Toronto, Canada. SESSION/SÉANCE : Committee on Workers Compensation -- Update. SPEAKER(S)/CONFÉRENCIER(S) : Stan Warawa

Transcription

1 Toronto, Canada SESSION/SÉANCE : Committee on Workers Compensation -- Update SPEAKER(S)/CONFÉRENCIER(S) : Stan Warawa

2 CONTENTS New Standards of Practice (Part 5000) Educational Notes Future Educational Notes Research Paper on Occupational Diseases Questions/Comments 2

3 NEW STANDARDS Effective since March 15, 2011 Benefits liabilities to consider long latency occupational diseases recognized as such by the PPICP by December 31, 2014 Use of best estimate assumptions Margins for adverse deviations when the circumstances require such margins 3

4 NEW STANDARDS Expected rate of investment income - no additional returns from active management, unless justified Sensitivity testing returns, inflation, discount rate based on high-quality bonds Reporting 4

5 EDUCATIONAL NOTES FOR PPICP S Initially 3 Education Notes -- More to Follow Provide guidance to PPICP practitioners in light of new Part 5000 SOP Determination of Best Estimate Assumptions for Investment Return (completed, subject to final approval by Practice Council) Determination of Best Estimate for Inflation Assumptions Determination of Best Estimate for Other Assumptions 5

6 EN -- B.E. ASSUMPTION FOR INVESTMENT RETURN Section of the new PPICP Standards of Practice specifies that: The actuary should select either best estimate assumptions or best estimate assumptions modified to incorporate margins for adverse deviations to the extent, if any, required by law or by the circumstances of the work... Education Note for implementing this for Investment Return Assumption borrowed significantly from the recent December 2010 EN for B.E. Discount Rates for Pension Plans 6

7 EN -- B.E. ASSUMPTION FOR INVESTMENT RETURN (CONT D) Building Block approach includes: determining best estimate investment return for each asset class combining these best estimate returns reflecting the plan s investment policy including allowance for additional return due to active management, if appropriate and justified making appropriate provision for investment expenses 7

8 EN -- B.E. ASSUMPTION FOR INVESTMENT RETURN (CONT D) Section of SOP stipulates that:.. the actuary would assume no additional returns [would be] achieved...from an active investment management strategy...except to the extent that the actuary has reason to believe...that such additional returns will be consistently and reliably earned over the long term. EN suggests historical outperformance alone, while important, would generally not be sufficient to justify the additional return assumption from active management Views on the level of future equity premiums over fixed income investments may vary -- considerable judgement by the actuary is often required -- historical levels of equity premium may not be a reliable guide to the future 8

9 EN -- B.E. ASSUMPTION FOR INFLATION Inflation is an important assumption, many PPICP benefit levels are indexed to some form of inflation Typically, inflation indexation assumptions are required for: Legislated Indexation (varies by province; typically for short and long term disability benefits and survivors benefits) Indexation By Policy -- indexation for certain benefits specified by formal policy (e.g. daily living allowance for severely injured workers) Ad-Hoc Indexation -- no formal policy, but a consistent pattern Informal Indexation -- e.g. changes in utilization patterns, introduction of new goods and services (e.g. new drugs, new high-tech prosthesis -- more costly) -- can be challenging for actuary to anticipate or project 9

10 EN -- B.E. ASSUMPTION FOR INFLATION (CONT D) Inflation assumptions are used to project the future claim payments and expenses for liability calculations (whether seriatim calculations or aggregate calculations) Separate assumptions normally required for: CPI indexed benefits (often with indexation caps ) Wage indexed benefits Health care indexed benefits (often the indexation may vary by the type of benefit -- e.g. acute medical treatment can have different inflation than those claimants who progress to requiring chronic care). 10

11 EN -- B.E. ASSUMPTION FOR INFLATION (CONT D) Sources of data for establishing inflation assumptions include: The Report on Canadian Economic Statistics published annually by the CIA (based on Statistics Canada CANSIM data) -- a useful source for historical price and wage inflation The Canadian Institute for Health Information (CIHI) is probably the premier source of historical data on health care expenditures and unit costs -- however, the basket of goods measured by CIHI is generally based on the total population and is somewhat different than those provided by PPICP s to injured workers Actual historical payments made by the PPICP -- this may be particularly useful for measuring informal indexation of health care benefits -- but projecting the future from the past must be approached with caution -- e.g. issues of sparse data or recent changes in policy or practice need to be recognized 11

12 EN B.E. ASSUMPTIONS -- OTHER Determination of B.E. Assumptions other than Investment Returns and Inflation include: Mortality Rates -- generally applicable to periodic payments paid to disabled workers or survivors of deceased workers Recent claimants normally have disability pensions limited to age 65 Older claimants may have lifetime disability pensions (mortality assumption is more significant) Mortality experience should vary by degree of disability, but most PPICP s don t have sufficient consistent or credible data to measure these differences -- normally use a single table representing average mortality across all levels of disability Actuary should regularly review Actual to Expected experience to help determine if a revision to mortality assumption is needed 12

13 EN B.E. ASSUMPTIONS OTHER (CONT D) Recovery Rates -- in some cases, claimants who are awarded a periodic permanent disability pension may subsequently recover from the disability Whether in the event of such total or partial recovery, the monthly pension is adjusted downward or terminated depends on each PPICP s policy and practice around monitoring permanently disabled claimants Actuary should conduct periodic reviews to test the continued appropriateness of the recovery assumption 13

14 EN B.E. ASSUMPTIONS OTHER (CONT D) Long Term Disability Future Awards -- either a seriatim or an aggregate approach could be used to estimate the outstanding future LTD awards arising out of existing injuries Benefit Level Changes -- integration with CPP/QPP, deterioration of permanent injury, improvement in earnings capacity, etc. must be recognized in the liability calculation 14

15 FUTURE EDUCATION NOTES Other Future Education Notes will likely include: Margin For Adverse Deviation Sensitivity Testing Content of Actuarial Reports 15

16 RESEARCH ON LATENT OCCUPATIONAL DISEASE LIABILITY (LODL) Potentially complex methodology required including estimates of factors affecting future emerging diseases, such as improved historical occupational health and safety practices changes in historical industrial processes changes in historical levels of industrial activity length of latency period for specific diseases (in some cases, there is lack of consensus on these matters in the medical literature) evolving changes in worker demographics The CIA has undertaken to fund a research project to assist actuaries with the liability methodology RFP has been issued -- expected to be awarded by mid

17 RESEARCH ON LATENT OCCUPATIONAL DISEASE LIABILITY (CONT D) Focus of RFP deliverable is definition of latent occupational diseases in Canada, the length of the latency period and best practices in LODL calculation world-wide Project expected to be completed by mid LODL required to be implemented by 2014 year-end for all PPICP s. 17

18 QUESTIONS / COMMENTS 18