Kentucky. August 17,

Transcription

1 Kentucky August 17,

2 Kentucky State Advisory Forum Annual Issues Symposium: Bill Donnell Video Except Countrywide Workers Compensation System Kentucky Workers Compensation System and Filing Activity Kids Chance of Kentucky Labor Market: Countrywide and Kentucky Legislative Issues: Countrywide and Kentucky Judicial Issues: Kentucky Emerging Issue: 2017 Medical Marijuana Update Q & A 2

3 AIS State of the Line Video Excerpt Bill Donnell NCCI President and CEO

4 Countrywide Workers Compensation System

5 Countrywide Workers Compensation (WC) System An Overview After five years of growth, premium is flat in the most recent year The combined ratio continues to show favorable results Frequency declined again at the latest point Lost-time claim severity increased for both indemnity and medical 5

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

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

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

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

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

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

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

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

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

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

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

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

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

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

20 Kentucky s Workers Compensation System

21 Kentucky s Workers Compensation System An Overview Premium volume is stable Lost-time claim frequency continues to decline Underwriting gain is indicated in the latest year 21

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

23 Kentucky Accident Year Combined Ratios by Component 106% 1% 103% 1% 105% 107% 1% 0% 95% 0% 37% 37% 37% 38% 31% 68% 64% 68% 69% 64% Accident Year Loss Ratio Expense Ratio Dividend Ratio Sources: NCCI s financial data and NAIC s Annual Statement data 23

24 Impact of Discounting on Workers Compensation Premium in Kentucky 0.9% 2.7% 1.7% 3.1% 2.9% Percent -1.1% -6.3% -9.3% -9.8% -5.8% -13.4% -14.7% -16.9% -13.9% -24.5% Policy Year Dividends Schedule Rating Rate/Loss Cost Departure Based on data through 12/31/2016 Dividend ratios are based on calendar year statistics 24

25 Kentucky WC Lost-Time Claim Frequency Percent Change in Lost-Time Claims Percent Change 0.3% Cumulative Change of 43.9% ( ) -1.8% -3.5% -2.1% -1.8% -4.3% -1.9% -0.8% -1.5% -2.8% -6.8% -5.7% -11.5% -11.5% Policy Year Based on data through 12/31/2016, developed to ultimate and adjusted to a common wage level 25

26 Kentucky Average Medical Claim Severity Lost-Time Claim Severity in $ Thousands Cumulative Change of +18.9% ( ) -2.7% -0.1% 6.3% 5.6% -0.8% 4.2% 3.5% -0.7% 3.7% 3.7% -6.8% 0.9% -0.6% 2.2% $29.9 $29.3 $29.5 $29.2 $31.3 $30.2 $29.2 $29.4 $28.4 $27.2 $27.5 $26.0 $24.5 $24.5 $ Policy Year Based on data through 12/31/2016, on-leveled and developed to ultimate 26

27 Kentucky Average Indemnity Claim Severity Lost-Time Claim Severity in $ Thousands Cumulative Change of +26.8% ( ) 13.0% -5.1% 5.4% 6.3% 3.0% -0.4% 1.6% 1.7% 1.0% -6.2% 4.8% 6.0% -0.1% -5.5% $27.7 $27.3 $26.9 $27.0 $26.2 $24.6 $23.4 $24.6 $21.8 $23.0 $23.1 $21.7 $20.7 $22.1 $ Policy Year Based on data through 12/31/2016, on-leveled and developed to ultimate 27

28 Kentucky Filing Activity Voluntary Loss Cost Changes 5.6% 3.4% -3.4% -5.0% -4.6% -7.9% -6.9% 10/1/2013 6/6/2014* 10/1/ /1/ /1/2016 7/1/2017* 10/1/2017** *Law-only filing **Pending 28

29 Kentucky October 1, 2017 Loss Cost Filing Overall Loss Cost Level Change: 4.6% Change in Experience: 6.0% Change in Trend: 0.1% Change in Benefits: +1.6% 29

30 Kentucky October 1, 2017 Filing Average Changes by Industry Group Overall Change: 4.6% Manufacturing: 4.7% Contracting: 5.6% Office & Clerical: 4.7% Goods & Services: 8.8% Miscellaneous: +1.7% 30

31 Percent 15 Current NCCI Voluntary Market Loss Cost/Rate Level Changes Excludes Law-Only Filings NC NH MD TN CO AL IL CT NV WV OK LA IN NM UT AR KS VT MT TX OR AZ MS FL KY RI ME NE IA DC MO AK ID SD GA VA HI SC Approved Pending Reflects the most recent experience filing in each jurisdiction as of 8/4/2017 Due to the timing of the individual loss cost/rate filings, the figures shown may include changes from prior filing seasons 31

