ILLINOIS. September 23,

Transcription

1 ILLINOIS September 23,

2 Illinois Workers Compensation State Advisory Forum State of the Industry Illinois Workers Compensation System Overview NCCI Filing Activity Economic Environment Claim Frequency Workers Compensation Legislation Indemnity and Medical Claim Costs Illinois Residual Market Closing Remarks 2

3 Illinois: Sunshine Breaks Through the Brewing Storm 3

4 State of the Industry

5 State of the Countrywide Workers Compensation Market Net written premium volume increased for the fifth consecutive year Combined ratios: Underwriting gains were achieved on both calendar year and accident year bases 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 5

6 $ 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: 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 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 7

8 Percent Countrywide Workers Compensation Combined Ratio Underwriting Gain Achieved Private Carriers % lower p Calendar Year p Preliminary Source: NAIC s Annual Statement data 8

9 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: NAIC s Annual Statement data 9

10 Countrywide Workers Compensation Net Combined Ratios Calendar Year vs. Accident Year as Reported Private Carriers p Calendar Year Accident Year p Preliminary Source: NCCI s analysis based on NAIC s Annual Statement data Accident Year information is reported as of 12/31/2015 Includes dividends to policyholders 10

11 Illinois Workers Compensation System Overview

12 Illinois Workers Compensation System An Overview Premium volume is increasing at a measured pace Combined ratios continue to improve Lost-time claim frequency was notably down in latest year Decline in residual market premium share 12

13 4 Illinois Workers Compensation Premium Volume Direct Written Premium in $ Billions p Calendar Year p Preliminary Source: NAIC s Annual Statement data 13

14 Illinois Employment Levels Index: 2010 = Index of Payroll Index of Construction Employment Index of Employment Index of Manufacturing Employment Sources: US Bureau of Labor Statistics and US Bureau of Economic Analysis 14

15 125% Illinois Accident Year Combined Ratios 100% 107% 75% 97% 91% 88% 85% 50% 25% 0% Accident Year Sources: NCCI s financial data and NAIC s Annual Statement data 15

16 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/

17 NCCI Filing Activity

18 Countrywide Workers Compensation Approved Changes in Bureau Premium Level By Effective Year for NCCI States Percent Cumulative Change of 20.2% 5 ( 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 18

19 2015/2016 Filing Cycle NCCI Voluntary Market Filing Activity Data for 38 states 27 states filed a decrease 10 states filed a change of 0% or greater No filing in 1 state Range of voluntary filings: 14.8% to +3.4% Based on data evaluated as of 12/31/

20 NCCI Voluntary Market Filing Activity Number of State Loss Cost/Rate Filings by Filing Season /2014 Season 2014/2015 Season 2015/2016 Season 2016/2017 Season Less Than 0% No Filing 0% and Greater 20

21 Current NCCI Voluntary Market Loss Cost/Rate Level Changes Percent Excludes Law-Only Filings WV IL AZ TN AL NM NC OK MD TX NH KS MS RI OR AK NV VA KY FL IA AR CT DC MO MT LA UT CO SD NE ME ID HI IN SC VT 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 21

22 Current Voluntary Market Rates/Loss Costs Midwestern NAIC Zone Indiana 1/1/ % Minnesota 1/1/ % Nebraska 2/1/16 1.2% South Dakota 7/1/16 1.3% Wisconsin 10/1/ % Missouri 1/1/17 3.7% Iowa* 1/1/17 4.7% Michigan 1/1/16 6.9% Kansas* 1/1/17 8.4% Oklahoma* 1/1/ % Illinois* 1/1/ % *Pending 22

23 Percent Illinois Filing Activity Voluntary Loss Cost, Voluntary Rate, and Assigned Risk Rate Changes No Filing /1/2012 1/1/2013 1/1/2014 1/1/2015 1/1/2016 1/1/2017p Voluntary Loss Costs Voluntary Rates Assigned Risk p Pending 23

