January 1, 2019 Pure Premium Rate Filing Summary of Actuarial Committee Recommendations Governing Committee Meeting August 8, 2018

Transcription

1 January 1, 2019 Pure Premium Rate Filing Summary of Actuarial Committee Recommendations Governing Committee Meeting August 8, 2018 Dave Bellusci Executive Vice President & Chief Actuary

2 ANTITRUST NOTICE As members of the Workers Compensation Insurance Rating Bureau of California (WCIRB) and their agents, you are bound, when involved in presentations, meetings or other activities of the WCIRB, to limit your actions (and discussions other than social ones) to matters relating to the business of the WCIRB. Matters that do not relate directly to WCIRB business should be avoided. Members and their agents should particularly avoid discussions or conduct that could be construed as intended to affect competition (or access to markets). Thus, as members and their agents, you should not discuss or pursue the business interests of individual insurers or others, including, in particular, the plans of individual members involving, or the possibility or desirability of (a) raising, lowering, or stabilizing prices (premiums or commissions); (b) doing business or refusing to do business with particular, or classes of, insurers, reinsurers, agents, brokers, or insureds, or in particular locales; or (c) potential actions that would affect the availability of products or service either generally or in specific markets or locales. NOTICE & COPYRIGHT This presentation was developed by the Workers' Compensation Insurance Rating Bureau of California (WCIRB) for informational purposes only. 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 test of statutes and regulations quoted within this work. Each WCIRB member company (Company) is authorized to reproduce any part of this work solely for the purpose of transacting workers compensation insurance. This reproduction right does not include the right to make any part of this work available on any website or on any form of social media. Workers Compensation Insurance Rating Bureau of California, WCIRB, WCIRB California, WCIRB Connect, WCIRB CompEssentials, 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 Workers Compensation Insurance Rating Bureau of California at customerservice@wcirb.com.

3 Actuarial Committee Review of March 31, 2018 Experience Positive Trends Downward Loss Development Claims Settling Faster Pharmaceutical Costs Dropping Lien Filings Declining Areas to Monitor Medical Inflation ALAE Costs Recommended Methodology Generally Consistent with 1/1/18 Filing (includes estimate of drug formulary) Includes Several Methodology Refinements to be Responsive to Emerging Experience 1/1/2019 WCIRB Indicated Average Pure Premium Rate: $1.70 7/1/2018 WCIRB Indicated Average Pure Premium Rate: $1.84 7/1/2018 Average Approved Pure Premium Rate: $1.78 7/1/2018 Industry Average Filed Pure Premium Rate: $2.13 2

4 Drivers of Changes in Indicated Pure Premium Rate Level $1.90 $1.80 $1.70 $1.84 3% Reduction 1% Reduction $1.78 $1.77 1% Increase $1.78 3% Reduction $ % Reduction $ % Reduction 1.5% Increase $1.70 $1.67 $1.60 $1.50 Indicated 7/1/18 Advisory PPRate Downward Loss Development Loss / Wage Trend Duration Updated Frequency Forecasts Loss Development Methodology Refinements Severity Trend Projection Adjustments Updated LAE Experience New ULAE Allocation Methodology 3

5 (%) Percentage Positive Trends Downward Loss Development Projected Ultimate Medical Loss Ratios 12/31/2016 3/31/2017 6/30/2017 9/30/ /31/2017 3/31/ Source: WCIRB aggregate financial data and projections. All loss ratios are adjusted to the loss development methodology reflected in the 8/1/2018 Actuarial Committee Agenda and may not be comparable to the actual loss ratios projected at that time. 4

6 Positive Trends Claims Settling Faster Closed Claims as a % of Estimated Ultimate Claim Count Most Recent Diagonal Previous 2nd Previous 3rd Previous 63 Months 81% 86% 51 Months 75% 80% 39 Months 65% 70% 27 Months 50% 56% 15 Months 29% 33% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Source: WCIRB aggregate financial data. 5