32 Current Voluntary Market Rates/Loss Costs Southeastern NAIC Zone South Carolina 9/1/ % Virginia* 4/1/ % Georgia 3/1/17 0.5% Kentucky* 10/1/17 4.6% Florida 1/1/16 4.7% Mississippi 3/1/17 6.1% Arkansas 7/1/17 8.4% Louisiana 5/1/17 9.8% West Virginia* 11/1/ % Alabama 3/1/ % Tennessee 3/1/ % North Carolina 4/1/ % *Pending 32

33 Current Average Voluntary Pure Loss Costs Using Kentucky Payroll Distribution Pure Loss Cost All Classes KY IL IN TN VA WV Region Country Based on the latest NCCI approved rates and loss costs in the various states 33

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

35 Larry Clevinger

36 Labor Market: Countrywide and Kentucky

37 National Economic Highlights and Their Impact on Workers Compensation National Economic Indicator Private employment growth is expected to continue to slow Wage growth is poised to accelerate Medical inflation is forecast to slow and then reaccelerate Interest rates are still low, but expected to increase Potential Impact on the Workers Compensation Market The impact on payroll and premium will also slow Upward pressure on payroll and premium as well as indemnity severity Increases in medical costs per claim Investment income will likely remain muted this year, but increase as interest rates rise 37

38 Percent 3 Change in Private Employment Private Employment Growth Is About Average May 2015 May 2016 May Kentucky United States Private Nonfarm Employment, seasonally adjusted Frequency of observation: monthly; latest available data point: May 2017; percentage change for the 12 months ending each May Source: US Bureau of Labor Statistics (BLS), 38

39 Change in Employment by Industry Employment in Most Industries Has Increased in the Past 12 Months Industrial Sector 12-Month Percent Change, May 2017 Professional and Business Services Trade, Transportation, and Utilities Education and Health Services Manufacturing Construction Financial Activities Information Other Services Leisure and Hospitality Natural Resources and Mining Government Percentage change for the latest 12 months as of May 2017 Current Employment Statistics Survey, seasonally adjusted; frequency of observation: monthly Source: US Bureau of Labor Statistics (BLS), Sector Size % Share 12-Month Change KY , ,500 US +3.1 KY , ,500 US +0.6 KY , ,400 US +2.3 KY , ,700 US +0.5 KY , ,900 US +2.9 KY , ,500 US +2.0 KY , ,400 US 0.6 KY , ,300 US +1.4 KY , ,200 US +2.1 KY 8.5 9, US +4.7 KY , ,100 US

40 Percent 4 Change in Average Weekly Wages Wage Growth Is Above the Rest of the Nation Kentucky Wages are for Total Private Industry Frequency of observation: annual; latest available data point: Values for 2016 are preliminary. Source: US Bureau of Labor Statistics (BLS), United States 40

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

42 Kentucky s Labor Market Kentucky s unemployment rate is above the US rate Employment growth is similar to the US rate: Professional and Business Services added the most jobs Trade, Transportation, and Utilities is the largest sector in the state and added the second largest number of jobs The Natural Resources and Mining sector and the Government sector experienced declines Kentucky wage growth is above the US average 42

43 Coal Mining

44 Coal Mining Employment: Kentucky Employment Is Down Both Nationally and in Kentucky 250 Coal Employment, Thousands United States, excluding KY (left axis) Kentucky (right axis) : SIC-based; : SIC-based data reconstructed to NAICS; : NAICS-based Frequency of observation: annual; latest available data point: 2016 (preliminary) Sources: Moody s Economy.com; US Bureau of Labor Statistics, Quarterly Census of Employment and Wages, 44

45 Wage Growth in Coal Mining: Kentucky Coal Mining Wages Were Flat Over the Latest 12 Months Wage growth is shown for Kentucky 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 2016 (preliminary) Average Annual Rate of Wage Growth, December 2016 compared to 12, 36, and 60 months prior, respectively Source: US Bureau of Labor Statistics, Quarterly Census of Employment and Wages, 45

46 Coal Mining Fatality Rate, Nationwide The Coal Mining Fatality Rate Is Volatile but Trending Lower Frequency of observation: annual; latest available data point: 2016 Source: Mine Safety and Health Administration (MSHA), 46

