W o r k e r s C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a

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1 W o r k e r s C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a WCIRB Report on the State of the California Workers Compensation Insurance System August 8, 2016 The webinar will begin shortly. Notice The information provided in this presentation was developed by the Workers Compensation Insurance Rating Bureau of California (WCIRB) solely for the purpose of discussion during this presentation. The WCIRB shall not be liable for any damages, of any kind, whether direct, indirect, incidental, punitive or consequential, arising from the use, inability to use, or reliance upon information provided in this presentation 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 by federal copyright law. No copyright is claimed in the text of statutes and regulations quoted within this work. 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. WCIRB Research Forum Presenters Dave Bellusci EVP & Chief Actuary Tony Milano VP, Actuary 2 1

2 Question and Answer Period Asking a Question You may submit questions using the Questions panel. 3 Reported Written Premium by Calendar Year (Gross of Deductible Credits) 25 $ Billions Source: WCIRB aggregate financial data calls. Premiums are gross of any deductible credits. 4 2

3 California Written Premium as Percentage of Countrywide Premium 2005 Market Share California Remainder of Country 20 Market Share California Remainder of Country 2015 Market Share California Remainder of Country 32% 21% 29% 68% 79% 71% Sources: WCIRB Aggregate Financial Data Calls and NCCI May 13, 2016 State of the Line Presentation (2015 estimate is preliminary). Premiums are net of deductible credits. 5 Components of Changes in Written Premium $ Billions $2.1 Change in Insurer Average Charged Rates Increase in Employer Payrolls Other Factors 1.2 $ $0.6 $0.7 $0.7 $0.5 $ $ to 2013 ($2.3 billion) 2013 to 2014 ($1.6 billion) 2014 to 2015 ($1.2 billion) -$0.4 Source: WCIRB aggregate financial data calls and published California annual wage data. Premiums are gross of deductible credits. 6 3

4 Average Charged Rates Per $0 of Payroll by Policy Period $8.00 $6.00 $6.29 $4.36 $4.00 $2.00 $2.99 $3.24 $2.59 $3.46 $2.15 $2. $2.32 $2.63 $2.90 $2.97 $3.01 $2.85 $2.84 $ /03-12/03 7/05-12/ /12-12/ /15-6/15 7/15-12/15 1/16-3/16 Source: WCIRB aggregate financial data calls and unit statistical data. 7 Distribution of Total Insured System Costs ($s in Billions) $1.8 (%) $1.1 (7%) $1.8 (11%) $1.2 (7%) $2.9 (17%) $4.5 (27%) $3.1 (18%) $4.5 (27%) $6.6 (39%) $6.2 (37%) 2014 ($16.8B) 2015 ($16.8B) Source: WCIRB aggregate financial data calls. 8 4

5 Distribution of Indemnity Benefits Paid Temporary Disability 48.7% Permanent Partial Disability 41.8% Temporary Disability 50.1% Permanent Partial Disability 40.6% Other 3.7% Death 2.2% Permanent Total Disability 3.6% Other 4.0% Death 2.0% Permanent Total Disability 2014 ($3.3B) 2015 ($3.4B) Source: WCIRB aggregate financial data calls. 9 Distribution of Medical Benefits Paid Pharmaceuticals, 9.1% Hospitals, 12.6% Payments Made Directly to Injured Workers, 25.1% Medical Legal Evaluations, 6.9% Physicians, 28.2% Medical Liens, 6.4% Medical Supplies and Equipment, 5.1% Other, 6.7% Pharmaceuticals, 7.2% Hospitals, 13.3% Payments Made Directly to Injured Workers, 27.6% Medical Legal Evaluations, 7.3% Physicians, 27.4% Medical Liens, 6.4% Medical Supplies and Equipment, 5.2% Other, 5.5% 2014 ($4.7B) 2015 ($4.6B) Source: WCIRB aggregate financial data calls and medical transaction data. Excludes medical cost containment program payments. 5

6 Long-Term California Total Claim Frequency Indexed to 1962 by Policy Year Source: Reported unit statistical claim counts and reported unit statistical payroll adjusted for wage inflation. 11 Estimated Indemnity Claims Per 1,000 Employees by Accident Year Source: Information through accident year 2014 is based on WCIRB unit statistical data developed to 5 th report level. Accident year 2015 is based on changes in reported indemnity claim counts from WCIRB aggregate financial data calls as of March 31, 2016 compared to estimated changes in statewide employment. 12 6