7 Positive Trends Pharmaceutical Costs Dropping Physician Services Pharmaceuticals Inpatient Outpatient HCPCS Medical Legal SERVICE HALF 2012H2 46% 15% 12% 8% 9% 10% SERVICE YEAR % 6% 12% 10% 10% 12% SHARE OF TOTAL PAYMENTS Source: WCIRB medical transaction data collected beginning in the third quarter of 2012 as of April 7,

8 Positive Trends Pharmaceutical Costs Dropping Share of Total Medical Paid by Evaluation % 34% 36% 34% 30% 20% 10% 6% 5% 4% 3% 2% 9% 9% 7% 4% 3% 12% 12% 10% 6% 5% 15% 13% 11% 8% 6% 24% 20% 16% 12% 9% 31% 26% 19% 15% 28% 22% 18% 0% Year 1 Year 2 Year 3 Year 4 to 5 Year 6 to 10 Year 11 to 20 Year 21+ Development Period Source: WCIRB medical transaction data (excludes medical settlement amounts) 7

9 Positive Trends Lien Filings Declining Number of Liens Filed Los Angeles/LA Basin All Other Regions ,446 95,414 94,585 93,363 92, ,345 63, ,854 40,430 35,785 41,359 41,863 47,241 65,843 45,163 39,702 36,480 39,602 32,731 34, ,050 5,723 5,658 5,885 6,094 6,307 8,181 10,376 11,669 11,595 13,435 12,609 10,696 11,608 5,126 6,230 5,613 5,194 5,108 4,438 0 Calendar Quarter Source: Division of Workers Compensation 8

10 Areas to Monitor Medical Inflation As of March 31, 2018 $50,000 Post-SB 899 Reform Period ( ) 6% Annual Trend 41,504 Post-SB 863 Period ( ) 1% Annual Trend $40,000 $30,000 Post-Minniear Period ( ) 13% Annual Trend 32,486 33,575 34,414 $20,000 Post-1989 Reform Act ( ) 9% Annual Trend SB 899 Reform Period ( ) 13,448-3% Annual Trend 29,556 SB 863 Period ( ) -5% Annual Trend $10,000 8,827 Long-Term Annual Medical Inflation Trends ( ): Including Reform Periods: +5% Excluding Reform Periods: +9% $ Accident Year Source: WCIRB aggregate financial data and projections based on the 8/1/2018 Actuarial Committee Agenda. Includes MCCP costs in all years for consistency. 9

11 Areas to Monitor ALAE Costs As of March 31, 2018 $60,000 $14,000 Ultimate Medical & MCCP per Indemnity Claim Ultimate ALAE per Indemnity Claim (Private Insurers) $50,000 $12,000 $40,000 $10,000 $8,000 $30,000 $6,000 $20,000 $4,000 $10,000 $2,000 $ Accident Year $0 Source: WCIRB aggregate financial data and projections based on the 8/1/2018 Actuarial Committee Agenda. MCCP costs are included in medical for all years for consistency. 10

12 Loss Development Methodology Basis of Actuarial Committee Recommendation Considerations - Paid development has recently been more stable - Paid development has historically been more consistent across insurers than incurred development - Claim settlement adjustments improve accuracy during periods of shifting claim settlements - Paid development projections can be adjusted for reforms - Incurred projections may be being distorted by changing case reserve levels - Pharmaceutical cost reduction impacting medical development Methodology Refinements - Methodology reviewed to reflect recent pattern of improving loss development - SB 863 loss development adjustments are no longer needed - Case reserve adjusted incurred methodology refined - Refinements narrow gap between adjusted paid and adjusted incurred methodologies Recommendation - Hybrid of Reform (SB 1160) & Claim Settlement-Adjusted Paid and Incurred Methodology - Actuarial Committee Vote - Indemnity: Unanimous Support - Medical: 7 in Favor, 1 Abstention 11

13 Projected Indemnity Loss Ratios Under Alternative Development Methods As of March 31, Actuarial Committee Recommended (Unanimous) 7/1/18 Filing & CDI Decision Latest Yr Inc Latest Yr Inc Adj for Case Res (Updated) 3-Yr Avg Inc Latest Yr Paid Adj for Claim Settlement 3-Yr Avg Inc Adj for Case Res (Updated) Latest Yr Paid Adj for SB 863 and Claim Settlement Latest Yr Paid 3-Yr Avg Paid Latest Yr Paid Adj for SB 863 Source: WCIRB aggregate financial data and projections based on the specified loss development methodology and the trending methodology reflected in the 8/1/2018 Actuarial Committee Agenda. 12

