preliminary based on data valued as of 12/31/2015 Sources: Severity: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies; : based on data through 12/31/2014 US Average Weekly Wage: and , Quarterly Census of Employment and Wages; , NCCI; 2015p, NCCI and Moody s Economy.com Includes all states where NCCI provides ratemaking services; WV is included in 2014 and subsequent 75

76 Countrywide Relative Growth Rates Indemnity Severity vs. Wage Inflation Private Carriers and State Funds NCCI States Cumulative Change in Indemnity Claim Severity Cumulative Change in US Average Weekly Wage (AWW) 1995 to to to 2015p Severity Growth > US AWW Growth Severity Growth > US AWW Growth US AWW Growth > Severity Growth p Preliminary based on data valued as of 12/31/2015 Sources: Severity: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies; : based on data through 12/31/2014 US Average Weekly Wage: and , Quarterly Census of Employment and Wages; , NCCI; 2015p, NCCI and Moody s Economy.com Includes all states where NCCI provides ratemaking services; WV is included in 2014 and subsequent 76

77 Cost per Case ($ '000s) West Virginia vs. Countrywide Average Indemnity Claim Severity p 2015p Accident Year West Virginia Countrywide p Countrywide figure is preliminary Source: NCCI s financial data valued as of 12/31/2015, except for Countrywide from 2011 to 2014 (valued as of 12/31/2014) Data not adjusted to a common wage or benefit level 77

78 Average Indemnity Claim Severity in the Region Policy Year Lost-Time Claim Severity in $ Thousands WV AL KY MD NC SC TN VA Lost-time claim counts developed to ultimate Losses developed to ultimate and brought to the current wage and loss cost level WV, KY, MD, NC, TN, and VA are based on NCCI s Financial Call data for Policy Year 2014 valued as of 12/31/2015 AL and SC are based on NCCI s Financial Call data for Policy Year 2013 valued as of 12/31/

79 Key Takeaways Indemnity and Medical Benefit Costs Rate of change in recent years is similar to countrywide Claim costs are lower than regional and countrywide averages Medical comprises a greater percentage of WC benefits 79

80 Legislative Issues West Virginia and Nationwide

81 West Virginia Legislative Environment (Failed Legislation) SB 76 Requires a covered employee to be paid the maximum temporary total disability benefits for lost time without penalty to the employee. SB 62 Rebuttable presumption for professional firefighters for specified cancers and other occupational diseases. SB 71 Liberal interpretation; limit distance of vocational rehabilitation job searches; allow permanent total disability until death, etc. 81

82 2016 Legislative Sessions CA OR WA NV ID AZ UT MT WY CO NM ND SD NE KS OK MN WI IA IL MO AR MI IN OH KY TN ME VT NH NY MA CT PA NJ DE WV VA MD DC NC SC RI MS AL GA AK TX LA HI FL States With 2015/2016 Carryover States With 2016/2017 Biennium States With No Carryover States With No Regular Session in

83 Opt-Out Introduced, but no further action has been taken: South Carolina Employee Injury Benefit Plan Alternative (HB 4197) Tennessee Employee Injury Benefit Alternative (HB 997/SB 721) As of May 1,

84 Unique but Potentially Significant Workers Compensation Legislation Hawaii HB 2715 originally called for the creation of a monopolistic state fund but was amended to require a closed claims study. This bill was signed by the Governor and became effective July 1, Illinois SB 2598 calls for the premium for contractors classifications to be based on hours worked rather than payroll. Illinois HB 2552 and HB 5925 create an independent, not-forprofit workers compensation insurance company. Vermont SB 213 creates a new category of benefit parental leave to be provided as a workers compensation benefit. Virginia HB 1108 prohibits the use of a specific experience modification as a criteria for awarding contracts. This bill was signed by the Governor and became effective July 1,

85 Number of Requests to NCCI for Pricing of Law/Regulation Changes in the Last Five Years * *2016 data as of 7/21/

86 Measures Calling for System Studies Hawaii HB 2715 calls for a closed claims study of the workers compensation system. Vermont HB 803 creates a committee to study portable employment benefits, in order to address the needs of workers in an on-demand environment. Kentucky HCR 185 creates a task force to study the state s workers compensation system and develop recommendations to enhance the system. This provision was passed and the task force s report is due December 1, Connecticut HB 5506 requires a study of the liability of employers for hospital services in workers compensation cases. Utah SB 216 requires a study of hospital costs. 86

87 NCCI s Role in the Legislative Process Before and During the Legislative Session: Provides examples of how an issue is treated in other states Analyzes the cost impact of various options being considered and updates the impact analysis if a bill is amended After the Legislature Has Adjourned: Prepares circulars on substantive changes Makes filings if needed Files rate/loss costs to address changes when the cost impact is significant Files rule/program changes, if needed Monitors the effects of law changes after they are enacted 87

88 Issues to Watch in 2016 and Beyond Gig Economy Attorney Fees Exclusive Remedy Drug Formularies Opt-Out 88

89 Key Takeaways Legislative activity for 2016 is about average for an election year No significant workers compensation measures have progressed Opt-out proposals in South Carolina and Tennessee stalled The financial impact of legislation, regulations, and judicial decisions priced in 2016 on states WC systems ranged from 3.7% to +19.6% New terminology has emerged regarding the gig economy and independent contractors: Qualified Marketplace Contractor 89