24 Cumulative Loss Cost/Rate Level Change (%) 5 0 Illinois Cumulative Voluntary Loss Cost/Rate Level Changes No Filing /11 9/11* 1/12 1/13 1/14 1/15 1/16 1/17** Effective Date Loss Cost Rate *Law only **Pending 24

25 Average Voluntary Pure Loss Cost Quartiles Using Illinois Payroll Distribution WA CA OR NV ID AZ UT MT WY CO NM ND SD NE KS OK MN WI IA IL MO AR MS MI OH IN KY TN GA AL OK WV NC SC PA VA NY NH VT DE MD DC ME RI CT NJ MA $0.39 $ $0.76 $0.77 $ $0.92 $0.93 $ $1.06 TX LA $1.07 $ $1.56 AK FL Not included Included HI Countrywide = $0.87 Illinois = $

26 Illinois January 1, 2017 Voluntary Loss Cost and Rate Filing Changes due to: Experience 8.8% Trend 5.2% Benefits +0.4% Other 0.2% Experience Period 7.2% Loss Development 1.7% Indemnity 5.2% Medical 5.1% Indemnity (SAWW) +0.6% Medical (Schedule) +0.3% Offset for Change in Minimum Premium Parameters 0.2% Overall Loss Cost Level Change 13.4% Changes due to: Production & General Expenses +0.1% Loss-Based Expenses 0.3% Offset for Change in Expense Constant +0.8% Overall Rate Level Change 12.9% 26

27 Loss Ratio Last Year s Illinois Indemnity and Medical Loss Ratios Policy Year Indemnity Medical Based on NCCI s financial data as of 12/31/2014, at current benefit level and developed to ultimate 27

28 Loss Ratio This Year s Illinois Indemnity and Medical Loss Ratios Policy Year Indemnity Medical Based on NCCI s financial data as of 12/31/2015, at current benefit level and developed to ultimate 28

29 Illinois January 1, 2017 Filing Average Changes by Industry Group Manufacturing 14.6% Contracting 14.6% Office and Clerical 17.1% Goods and Services 11.5% Miscellaneous 9.4% Overall 12.9% Rate Change 29

30 Illinois January 1, 2017 Assigned Risk Rate Filing Overall Voluntary Rate Level Change 12.9% Changes due to: AR Differential +7.1% Overall Assigned Risk Rate Level Change 6.7% 30

31 Nationwide Economic Outlook

32 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 32

33 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 and Moody s Analytics 33

34 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, Moody s Analytics, and NCCI 34

35 Percent 20 The US Unemployment Rate Continues to Decline but Is Higher When Marginally Attached Workers Are Included 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 35

36 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 36

37 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 37

38 How Does the Illinois Economy Compare?

39 Change in Private Employment Private Employment Growth Is Below Average Percent 3 May 2014 May 2015 May Illinois 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), 39

40 Change in Private Employment Comparison of Private Employment Growth Across States 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), 40

41 Change in Employment by Industry Employment in About Half of the Industries Has Increased in the Past 12 Months Industrial Sector 12-Month Percent Change, May 2016 Sector Size % Share 12-Month Change Leisure and Hospitality Construction Education and Health Services Professional and Business Services Other Services Trade, Transportation, and Utilities Government Financial Activities Manufacturing Information Natural Resources and Mining IL , ,200 US +2.5 IL , ,900 US +3.4 IL , ,200 US +3.0 IL , ,700 US +2.7 IL , ,900 US +1.0 IL ,208, ,600 US +1.6 IL , US +0.5 IL , US +2.0 IL , ,400 US 0.3 IL , ,800 US 0.1 IL 4.2 9, 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), 41

42 Change in Average Weekly Wages Wage Growth Is Above the Rest of the Nation Percent Illinois 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), 42

43 Headline Unemployment Rate The Unemployment Rate Is Above the National Average Percent May 2014 May 2015 May Illinois United States Headline Unemployment Rate, seasonally adjusted Frequency of observation: monthly; latest available data point: May 2016 Source: US Bureau of Labor Statistics (BLS), 43