14 Projected Medical Loss Ratios Under Alternative Development Methods As of March 31, Actuarial Committee Recommended CDI 7/1/18 Decision Bickmore Recommended 7/1/18 Filing Latest Yr Inc Latest Yr Inc Adj for Case Res (Updated) 3-Yr Avg Inc 75% to Reform & Settle-Adj Paid; 25% to Unadj Inc Latest Yr Paid Adj for SB 1160 and Claim Settlement Avg of Reform & Settle-Adj Paid and 3-Yr Avg Case Res- Adj Inc 3-Yr Avg Inc Adj for Case Res (Updated) Latest Yr Paid Adj for SB 863 & SB 1160 and Claim Settlement Latest Yr Paid Latest Yr Paid Adj for SB 863 & SB Yr Avg Paid Source: WCIRB aggregate financial data and projections based on the specified loss development methodology and the trending methodology reflected in the 8/1/2018 Actuarial Committee Agenda. 13

15 Trending Methodology Basis of Actuarial Committee Recommendation Separate Frequency and Severity Trend Projections Applied to the Average of the Latest Two Accident Years - Retrospective tests show method performs better during periods of transition - Allows for separate assumptions and actuarial judgment about future frequency and severity trends - SB 863 impact on medical severities updated Actuarial Committee Vote - 7 in Favor, 1 Opposed 14

16 Changes in Indemnity Claim Frequency As of March 31, % 6.8% 5% 3.4% 0% -5% -2.3% -3.9% -2.0% -0.2% 0.2% 0.7% -0.8% -2.5% Projected Annual Change -0.3% -1.1% -1.2% -6.5% -10% Months Accident Year Freq. Model Annual Source: 2017 and 2018 based on changes in aggregate indemnity claim counts compared to changes in statewide employment. All other estimates are based on unit statistical indemnity claim counts compared to reported insured payroll. Forecasts produced by the WCIRB Econometric Claim Frequency Model. 15

17 Projected Changes in On-Level Indemnity Severity As of March 31, % 5% 5.3% 3.6% 4.4% 1.7% 0% -5% -2.7% -2.9% -3.4% -4.3% -5.1% -0.8% -1.8% -1.1% -10% Accident Year Annual Exponential Trend Based on: to 2017: +1.6% to 2017: -1.2% to 2017: -2.0% Actuarial Committee Recommended: -0.5% Source: WCIRB aggregate financial data and projections 16

18 Policy Year 2019 Estimated Medical Paid by Year 20% 16% 12% 50% of Total Medical Paid in % 15.8% 11.1% 25% of Total Medical Paid in 2029 or Later 12.7% 8% 6.3% 7.7% 5.3% 8.6% 5.1% 4% 3.8% 3.1% 2.7% 2.4% 0% & Later Source: WCIRB aggregate financial data and projections of paid medical as reflected in the WCIRB July 1, 2018 Pure Premium Rate Filing based on December 31, 2017 data. 17

19 Changes in Measures of Accident Year Medical Inflation Early Inflation Measures for Post-Reform Periods May Not be Indicative of Ultimate Level Changes in Incremental Paid Medical per Open Indemnity Claim by Period 30% 25% 26.4% Paid in Year 1 (0-12 Months) Paid in Year 3 (24-36 Months) Paid in Year 2 (12-24 Months) Paid in Year 4 (36-48 Months) 20% 15% 17.6% 16.5% 19.1% 15.6% 15.7% Initial Post- SB 899 Estimates Initial Post- SB 863 Estimates 10% 8.4% 11.3% 9.6% 5% 5.5% 3.9% 5.3% 0% 0.0% 1.3% 1.4% 1.3% 1.3% -5% Accident Year -2.0% Source: WCIRB aggregate financial data 18