47 Challenging Outlook for Coal Mining US coal production fell 17% in 2016 to the lowest level since 1978 Declines ranged from 16% to 26% across all major coal regions The decline can be attributed to low natural gas prices, warm winter temperatures, lower international demand, and retiring coalfired generators Most coal use in the US is for electricity, but coal s share of electricity generation has fallen due to increased competition from natural gas and renewable energy In 2016, the natural gas share of electricity generation (34%) passed the coal share for the first time (30%) Coal s share of electric power generation has fallen from its peak of 57% in 1988 to 30% in 2016 its lowest historical level 47

48 Legislative Issues: Countrywide and Kentucky 48

49 2017 Overview Countrywide, legislative activity has increased over prior years both in volume and content. Regulation changes thus far concern medical cost management, claim handling, and effectuating enacted legislation. Year to date, there have been fewer workers compensationrelated cases at the state supreme court level than there were in The 2016 general election resulted in a net gain for Republicans in state government, where they now control both chambers of the legislature and the governor s office in 26 states. 49

50 2017 Workers Compensation Legislative Activity CA OR WA NV ID UT MT WY CO ND SD NE KS MN WI IA MO IL MI IN OH KY WV PA VA NY VT NH CT ME MA DC NJ DE MD RI AZ NM OK AR TN SC NC MS AL GA AK TX LA FL HI 0 10 Bills Introduced Bills Introduced Bills Introduced More Than 30 Bills Introduced As of 5/1/

51 Key Workers Compensation-Related Themes in Introduced Legislation First Responder Presumptions Indemnity Benefits Medical Cost Management Definitions 51

52 Federal Focus on State-Based Workers Compensation System Increased interest in state insurance regulation: Nexus between workers compensation program and federal benefit programs a. Centers for Medicare & Medicaid Services b. Social Security Disability Insurance Bipartisan Policy Center report Improving U.S. Insurance Regulation calls for considering minimal federal insurance standards for property/casualty (including workers compensation and life insurance lines). CHOICE Act (H.R. 10) would recast the federal focus on insurance issues by combining the Federal Insurance Office with the Financial Stability Oversight Council insurance representative and create the Office of the Independent Insurance Advocate. 52

53 Federal Emerging Issues Regulation of Air Ambulance Services Sen. Jon Tester (MT) introduced legislation to provide state authority Federal Aviation Administration Reauthorization Social Security Disability Insurance (SSDI) Reform SSDI Solutions Initiative recommendations SSDI State Department of Labor Audit Pilot Medicare Set-Aside (MSA) Reform Legislation to be introduced to bring greater efficiency to MSA Process Congressional Budget Office (CBO) scoring 53

54 Kentucky Legislative Activity HB 223/Acts Ch. 17 Revises KRS to reduce judicial interest from 12% to 6% (including prejudgment interest) Revises KRS to reduce interest owed on delayed payment of income benefits from 12% to 6% and to reduce interest owed on delayed payment of income benefit without reasonable foundation from 18% to 12% 54

55 HB 306/Acts Ch. 85 Kentucky Legislative Activity Amended KRS to exempt from coverage: Any licensed or unlicensed, commissioned, ordained or unordained, or lay minister of religion who has no set oral or written agreement with a church or religious organization to receive a fixed regular payment for services provided to the church or who works no more than ten (10) hours per week and Any caretaker of a cemetery or property owned or operated by a church or religious organization who provides general cleanup services, including but not limited to mowing, raking, dusting, sweeping, and mopping which could be performed for other individuals or organizations, who works no more than ten (10) hours per week 55

56 Kentucky Legislative Activity HB 333/Acts Ch. 168 Expands the authority of the Office of Drug Control Policy to request the rescheduling of any substance Schedules fentanyl derivatives as Schedule I controlled substances Adds carfentanil, fentanyl, or fentanyl derivatives to several criminal statutes and makes trafficking in any amount of these drugs subject to elevated penalties Requires state licensing boards (Board of Medical Licensure, Board of Nursing, Board of Dentistry, Board of Optometric Examiners, Board of Podiatry, et al.) in conjunction with the Kentucky Office of Drug Control Policy, to promulgate regulations to prohibit practitioners from issuing a prescription for a Schedule II controlled substance for more than a three-day supply, with certain exceptions 56

57 Kentucky Legislative Activity HB 377/Acts Ch. 173 Kentucky s coal workers pneumoconiosis fund (CWP Fund) was created in 1996 to place financial responsibility for liabilities for workers compensation awards for CWP on employers engaged in the severance and processing of coal through assessments on workers compensation premiums, self-insured employers, and severed coal Assessments were used to pay 50% of indemnity benefits for a CWP claim The downturn in severance of coal and reduction in coal employers and employees coupled with an increase in CWP claims being filed resulted in the Kentucky Workers Compensation Funding Commission initially assessing WC premiums at 49.5% and severed coal at $.4174 per ton for calendar year 2017 HB 377 closed the CWP Fund on July 1, 2017, to any CWP claims filed after June 30, 2017, and transferred the assets and liabilities of the CWP Fund to Kentucky Employers Mutual Insurance The Kentucky Workers Compensation Funding Commission s 2017 assessments were retroactively reduced from 14% of premiums and $.15 per ton 57