44 Illinois Economic Highlights The unemployment rate in Illinois is above the US rate Illinois employment growth is below the US rate: Leisure and Hospitality is the top-performing sector in the state Construction, Education and Health Services, and Professional and Business Services are other highperforming sectors Manufacturing, Information, and Natural Resources and Mining are the weakest sectors with declining employment Illinois wage growth is above the US average 44

45 Claim Frequency

46 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 high-deductible policies; : based on data through 12/31/2014 Includes all states where NCCI provides ratemaking services; WV is excluded through 2014, but included in

47 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 47

48 Percent Change Illinois Workers Compensation Lost-Time Claim Frequency Change in Lost-Time Claims per $1M Pure Premium Cumulative Change of 40.1% ( ) Policy Year Based on NCCI s Financial Call data, developed to ultimate and adjusted to current wage and voluntary loss cost level 48

49 Frequency per Million of On-Leveled Premium Illinois Lost-Time Claim Frequency Policy Year Based on NCCI s financial data Frequency of lost-time claims adjusted to a common wage level 49

50 Average Claim Frequency per 100,000 Workers IL 949 1,934 Total 2,883 IN 661 3,252 Total 3,913 IA 1,031 3,277 Total 4,308 MO 992 2,122 Total 3,114 CW 813 2,466 Total 3,279 Lost Time Medical Only Based on NCCI s Statistical Plan data Policy periods underlying values shown vary across states. For Illinois, the policy period is April 2012 through March 2013.

51 Distribution of Claims by Injury Type Illinois 67.1% 17.1% 15.6% 0.2% Region 76.9% 11.8% 11.2% 0.1% Countrywide 75.2% 15.2% 9.4% 0.2% 0% 20% 40% 60% 80% 100% Medical Only Temporary Total Permanent Partial Fatal & Permanent Total Regional states are IN, IA, and MO Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist 51

52 Permanent Partial Claim Frequency Per 100,000 Workers IL IN IA MO CW Based on NCCI s Statistical Plan data Policy periods underlying values shown vary across states; for Illinois, the policy period is April 2012 through March

53 Changes in Permanent Partial Claim Frequency per 100,000 Workers % -3% +5% % -15% IL IA IN MO CW 5th 4th 3rd 2nd 1st Based on NCCI s Statistical Plan data, developed to an ultimate basis Policy periods underlying values shown vary across states. For Illinois, the first policy period is April 2012 through March 2013 and the fifth policy period is April 2008 through March Copyright 2015 National Council on Compensation Insurance, Inc. All Rights Reserved. 53

54 Key Takeaways Lost-Time Claim Frequency Frequency of PPD claims has significantly declined Claim frequency is greater than countrywide Average changes in claim frequency have been similar to countrywide since recession

55 Workers Compensation Legislation: What Happened, What Didn t Happen, and What s Coming

56 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

57 Top Five Workers Compensation-Related Legislation Topics in 2016 First Responder Presumption Employer/Employee Definition Medical Cost Management Independent Contractors and Misclassification Exclusive Remedy 57

58 Drug Formulary States Recently Instituting Drug Formularies: Tennessee Rule , effective August 28, 2016 California AB 1124, effective July 1, 2017 Recent Legislation Proposing Formularies: Nebraska LB 1005, deferred due to prioritization Louisiana HB 725, died in committee Recent Regulations Proposing Formularies: Arizona Rules R through 1312 Nevada Guidelines Feasibility Study: North Carolina has completed the study required in HB 97, recommending further review and postponing implementation to no earlier than July 1,

59 Opt-Out Introduced, but no further action was taken: South Carolina Employee Injury Benefit Plan Alternative (HB 4197) Tennessee Employee Injury Benefit Alternative (HB 997/SB 721) 59