20 Projected Changes in On-Level Medical Severity As of March 31, % 7.7% 9.0% 5.8% 5.6% 5% 0% 0.1% 2.0% -1.3% 1.5% 1.9% -0.1% -0.7% 3.2% -5% -10% Accident Year Annual Exponential Trend Based on: to 2017 (Incl. MCCP): +6.1% to 2017: +2.3% to 2017: +0.8% Actuarial Committee Recommended: +2.5% Severity Inflation Rates from Other Systems: - NCCI States : +3.1% - NCCI States : +3.2% - Medical CPI : +3.7% - Medical CPI : +3.6% Source: WCIRB aggregate financial data 19

21 Projected On-level Indemnity Loss Ratios As of March 31, Latest Year Claim Settlement Rate-Adjusted Paid Development Method Frequency & -0.5% Severity Trends Applied to Latest Two Years Exponential Trend Based on 1990 to 2017 Applied to Latest Two Years Exponential Trend Based on 2012 to 2017 Applied to Latest Two Years Annual Exponential Trend Based on: 1990 to 2017: +0.0% to 2017: -4.0% Implied average annual growth rate for selected trending method: -1.6% Accident Year Source: WCIRB aggregate financial data and projections 20

22 Projected On-level Medical Loss Ratios As of March 31, Latest Year SB 1160 & Claim Settlement Rate-Adjusted Paid Development Method Frequency & 2.5% Severity Trends Applied to Latest Two Years Exponential Trend Based on 1990 to 2017 Applied to Latest Two Years Exponential Trend Based on 2012 to 2017 Applied to Latest Two Years Annual Exponential Trend Based on: 1990 to 2017: +4.2% 2012 to 2017: -0.2% Implied average annual growth rate for selected trending method: +1.4% Accident Year Source: WCIRB aggregate financial data and projections and prior years adjusted to a level that excludes MCCP costs. 21

23 LAE Projection Methodology ULAE data for Calendar Years 2016 and 2017 reflect new allocation method (Open Indemnity Claim Counts) ULAE projection methodology consistent with prior years (Private Insurers Only) ALAE Projection Methodology - Trended ultimate severity per open indemnity claim based on private insurer ALAE - ALAE projection adjusted for impact of SB 1160 lien reduction MCCP Methodology - Similar to ALAE except uses statewide experience Actuarial Committee Vote - Unanimous support 22

24 Ratios of Paid ULAE to Paid Losses As of December 31, 2017 State Fund National Insurers California-focused Private Insurers* 50% 40% 45.0% 35.1% 37.6% 30% 20% 10% 27.9% 28.9% 28.8% 25.6% 21.8% 17.3% 15.9% 16.3% 15.0% 14.7% 14.8% 14.2% 15.7% 14.1% 12.8% 8.5% 7.7% 10.2% 6.4% 6.5% 6.4% 0% Calendar Year Source: WCIRB aggregate financial data *California-focused Private Insurers are insurers with at least 80% of their workers compensation writings in California. 23

25 Ratios of Paid ULAE to Paid Losses Impact of Open Count-based Apportionment Approach As of December 31, % National Insurers - Paid Loss Apportionment National Insurers - Open Indemnity Count Apportionment 12.8% 14.1% 10% 10.2% 11.1% 0% Calendar Year Source: WCIRB aggregate financial data 24

26 Projections of Total LAE to Loss July 1, 2018 Pure Premium Rate Filing Projection LAE Component Projection ULAE 11.4% ALAE Excluding MCCP 18.5% MCCP 4.0% Total LAE 33.9% Policy Year 2019 Projection LAE Component Projection ULAE 13.6% ALAE Excluding MCCP 18.9% MCCP 4.0% Total LAE 36.5% 25

27 Average Pure Premium Rates per $100 of Payroll $2.50 $2.13 $2.00 $1.70 $1.65 $1.78 $1.84 $1.50 $1.00 $0.50 $0.00 1/1/19 Indication Based on Act. Comm. Recs. 1/1/19 Indication Based on Public Member Actuary Recs. 7/1/18 Approved 7/1/18 WCIRB Indication Industry Filed As of 7/1/18 26

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