ALASKA. October 19,

Transcription

1 ALASKA October 19,

2 Alaska Workers Compensation State Advisory Forum State of the Industry Economic Overview Alaska Workers Compensation System Overview Alaska s 2017 Loss Cost Filing Claim Frequency Medical Severity Guest Speaker: Marie Marx, Director of Alaska Workers Compensation Division Indemnity Severity Alaska s Residual Market Legislative Issues Nationwide and in Alaska 2

3 Alaska Outlook Decline in Frequency Medical Severity Increase A Tenuous Balance 3

4 NCCI Market Outlook 2012 Conflicted 2013 Encouraging 2014 Balanced 2015 Calm Now but Turbulence Ahead 2016 Transforming Bill Donnell New NCCI President and CEO 4

5 State of the Industry

6 State of the 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 6

7 $ 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 7

8 Countrywide Workers Compensation Approved Changes in Bureau Premium Level By Effective Year for NCCI States Percent 5 Cumulative Change of 20.3% ( 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 8

9 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 9

10 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% +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 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 10

11 Indemnity/Medical Split Over Time Private Carriers and State Fund NCCI States Indemnity Medical p 55% 45% 48% 52% 43% 57% 42% 58% Source: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies 11

12 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 12

13 Current NCCI Voluntary Market Loss Cost/Rate Level Changes Percent Excludes Law-Only Filings WV NC IL AZ TN AL CT OK MD TX IN NH NM KS MS RI OR AK NV VA KY FL IA AR DC MO MT LA UT CO SD NE ME ID HI 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 13

14 Nationwide Economic Outlook

15 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 15

16 Forecast Is for Continued but Slowing Growth 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 16

17 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: July 2016 Sources: Moody s Analytics and the US Bureau of Labor Statistics 17

18 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; forecast years: 2016 and 2017 Sources: US Bureau of Labor Statistics, Moody s Analytics, and NCCI 18

19 Medical Inflation Is Forecast to Accelerate US Medical Consumer Price Index Growth Rate Percent 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 19

20 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 20

21 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 because 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 because construction accounts for 24% of premiums. 21

22 Oil Prices Are Forecast to Accelerate Next Year West Texas Intermediate US $ per Barrel $95 $94 $98 $93 50 $49 $44 $ 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 and Moody s Analytics 22

23 How Does the Alaska Economy Compare?

24 Change in Private Employment Private Employment Has Declined Slightly in Alaska Percent 3 July 2014 July 2015 July Alaska United States Private Nonfarm Employment, seasonally adjusted Frequency of observation: monthly; latest available data point: July 2016; percentage change for the 12 months ending each July Source: US Bureau of Labor Statistics (BLS), 24

25 Change in Private Employment Comparison of Private Employment Growth Across States 25 Private Nonfarm Employment, seasonally adjusted Frequency of observation: monthly; latest available data point: July 2016; percentage change for the 12 months ending July 2016 Source: US Bureau of Labor Statistics (BLS), 25

26 Change in Employment by Industry Employment in Most Industries Has Decreased in the Past 12 Months Industrial Sector 12-Month Percent Change, July 2016 Sector Size % Share 12-Month Change Education and Health Services Leisure and Hospitality Government Trade, Transportation, and Utilities Other Services Manufacturing Financial Activities Construction Information Professional and Business Services Natural Resources and Mining AK , ,600 US +2.9 AK , ,500 US +2.8 AK , ,300 US +0.7 AK , US +1.4 AK , US +1.1 AK , US 0.3 AK , US +2.0 AK , US +3.3 AK 3.2 6, US +1.0 AK , ,000 US +2.8 AK , ,200 US 16.0 Percentage change for the latest 12 months as of July 2016 Current Employment Statistics Survey, seasonally adjusted; frequency of observation: monthly Source: US Bureau of Labor Statistics (BLS), 26

27 Change in Average Weekly Wages 0 Wage Growth Is Below the Rest of the Nation Percent Alaska 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), 27

28 Headline Unemployment Rate The Unemployment Rate Is Above the National Average Percent July 2014 July 2015 July Alaska United States Headline unemployment rate, seasonally adjusted Frequency of observation: monthly; latest available data point: July 2016 Source: US Bureau of Labor Statistics (BLS), 28