58 Kentucky Legislative Activity Bills impacting the organization of the Labor Cabinet and/or the Department of Workers Claims: HB 378/Acts Ch. 134 Omnibus Act HB 293/Acts Ch. 82 Reorganization, revision, and/or abolishment of various divisions of the Labor Cabinet, affecting, in whole or in part, the Division of Workers Compensation Fund, the Department of Workers Claims, the Office of General Counsel for Workers Claims, and the Workers Compensation Advisory Council HB 299/Acts Ch. 83 Revised the Workers Compensation Nominating Commission Committee and changed the composition from seven members to five members 58

59 Kentucky Judicial Issues Ed O Daniel 59

60 Emerging Issue: The Legalization of Marijuana and Its Impact on Workers Compensation

61 Audience Question 1 How many states have legalized medical marijuana?

62 State Activity Medical Marijuana Recreational Marijuana 29 8 Plus Washington, DC have legalized medical marijuana Plus Washington, DC have legalized recreational marijuana 62

63 Federal Activity US Drug Enforcement Administration Federal funds will not be used to prevent state implementation of medical marijuana laws Controlled Substances Act Unclear as to what will happen August 2016 May 2017 Currently 2017 and Beyond Will not reclassify marijuana House Resolution 244 Marijuana is an illegal Schedule I drug Current Administration 63

64 Audience Question 2 Scenario: In a state where both medical and recreational marijuana are legal, an employee has a valid prescription for medical marijuana and has used marijuana outside of work hours. The employer has a drug-free workplace policy. Can the employer terminate the employee for testing positive for marijuana? No, because marijuana is legal in the state No; the employee can be reprimanded, but not fired No, because the employee had a valid prescription Yes, the employer can lawfully terminate the employee 64

65 Colorado Supreme Court Coats v. Dish Network (2015) Employers can lawfully terminate workers for using marijuana outside of work hours even though the drug is LEGAL in the state. 65

66 Audience Question 3 Marijuana is illegal under federal law. Can a state require a WC insurer to reimburse for medical marijuana for a workplace injury? No, because marijuana is illegal under federal law No, because the Centers for Medicare & Medicaid Services (CMS) will not provide payment for products or services if a provider does not comply with federal law No, because the Schedule I status of marijuana prohibits the assigning of a National Drug Code (NDC) Yes, a state can require an insurer to reimburse certain claimants for medical marijuana if the drug is reasonable and necessary medical care for treatment of a work injury 66

67 An insurer MUST reimburse a qualified workers comp claimant for the cost of medical marijuana to treat low back pain Appealed to NM New Mexico Court of Appeals Vialpando v. Ben s Automotive Services and Redwood Fire & Casualty (2014) Supreme Court: Certiorari denied 67

68 New Mexico Court of Appeals Maez v. Riley Industrial (2015); Lewis v. American General Media (2015) An employer is required to reimburse a qualified claimant for medical marijuana if the drug is reasonable and necessary medical care for treatment of a work injury. 68

69 Connecticut Workers Compensation Commission Decision Petrini v. Marcus Dairy, Inc. and Gallagher Bassett Service (2016) Upheld the decision that the claimant s use of medical marijuana for pain management of his debilitating condition constitutes reasonable and necessary medical treatment Appealed to Connecticut Court of Appeals 69

70 Maine WC Board Decisions (2016) Maine WC Board: Noll v. Lepage Bakeries, Inc. and Cannon Cochran Management Services Bourgoin v. Twin Rivers Paper Co., LLC and Sedgwick CMS Self-insured employer is to reimburse costs for reasonable and proper use of medical marijuana under state s WC and medical marijuana law Appealed to Maine Supreme Judicial Court: Certiorari denied in Noll; granted in Bourgoin 70

71 Other Activity At least five states (Connecticut, Maine, Minnesota, New Jersey, and New Mexico) have allowed reimbursement for WC under certain circumstances Florida and North Dakota passed legislation in 2017 prohibiting payment of WC benefits for medical marijuana New Mexico Adopted a fee schedule to provide for reimbursement of medical marijuana to injured workers effective January 1, 2016 Introduced legislation (SB 371/HB 527) in 2017 requiring employers and carriers to pay for medical marijuana for injured workers did not pass 71