7 Change in Estimated Indemnity Claim Frequency California Regions vs. NCCI States by Accident Year 15 % Los Angeles Basin Area Remainder of CA NCCI States (All CA) Source: WCIRB unit statistical data and aggregate financial data. NCCI estimates are based on the May 13, 2016 State of the Line Presentation (NCCI 2015 estimate is preliminary and the 20 and 2011 estimates have been adjusted to remove the impact of audit premium and other factors). 13 Indemnity Claim Frequency Relative to Statewide by Region Adjusted for Regional Wage Differences and Industrial Mix Regions 01 - Bay Area 02 LA/Long Beach 03 Santa Monica/San Fernando Valley 04 San Diego 05 Ventura 06 Orange County 07 San Gabriel Valley/Pasadena 08 Santa Cruz/Monterey 09 San Bernardino/West Riverside Peninsula/Silicon Valley 11 SLO/Santa Barbara 12 Sacramento 13 Bakersfield 14 Tulare/Inyo 15 Sonoma/Napa 16 Stockton/Modesto/Merced 17 Fresno/Madera 18 Yuba City/Redding/Far North 19 Imperial/Riverside Source: WCIRB unit statistical data, policy year 2013 at first report level

8 Cumulative Injury Claims per 0 Indemnity Claims by Region and Accident Year 20 Los Angeles Basin Area Remainder of CA Source: WCIRB unit statistical data. 15 Chart 16 Cumulative Injury Claims as a Share of Total Claims by Region Regions 01 - Bay Area 02 LA/Long Beach 03 Santa Monica/San Fernando Valley 04 San Diego 05 Ventura 06 Orange County 07 San Gabriel Valley/Pasadena 08 Santa Cruz/Monterey 09 San Bernardino/West Riverside Peninsula/Silicon Valley 11 SLO/Santa Barbara 12 Sacramento 13 Bakersfield 14 Tulare/Inyo 15 Sonoma/Napa 16 Stockton/Modesto/Merced 17 Fresno/Madera 18 Yuba City/Redding/Far North 19 Imperial/Riverside Source: WCIRB unit statistical data, policy year 2013 at first report level. Controlled for wage level and class mix

9 Estimated Permanent Partial Disability Claims per 0,000 Employees Median = MI ME DC MA VA LA MT AL AZ NH UT KY TX AR GA PA FL SD MS IN MN DE AK VT NM NC MD RI TN NY NE WV HI NV KS CO SC ID NJ WI IL IA CT OR OK MO CA Source: 2016 NCCI Annual Statistical Bulletin for 2012 policy year at first report level. 17 Estimated Change in Indemnity Cost per Indemnity Claim by Accident Year California vs. NCCI States % Change California NCCI States Source: WCIRB aggregate financial data calls as of March 31, NCCI estimates are based on the May 13, 2016 State of the Line Presentation (2014 and 2015 estimates are preliminary). 18 9

10 Countrywide Indemnity Cost per Indemnity Claim $50,000 $40,000 $30,000 $20,000 Median = $19,179 $25,698 $,000 $0 IN OR FL AZ UT ID SD HI AK NH MT WI RI AR KS WV TX MN MO MI AL TN KY MS ME CO NE NV IA MD VT NM CA VA CT MA NJ SC OK IL GA DC PA DE NC LA NY Source: 2016 NCCI Annual Statistical Bulletin based on 2012 policy year at first report level developed to ultimate. 19 Incurred Medical on Indemnity Claims Relative to Statewide by Region Regions 01 - Bay Area 02 LA/Long Beach 03 Santa Monica/San Fernando Valley 04 San Diego 05 Ventura 06 Orange County 07 San Gabriel Valley/Pasadena 08 Santa Cruz/Monterey 09 San Bernardino/West Riverside Peninsula/Silicon Valley 11 SLO/Santa Barbara 12 Sacramento 13 Bakersfield 14 Tulare/Inyo 15 Sonoma/Napa 16 Stockton/Modesto/Merced 17 Fresno/Madera 18 Yuba City/Redding/Far North 19 Imperial/Riverside Source: WCIRB unit statistical data, policy year 2013 at first report level. Controlled for wage level and class mix. 20