90 West Virginia Residual Market

91 West Virginia Assigned Risk Programs Assigned Risk Adjustment Program (ARAP) Loss Sensitive Rating Plan (LSRP) Loss Cost Differential (currently 40%) Removal of Premium Discounts Take-Out Credit (TOC) Program Voluntary Coverage Assistance Program (VCAP Service) 91

92 West Virginia Residual Market Share Plan Premium as a Percentage of Direct Written Premium 7% 6% 5.4% 6.0% 5.3% 5% 4.3% 4% 3% 2.7% 2% 1% 0% * Calendar Year *Preliminary 92

93 Total Residual Market New Applications and Premium Assigned in West Virginia Estimated Premium ($ Millions) # Applications 12 $11M 3, ,500 8 $6M $6M $8M 2, , , ,162 1, Calendar Year 0 Total New Applications Total New Premium 93

94 West Virginia s Total Residual Market Plan Policy Counts as of 12/31/15 3,000 2,500 2,149 2,482 2,520 2,000 1,723 1,500 1,325 1, Policy Year 94

95 $ Millions West Virginia s Total Residual Market Plan Estimated Premium Volume Premium in $ Millions as of 12/31/ Policy Year 95

96 West Virginia Average Size Accounts for Residual Market Policies and Estimated Premium As of 12/31/15 Premium Range Policy Count % of Policies Total Premium % of Premium Average Policy Size $0 $2,499 1, % $ 1,298, % $ 1,024 $2,500 $4, % 1,797, % 3,502 $5,000 $9, % 2,534, % 6,869 $10,000 $19, % 2,818, % 13,885 $20,000 $49, % 3,849, % 30,555 $50,000 $99, % 2,201, % 75,924 $100,000 $199, % 902, % 128,987 $200, % 1,216, % 243,375 Total 2, % $16,620, % $ 6,596 96

97 Where Does NCCI Provide Residual Market Services? 97

98 Workers Compensation Residual Market Premium NCCI-Serviced Workers Compensation Residual Market Pools $ Billions p Policy Year p Preliminary, incomplete policy year projected to ultimate Includes Pool data for all NCCI-serviced workers compensation Residual Market Pool states valued as of 12/31/2015 Tennessee Reinsurance Mechanism premium is not included Source: NCCI s Residual Market Quarterly Results 98

99 Assigned Risk Plan Policies and Estimated Premium By State as of 12/31/15 State Total Policy Count Total Premium AK 7,942 $ 34,799,717 AL 1,600 11,393,989 AR 6,754 24,040,907 AZ 6,065 50,248,061 CT 14,367 54,842,636 DC 1,407 7,669,642 GA 19,679 63,596,139 IA 4,665 42,135,106 ID 721 1,847,445 IL 33, ,034,967 IN 9,052 59,161,370 KS 8,914 33,727,603 MS 2,690 19,405,030 NH 5,774 27,178,283 NM 2,923 12,648,991 NV 4,698 21,703,511 OR 9,383 43,279,101 SC 11,690 32,766,784 SD 1,762 10,274,905 TN 5,927 30,186,362 VA 15,719 67,814,456 VT 4,116 20,406,876 WV 2,520 16,620,769 Total 181,782 $798,782,650 99

100 100

101 Residual Market Summary National Stable residual market share Manageable operating results Slow growth in 2014 and 2015 State Servicing carrier churn Stable residual market share Self-funded operating results Different mix of residual market classifications Please visit ncci.com for additional state and countrywide information. 101

102 The Affordable Care Act and Workers Compensation Case Shifting

103 The Affordable Care Act (ACA) and the Workers Compensation Agenda Workers Compensation Legal Challenges to the ACA Case Shifting Potential Drivers of Shifting 103

104 Workers Compensation No-Fault Workers Compensation Grand Bargain 104

105 Legal Challenges National Federation of Independent Business v. Sebelius King v. Burwell US House of Representatives v. Burwell 105

106 Patient Protection and the Affordable Care Act The Affordable Care Act 2010 Implementation

107 What Is Case Shifting? Injury Government Program Traditional Healthcare Workers Comp 107

108 Delivery of Healthcare Is Changing Insurer Mergers Provider Consolidation Formation of Affordable Care Organizations 108

109 Potential Drivers of Cost Shifting Capitated Programs Accountable Care Organizations Patient- Centered Medical Homes 109

110 Potential Drivers of Cost Shifting High-Deductible Health Plans Loss of Wage Benefits Workers Comp vs. Disability Insurance 110

111 Workers Compensation Research Institute Study A patient covered by a capitated health plan was 11% more likely to have a soft-tissue injury called work-related than a similar patient covered by a fee-for-service plan. For patients with conditions for which causation was more certain (fractures, lacerations, etc.), there was no difference between those covered by capitated or fee-forservice plans. Case shifting was more likely in states where a higher percentage of workers were covered by capitated plans. In an average state (with 19% of the population covered by a capitated group health plan), an increase of capitation to 30% of the population would mean a nearly 10% increase in the number of soft-tissue conditions called work-related and paid by workers compensation. That is equivalent to a 3% increase in workers compensation payments. 111

112 Conclusion: The ACA s Impact Is Uncertain Supply/Demand Cost Shift Varies by State? 112

113 Q & A

114 Closing Remarks Thank You!

115 Glossary

116 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. 116

117 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. 117

118 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. 118

119 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. 119

120 Appendix

121 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 121

122 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 122

123 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 123

124 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 124

125 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 125

126 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 126