72 Questions Raised by WC Stakeholders Is marijuana a safer alternative to opioids for pain management? Is it a less expensive alternative to other drugs? When a state legalizes marijuana, what is the potential impact on neighboring states? Should states consider fee schedules for marijuana (like New Mexico)? How are appropriate dosage levels determined? What is the impact on Medicare Set-Aside Allocations since marijuana is still illegal under federal law? 72

73 Legalization of Marijuana Summary States are increasingly legalizing marijuana in some form for medical use. Courts are increasingly dealing with contested cases of medical marijuana in the work environment. Marijuana is still illegal under federal law and remains a Schedule I drug. 73

74 Q & A

75 Supplemental Information

76 Medical Benefits Constitute the Majority of Total Benefit Costs in Kentucky Kentucky Indemnity 48% Medical 52% Region Indemnity 41% Medical 59% Countrywide Indemnity 42% Medical 59% 0% 20% 40% 60% 80% 100% Regional states are IL, IN, TN, VA, and WV Based on NCCI s financial data 76

77 Loss Ratio Kentucky Indemnity and Medical Loss Ratios Policy Year Indemnity Medical Based on NCCI s financial data at current benefit level and developed to ultimate 77

78 What Drives Indemnity and Medical Loss Ratios? Frequency (Claims/ Premium) Indemnity Severity (Loss/Claim) Indemnity Loss Ratio (Loss/Premium) Frequency (Claims/ Premium) Medical Severity (Loss/Claim) Medical Loss Ratio (Loss/Premium) 78

79 Frequency per Million of On-Leveled Premium Kentucky Claim Frequency Policy Year Based on NCCI s financial data Frequency of lost-time claims adjusted to a common wage level 79

80 Indemnity Average Claim Severity ($ '000s) Kentucky Average Indemnity Claim Severity Policy Year Adjusted to Common Wage Level Actual Based on NCCI s financial data for lost-time claims at current benefit level and developed to ultimate 80

81 Medical Average Claim Severity ($ '000s) Kentucky Average Medical Claim Severity Policy Year Adjusted to Common Wage Level Actual Based on NCCI s financial data for lost-time claims at current benefit level and developed to ultimate 81

82 Pure Loss Costs All Classes Current Average Voluntary Pure Loss Costs Using Kentucky Payroll Distribution TX AR WV IN UT NV KS TN DC OR AZ MS SD KY VA NC AL NE LA HI ID NM MO CO MD OK NH FL SC GA IA ME RI MT AK IL VT CT CW State Based on the latest NCCI approved rates and loss costs in the various states 82

83 Kentucky Average Claim Frequency Frequency per 100,000 Workers All Claims WV 947 2,700 Total 3,647 VA 455 1,896 Total 2,351 TN 821 2,801 Total 3,622 IN 666 3,235 Total 3,901 IL 994 1,935 Total 2,929 KY 723 2,995 Total 3, Lost Time Medical Only Based on NCCI s Statistical Plan data 83

84 Average Indemnity Claim Severity in the Region Lost-Time Claim Severity in $ Thousands KY IL IN TN VA WV Based on NCCI s financial data for lost-time claims at current benefit level and developed to ultimate 84

85 Average Medical Claim Severity in the Region Lost-Time Claim Severity in $ Thousands KY IL IN TN VA WV Based on NCCI s financial data for lost-time claims at current benefit level and developed to ultimate 85

86 Kentucky Distribution of Claims by Injury Type 81% 14% 5% 0% 75% 15% 10% 0% 75% 15% 10% 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Medical Only Temporary Total Permanent Partial Fatal & Permanent Total Regional states are IL, IN, TN, VA, and WV Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist 86

87 Kentucky Indemnity Loss Distribution by Injury Type 44% 45% 3% 8% 32% 62% 3% 3% 33% 57% 4% 6% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Temporary Total Permanent Partial Permanent Total Fatal Regional states are IL, IN, TN, VA, and WV Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist 87

88 Kentucky Medical Loss Distribution by Injury Type 40% 38% 6% 16% 0% 30% 48% 8% 13% 1% 30% 47% 9% 13% 1% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Temporary Total Permanent Partial Permanent Total Medical Only Fatal Regional states are IL, IN, TN, VA, and WV Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist 88

89 Q & A

90 Glossary

91 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. 91

92 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. 92

93 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. 93

94 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. 94

95 Appendix

96 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 96

97 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 97

98 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 98

99 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 99

100 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 100

101 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 101