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

61 Key Judicial Decisions in 2016 Castellanos v. Next Door Company The Florida Supreme Court declared that the mandatory attorney fee schedule in workers compensation cases is a violation of due process and is therefore unconstitutional. Westphal v. City of St. Petersburg The Florida Supreme Court concluded that the 104-week limitation on temporary total disability benefits results in a statutory gap in benefits and is therefore unconstitutional. The decision restores the 260-week limitation that preceded the 1994 amendments to the statutes. Maxwell v. Sprint PCS The Oklahoma Supreme Court declared as unconstitutional a provision of the state s workers compensation act that defers disability benefits for injured employees who return to work. Rodriguez v. Brand West Dairy The New Mexico Supreme Court declared that the exclusion of farm and ranch workers from workers compensation coverage is unconstitutional. 61

62 Key Judicial Decisions in 2016 Injured Workers Association of Utah v. State of Utah The Utah Supreme Court held that the statute granting the Labor Commission the full power to regulate and fix attorney fees in workers compensation cases, along with the mandated claimant attorney fee schedule, is unconstitutional. Vasquez v. Dillard s, Inc. The Oklahoma Workers Compensation Commission declared Opt- Out unconstitutional. Appeal to the Oklahoma Supreme Court is pending. Nebraska and Oklahoma v. Colorado The US Supreme Court refused to hear this suit regarding Colorado s legalization of marijuana. 62

63 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 have stalled The financial impact of legislation, regulations, and judicial decisions priced in 2016 on states WC systems ranged from 3.7% to +19.6% 63

64 Issues to Watch for in 2016 and Beyond Gig Economy Attorney Fees Exclusive Remedy Drug Formularies Opt-Out 64

65 Illinois Legislative and Judicial Activity

66 Illinois Legislative Activity HB 6225 amends the Employee Leasing Act, effective January 1, 2017 Either a lessee or a lessor may provide workers compensation insurance coverage for leased employees Requires the lessor to notify the Illinois Department of Insurance when the lessee provides coverage NCCI filing changes to Employee Leasing/PEO rules to be effective January 1,

67 Pending Illinois Supreme Court Workers Compensation (WC) Case: Locasto v. City of Chicago Can an employee receive both WC benefits and a $2 million tort judgment from an employer? Employer alleged to intentionally cause a firefighter trainee s dehydration and acute kidney failure Exception to exclusive remedy in Illinois: Employer intentionally caused work injury Allegations of employer s intent: Trainee was forced to engage in rigorous physical exercise with minimal water breaks $2 million judgment was based on employer s repeated discovery violations Trainee received WC benefits prior to the tort judgment 67

68 Illinois Court of Appeals Decision: Moran v. Illinois WC Commission Firefighter s Post-Traumatic Stress Disorder (PTSD) Was Compensable Sudden, severe emotional shock caused psychological injury during a fire. Lieutenant commanded operations where a fellow firefighter died PTSD was attributed to the incident by two psychiatrists No conflicting medical evidence was presented Employer hired a psychiatrist to treat all firefighters involved in the incident Employer ceased fire suppression and EMS operations for 10 days, for the first time ever 68

69 Indemnity Claim Costs

70 Indemnity Benefits are Projected to Constitute the Majority of Total Benefit Costs in Illinois Illinois Indemnity 52% Medical 48% Region Indemnity 38% Medical 62% Countrywide Indemnity 41% Medical 59% 0% 20% 40% 60% 80% 100% Regional states are IN, IA, and MO Based on NCCI s financial data 70

71 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 15p $ % $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 71

72 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 72

73 Severity ($ Thousands) Illinois Average Indemnity Claim Severity Lost-Time Claim Severity in $ Thousands Cumulative Change of +60.6% ( ) $ % 10.1% 2.9% 11.5% 11.7% $22.7 $25.3 $27.9 $28.7 $ % 0.9% 9.8% -4.7% -4.0% -1.4% -4.1% 1.0% 1.7% $33.2 $33.5 $36.8 $35.0 $33.6 $33.1 $31.8 $32.1 $ Policy Year Based on data through 12/31/2015, on-leveled and developed to ultimate 73

74 Indemnity Average Claim Severity ($ '000s) Illinois Average Indemnity Severity AY 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 74