29 Alaska s Economic Highlights Alaska s unemployment rate is above the US rate Employment has declined: Natural Resources and Mining and Professional and Business Services have posted the largest declines Education and Health Services is the topperforming sector in the state, with growth outpacing the national rate The Leisure and Hospitality; Government; and Trade, Transportation, and Utilities sectors have also added jobs Alaska wage growth is below the US average 29

30 Alaska Workers Compensation System Overview

31 Alaska Workers Compensation System An Overview Premium volume is stable Frequency continues to decline Combined ratios are lower in the latest year Average medical costs are on the rise 31

32 Alaska s Workers Compensation Premium Volume Direct Written Premium in $ Millions $345 $331 $285 $256 $235 $247 $299 $294 $283 $ p Calendar Year p Preliminary Source: NAIC s Annual Statement data 32

33 Workers Compensation Premium Rate Ranking Premium Rate Index per $100 of Payroll AK ranking 5th highest (out of 51) ND IN AR MA VA NV UT DC WV OR CO KY KS MS AZ TX MD MI OH GA WY NE AL FL HI NC SD IA WI TN MO NM RI MN WA SC PA ID ME NH MT LA DE VT IL OK AK NY NJ CT CA Source: 2014 Oregon Workers Compensation Premium Rate Ranking Summary 33

34 Impact of Discounting on Workers Compensation Premium in Alaska Percent 20% 15% 14.7% 11.1% 14.0% 9.2% 5.1% 0.3% 0.6% 2.5% 7.5% 8.2% 10% 2.0% 5% 0% -5% -10% -7.0% -15% -11.0% -0.2% -0.2% -20% Policy Year Rate/Loss Cost Departure Schedule Rating Dividends Totals Based on data through 12/31/2015 Dividend ratios are based on calendar year statistics 34

35 Combined Ratio 120% Alaska s Accident Year Combined Ratios 105% 100% 80% 99% 36% 92% 32% 88% 33% 34% 87% 33% 60% 40% 20% 62% 60% 55% 72% 53% 0% Loss Ratio Accident Year Dividend and Expense Ratio Sources: NCCI s financial data and NAIC s Annual Statement data 35

36 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 36

37 Alaska s 2017 Loss Cost Filing

38 Alaska s Major Loss Cost Drivers Experience and loss development improved Medical loss ratios have decreased Loss costs have decreased Lost-time frequency is decreasing 38

39 Alaska s January 1, 2017 Loss Cost Filing Overall Loss Cost Level Change 5.5% Changes due to: Experience 4.8% Trend 1.5% Benefits +0.6% LAE +0.2% Indemnity 0.0% Indemnity (SAWW) +0.6% Medical 2.0% Medical (Schedule) +0.6% 39

40 Alaska s January 1, 2017 Filing Average Changes by Industry Group Manufacturing 6.1% Contracting 4.0% Office and Clerical 8.2% Goods and Services 5.4% Miscellaneous 4.2% Oil and Gas 9.7% Overall 5.5% 40

41 Loss Ratio Alaska s Indemnity and Medical Trends Indemnity Medical 1/1/2016 Loss Ratio Trend 5.0% 0.0% 1/1/2017 Loss Ratio Trend 5.0% 0.5% 80.0% 73.6% 71.7% 66.1% 72.7% 66.8% 65.9% 72.7% 67.9% 60.0% 40.0% 20.0% 39.9% 34.3% 30.2% 31.4% 29.3% 26.1% 27.6% 26.8% 0.0% Policy Year Indemnity Medical Based on NCCI s financial data at current benefit level and developed to ultimate 41

42 Percent Alaska s Filing Activity Voluntary Loss Cost and Assigned Risk Rate Changes /1/2013 1/1/2014 1/1/2015 1/1/2016 5/1/2016* 1/1/2017 Pending Voluntary Assigned Risk *Law-only filing 42

43 Average Voluntary Pure Loss Cost Quartiles Using Alaska s Payroll Distribution $0.62 $1.22 $1.23 $1.39 $1.40 $1.68 $1.69 $2.48 Not Included Countrywide = $1.40 Alaska = $2.00 Based on the latest NCCI approved rates and loss costs in the various states 43