11 Estimated Change in Medical Cost per Indemnity Claim by Accident Year California vs. NCCI States 20 % Change California NCCI States Source: WCIRB aggregate financial data calls as of March 31, NCCI estimates are based on the May 13, 2016 State of the Line Presentation (2014 and 2015 estimates are preliminary). 21 Countrywide Medical Cost per Indemnity Claim $60,000 $50,000 $40,000 $42,352 $30,000 Median = $25,780 $20,000 $,000 $0 RI HI OR MA DC WV ME NV MI TX KY SC MD AR KS MO CO MT OK MS VT IA FL CT ID NY WI NH IL IN MN PA NJ AZ SD TN GA NC NE UT AL VA AK NM LA CA DE Source: 2016 NCCI Annual Statistical Bulletin based on 2012 policy year at first report level developed to ultimate

12 Percentage of Ultimate Medical Cost Paid at 3 Years 0% 80% Median = 65% 60% 36.3% 40% 20% 0% IN RI MO AR IL NE KS IA ID FL MA CO WI TX MI HI NH ME VT NJ NC OR PA SD AZ SC VA GA LA OK MS NM UT KY MN CT DC TN NV AK AL MT MD NY DE CA Source: NCCI Annual Statistical Bulletin 2016 Edition. 23 Percentage of Indemnity Claim Counts Unreported at 12 Months 30% 24% 20% 16% % 4% 4% 5% 7% 9% 9% 9% % 12% 12% 12% 14% 9% 0% NM PA TX AZ MN FL MA GA CO NV OR IL UT CA Median Source: WCIRB calls for aggregate financial information and individual state summaries provided by NCCI, the Minnesota Workers Compensation Insurers Association, the Workers Compensation Rating & Inspection Bureau of Massachusetts, and the Pennsylvania Compensation Rating Bureau

13 Percentage of Reported Indemnity Claims Open after 60 Months 30% 20% 18% 13% % 2% 3% 4% 4% 4% 4% 5% 5% 5% 5% 7% 8% 5% 0% CO FL TX GA PA UT NV OR MN MA AZ IL NM CA Median Source: WCIRB calls for aggregate financial information and individual state summaries provided by NCCI, the Minnesota Workers Compensation Insurers Association, the Workers Compensation Rating & Inspection Bureau of Massachusetts, and the Pennsylvania Compensation Rating Bureau. 25 Estimated Average Allocated Loss Adjustment Expense Cost per Indemnity Claim by Accident Year $15,000 14,009 11,056 11,084 11,295 11,731 12,655 $,000 7,466 8,548 7,789 8,917 $5,000 $ Source: WCIRB aggregate financial data calls from California private insurers as of December 31, Values are developed to a final or ultimate cost basis

14 Average Paid Allocated Loss Adjustment Expense Cost per Indemnity Claim $,000 $8,000 Los Angeles Basin Area Remainder of CA $8,434 $6,627 $6,000 $4,000 $2,000 $2,7 $2,232 $0 Policy Year 2013 at 1st Report Level (18 Months after Policy Inception) Policy Year 20 at 4th Report Level (54 Months after Policy Inception) Source: WCIRB unit statistical data for private insurers. Paid ALAE includes medical cost containment program costs. Regions are based on the zip code reported on the California workers compensation policy for the employer. 27 Countrywide Ratios of Loss Adjustment Expense Costs to Losses 40% 35% 34.9% 30% Median = 18.3% 25% 20% 15% 13.4% % ME MT ID VT NE NY IA IN NH NV AK VA CT NC DC WI RI AZ KS AR CO IL AL MO NJ OK TX TN NM MA DE MI UT SC MS FL HI CA Source: NCCI Annual Statistical Bulletin 2016 Edition 28 14

15 WCIRB Cost Evaluation of SB 863 Summary of Estimates WCIRB Original Updated Updated WCIRB SB 863 Provisions Cost Estimates WCIRB Estimates ($s in billions) Assessment ($s in billions) 2013 & 2014 PD Benefit Changes +$0.9 +$0.9 Liens ($0.5) ($0.5) IMR (Impact on Frictional Costs) ($0.2) +$0.1 RBRVS Fee Schedule +$0.3 $0.0 Other Reforms ($0.7) ($0.8) Indemnity Claim Frequency Small Increase --- Indemnity Severities Increase --- Medical Severities No Impact ($0.5) Total Estimate All Items ($0.2) ($0.8) 29 Insurer Reported Combined Loss and Expense Ratios by Calendar Year 140 % Private Insurers - California Private Insurers - Countrywide Sources: Countrywide estimate from NCCI May 13, 2016 State of the Line Presentation. The 2015 estimate is preliminary. California ratios based on WCIRB calls for aggregate financial information

16 Question and Answer Period Asking a Question You may submit questions using the Questions panel