75 Cost per Case ($ '000s) Illinois vs. Countrywide Average Indemnity Claim Severity p 2015p Accident Year Illinois Countrywide p Preliminary based on data valued as of 12/31/2015 Source: NCCI s financial data 75

76 45 Average Indemnity Claim Severity in the Region Indemnity Severity in $ Thousands 30 $33 $26 $24 15 $14 0 IL IN IA MO State Based on NCCI s financial data for lost-time claims 76

77 Indemnity Loss Distribution by Injury Type Illinois 23% 71% 4% 2% Region 24% 68% 2% 6% Countrywide 31% 60% 4% 5% 0% 20% 40% 60% 80% 100% Temporary Total Permanent Partial Permanent Total Fatal Regional states are IN, IA, and MO Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist Policy periods underlying values shown vary across states; for Illinois, the policy period is April 2012 through March

78 Permanent Partial Indemnity Average Cost per Case Cost per Case in $ Thousands $46 $41 30 $33 15 $18 $20 0 IL IN IA MO CW Based on NCCI s Statistical Plan data Policy periods underlying values shown vary across states; for Illinois, the policy period is April 2012 through March

79 Changes in Permanent Partial Indemnity Claim Costs % 40 +6% -7% 20-6% -3% 0 IL IA IN MO CW 5th 4th 3rd 2nd 1st Based on NCCI s Statistical Plan data, developed to ultimate Policy periods underlying values shown vary across states. For Illinois, the first policy period is April 2012 through March 2013 and the fifth policy period is April 2008 through March Copyright 2015 National Council on Compensation Insurance, Inc. All Rights Reserved. 79

80 Key Takeaways Indemnity Benefit Costs Changes in Illinois indemnity claim costs have stabilized in the most recent years Indemnity claim costs are greater than the region and countrywide, partially driven by higher wages Indemnity PPD claim costs make up a greater portion of indemnity dollars than countrywide or the region 80

81 Medical Severity

82 Countrywide Workers Compensation Average Medical Cost per Lost-Time Claim Severity ($ Thousands) Private Carriers and State Funds $ % $ % +7.3% +8.3% +10.1% $10.8 $11.6 $12.9 $ % +3.0% -1.0% +4.5% +0.4% % +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 15p $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 82

83 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 to2015p 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 83

84 Severity ($ Thousands) 40 Illinois Average Medical Claim Severity Lost-Time Claim Severity in $ Thousands Cumulative Change of % ( ) % 1.2% 6.4% -1.2% -5.4% 1.8% 3.7% -0.1% 0.0% 9.8% 5.6% 12.8% $ % 17.4% $19.7 $16.3 $22.2 $24.4 $25.8 $28.5 $28.9 $30.7 $30.3 $28.7 $29.2 $30.3 $30.3 $ Policy Year Based on data through 12/31/2015, on-leveled and developed to ultimate 84

85 Medical Average Claim Severity ($ '000s) Illinois Average Medical Severity Focus on Recent Years AY 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 85

86 Cost per Case ($ '000s) Illinois vs. Countrywide Average Medical Claim Severity p 2015p Accident Year Illinois Countrywide p Preliminary based on data valued as of 12/31/2015 Source: NCCI s financial data 86

87 Average Medical Claim Severity in the Region Lost-Time Claim Severity in $ Thousands $30 $36 $32 $ IL IN IA MO State Based on NCCI s financial data for lost-time claims 87

88 Medical Loss Distribution by Injury Type Illinois 23% 59% 10% 8% 0% Region 25% 52% 6% 16% 1% Countrywide 29% 48% 9% 13% 1% 0% 20% 40% 60% 80% 100% Temporary Total Permanent Partial Permanent Total Medical Only Fatal Regional states are IN, IA, and MO Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist Policy periods underlying values shown vary across states; for Illinois, the policy period is April 2012 through March

89 60 Permanent Partial Medical Average Cost per Case Cost per Case in $ Thousands $37 $41 $42 $39 $ IL IN IA MO CW Based on NCCI s Statistical Plan data Policy periods underlying values shown vary across states; for Illinois, the policy period is April 2012 through March