44 Claim Frequency

45 Alaska s Distribution of Claims by Injury Type Alaska 69% 24% 7% 0% 0% Region 77% 16% 7% 0% 0% Countrywide 0% 76% 15% 9% 0% 0% 20% 40% 60% 80% 100% Medical Only Temporary Total Permanent Partial Permanent Total Fatal Regional states are AZ, MT, NM, and OR Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist 45

46 Alaska s Average Lost-Time Claim Frequency Frequency per 100,000 Workers Lost-Time Claims 1,345 1,140 1, AK AZ MT NM OR Based on NCCI s Statistical Plan data 46

47 Frequency per Million of On-Leveled Premium Alaska Workers Compensation Lost-Time Claim Frequency Policy Year Based on NCCI s financial data Frequency of lost-time claims adjusted to a common wage level 47

48 Percent Countrywide Workers Compensation Lost-Time Claim Frequency Change in Lost-Time Claims per $1M Pure Premium Private Carriers and State Funds 10 5 Cumulative Change of 51.5% ( ) 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

49 Key Takeaways Claim Frequency Frequency continues to decline Claim frequency is a key cost driver Higher share of temporary total claims compared with region and countrywide 49

50 Medical Severity

51 Medical Benefits Constitute the Majority of Total Benefit Costs in Alaska Alaska Indemnity 24% Medical 76% Region Indemnity 35% Medical 65% Countrywide Indemnity 41% Medical 59% 0% 20% 40% 60% 80% 100% Regional states are AZ, MT, NM, and OR Based on NCCI s financial data 51

52 Medical Average Claim Severity ($ '000s) Alaska s Average Medical Claim 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 52

53 Alaska s Average Medical Claim Severity Lost-Time Claim Severity in $ Thousands Cumulative Change of % ( ) 29.2% -1.2% 10.3% 2.6% 13.0% -3.4% 6.2% 15.9% 0.7% $ % 6.9% $22.4 $ % -3.2% -1.7% $26.0 $26.5 $27.4 $33.6 $33.2 $36.7 $37.6 $42.5 $41.0 $43.6 $50.5 $ Policy Year Based on data through 12/31/2015, on-leveled and developed to ultimate 53

54 Average Medical Claim Severity in the Region Lost-Time Claim Severity in $ Thousands $50.9 $48.5 $40.3 $43.8 $16.8 AK AZ MT NM OR Based on NCCI s financial data for lost-time claims 54

55 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 $ % +4.5% +0.4% +5.9% +5.8% +7.8% +7.7% +5.4% +8.8% +13.5% $15.7 $17.1 $18.4 $19.4 $20.9 $22.1 $23.4 $25.0 $26.2 $ % +3.0% % -1.0% p 15p Accident Year $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 55

56 Alaska s Medical Loss Distribution by Injury Type Alaska 36% 53% 11% 0% Region 27% 47% 9% 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 AZ, MT, NM, and OR Based on NCCI s Statistical Plan data for jurisdictions/claim type combinations for which three or more cases exist 56

57 Key Takeaways Medical Benefit Costs Medical costs comprise about 76% of total costs Average cost per case is generally increasing faster than Countrywide Higher medical severity than the region Uncertainty in impact of medical benefit cost changes 57

58 Marie Marx Director Alaska Workers Compensation Division

59 Indemnity Severity

60 Indemnity Average Claim Severity ($ '000s) Alaska s Average Indemnity Claim 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 60

61 Alaska s Average Indemnity Claim Severity Lost-Time Claim Severity in $ Thousands Cumulative Change of +11.0% ( ) 11.1% 4.8% 35.2% -2.3% 7.0% -4.4% -2.6% -2.0% -2.1% -4.2% -8.6% 3.3% -1.0% -15.6% $20.1 $19.2 $17.3 $18.0 $18.4 $17.2 $17.6 $18.0 $18.4 $13.7 $16.2 $16.3 $15.8 $17.3 $ Policy Year Based on data through 12/31/2015, on-leveled and developed to ultimate 61

62 Average Indemnity Claim Severity in the Region Lost-Time Claim Severity in $ Thousands $30.6 $20.1 $18.4 $20.1 $13.6 AK AZ MT NM OR Based on NCCI s financial data for lost-time claims 62

63 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 63

64 Alaska s Indemnity Loss Distribution by Injury Type Alaska 37% 51% 12% Region 27% 61% 5% 7% Countrywide 31% 60% 4% 5% 0% 20% 40% 60% 80% 100% Temporary Total Permanent Partial Permanent Total Fatal Regional states are AZ, MT, NM, and OR Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist 64

65 Key Takeaways Indemnity Benefit Costs Indemnity costs have generally declined over time, but are stabilizing Average indemnity cost is similar to the region and lower than countrywide Indemnity costs comprise about 24% of total costs 65

66 Alaska s Residual Market

67 Where Does NCCI Provide Residual Market Services? 67

68 Residual Market Snapshot All Pools, Policy Year 2015 as of 12/31/2015* 2015 Written Premium $1.2 billion* 2015 Operating Losses $66 million* 2015 Combined Ratio 106%* 2015 Residual Market Share 8%* *Incomplete policy year projected to ultimate, preliminary 68

69 Workers Compensation Residual Market Premium $ Billions NCCI-Serviced Workers Compensation Residual Market Pools as of 12/31/ *Incomplete policy year projected to ultimate, preliminary 69

70 15% Residual Market Share NCCI Plan States (Includes Direct Assignments) Plan Premium as a Percentage of Direct Written Premium 10.8% 10% 9.2% 7.5% 6.3% 6.6% 6.8% 6.3% 5% 4.9% 3.8% 3.5% 4.0% 5.3% 0% * Calendar Year *Preliminary For all NCCI Plan-administered states 70

71 Alaska s Residual Market Share Plan Premium as a Percentage of Direct Written Premium 18% 16% 15.3% 15.8% 14% 12.7% 13.7% 13.9% 12% 10% 8% 6% 4% 2% 0% * Calendar Year *Preliminary 71

72 $ Millions Alaska s Total Residual Market Plan Estimated Premium Volume Premium in $ Millions as of 12/31/2015 $50,000,000 $45,000,000 $40,000,000 $35,000,000 $43.8 $39.0 $32.1 $32.4 $39.0 $39.1 $34.8 $30,000,000 $25,000,000 $26.4 $24.3 $26.6 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $ Policy Year 72

73 Alaska s Assigned Risk Programs Assigned Risk Adjustment Program (ARAP) Loss Sensitive Rating Plan (LSRP) Merit Rating Differential/Surcharge Removal of Premium Discounts Take-Out Credit (TOC) Program Drug-Free Workplace Premium Credit Program Voluntary Coverage Assistance Program (VCAP Service) 73

74 74

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

76 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

77 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 77

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

79 Key Workers Compensation-Related Legislation Topics in 2016 First Responder Presumption Employer/Employee Definition Medical Cost Management Independent Contractors and Misclassification Exclusive Remedy Opt-Out 79

80 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) 80

81 2016 Law-Only Filings Alaska (Approved): 3.7% impact of medical fee schedule changes Florida (Approved): +14.5% combined impact of state Supreme Court rulings in the cases of Castellanos and Westphal combined with recently enacted medical reimbursement changes (SB 1402) Oklahoma (Approved): +3.4% impact of state Supreme Court ruling in Maxwell Tennessee (Approved): 2.7% impact of Rule (Drug Formulary and Medical Treatment Guidelines) 81

82 Measures Calling for System Studies Three states enacted measures in 2016 calling for state workers compensation system studies: Hawaii HB 2715 calls for a closed claim study (Act 188) Utah SB 216 requires a study of hospital costs (Chapter 242) Kentucky HCR 185 creates a task force to study the state s workers compensation system and develop recommendations to enhance the system (became law without signature) Other states introduced measures, calling for system studies, that failed to pass: Vermont HB 803 would have created a committee to study portable employment benefits Connecticut HB 5506 would have required a study of the liability of employers for hospital services 82

83 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,

84 Issues to Watch in 2016 and Beyond Gig Economy Attorney Fees Exclusive Remedy Drug Formularies Opt-Out 84

85 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 +14.5% New terminology has emerged regarding the gig economy and independent contractors: Qualified Marketplace Contractor 85

86 Q & A

87 Closing Remarks Thank You!

88 Glossary

89 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. 89

90 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. 90

91 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. 91

92 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. 92

93 Appendix

94 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 94

95 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 95

96 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 96

97 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 97

98 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 98

99 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 99