90 Key Takeaways Medical Benefit Costs Medical benefit costs comprise less than half of the WC benefit dollar Medical claim costs have moderated in recent years Illinois medical severity is higher than that observed countrywide 90

91 Residual Market Video Excerpt James Nau, CPCU, ARM, WCP General Manager NCCI Residual Markets

92 Where Does NCCI Provide Residual Market Services? 92

93 $ Millions Illinois Total Residual Market Plan Estimated Premium Volume Premium in $ Millions as of 12/31/2015 $140.0 $120.0 $121.4 $109.2 $118.5 $122.3 $113.0 $100.0 $80.0 $60.0 $83.1 $63.5 $56.5 $59.4 $97.3 $40.0 $20.0 $ Policy Year 93

94 Illinois Total Residual Market Plan Policy Counts As of 12/31/ ,000 35,000 30,000 29,192 27,389 26,343 27,344 30,908 33,414 25,000 23,436 22,335 21,556 23,872 20,000 15,000 10,000 5, Policy Year 94

95 Illinois Residual Market Share Plan Premium as a Percentage of Direct Written Premium 6% 5% 4.3% 5.3% 5.1% 4.6% 4% 3% 2.7% 2% 1% 0% * Calendar Year *Preliminary 95

96 Illinois Residual Market Change in Total Estimated Annual Premium As of 12/31/2015 Size of Risk Change $0 $2,499 $20.6 $ % $2,500 $4,999 $8.8 $ % $5,000 $9,999 $11.8 $ % $10,000 $49,999 $35.1 $ % $50,000 $99,999 $16.5 $ % $100,000 and Over $29.5 $ % Total $122.3 $ % 96

97 Illinois Average Size Accounts for Residual Market Policies and Estimated Premium As of 12/31/2015 Premium Range Policy Count % of Policies Total Premium % of Premium Average Policy Size $0 $2,499 27, % $22,853, % $840 $2,500 $4,999 2, % $9,053, % $3,568 $5,000 $9,999 1, % $11,964, % $7,041 $10,000 $19,999 1, % $14,611, % $13,823 $20,000 $49, % $19,627, % $30,242 $50,000 $99, % $12,075, % $69,001 $100,000 $199, % $12,400, % $139,328 $200, % $10,449, % $373,197 Total 33, % $113,034, % $3,383 97

98 Policy Year Illinois Residual Market Reinsurance Pool Net Operating Results Estimated Net Operating Gain/(Loss), Projected to Ultimate as of 12/31/ ($6,849) 2014 ($3,598) 2013 ($2,450) 2012 ($18,515) 2011 ($31,518) Operating Gain/(Loss) (000's) 98

99 Residual Market Underwriting Results All Pools Serviced by NCCI as of 12/31/2015 $ Millions * Policy Year *Incomplete policy year projected to ultimate, preliminary 99

100 Illinois Assigned Risk Programs Assigned Risk Adjustment Program (ARAP) Loss Sensitive Rating Plan (LSRP) Differential/Surcharge Removal of Premium Discounts Take-Out Credit (TOC) Program Contracting Classification Premium Adjustment Program Voluntary Coverage Assistance Program (VCAP Service) 100

101 Millions VCAP Service Policies Illinois Assigned Risk Premium Diverted to Voluntary Market $ $ Year 101

102 Residual Market Summary National Stable residual market share Manageable operating results Slow growth in 2014 and 2015 Illinois Growth in policy count while premium volume declines Residual market share declines Operating results have been more manageable in recent years Please visit ncci.com for additional state and countrywide information. 102

103 Closing Remarks Thank You!

104 Illinois Key Highlights NCCI Loss Cost Filing for 13.4% Claim frequency is declining and claim costs are moderating Underwriting results continue to improve Decline in residual market premium share 104

105 Glossary

106 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. 106

107 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. 107

108 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. 108

109 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. 109

110 Appendix

111 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 111

112 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 112

113 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 113

114 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 114

115 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 115

116 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 116