WCIRB Update: 2016 Changes and Preview of 2017

Transcription

1 WCIRB Update: 2016 Changes and Preview of 2017 Presented By: Rod Libbe Quality Assurance Director Tim Beery Outreach and Education Specialist #IRMI2016 What s new in California workers comp? This session highlights the 2016 changes to the Uniform Statistical Reporting Plan and the Experience Rating Plan approved by the California Insurance Commissioner. In addition, you ll get a preview of changes to the experience modification formula that will be effective January 1, Copyright 2016 International Risk Management Institute, Inc. 1

2 Notes This file is set up for duplexed printing. Therefore, there are pages that are intentionally left blank. If you print this file, we suggest that you set your printer to duplex. 2

3 WCIRB Update: 2016 Changes and Preview of 2017 Presented By: Rod Libbe Quality Assurance Director Tim Beery Outreach and Education Specialist #IRMI2016 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 Online, 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 WCIRBs 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. 2 3

4 Purpose Summarize the changes to the Uniform Statistical Reporting Plan and Experience Rating Plan approved by the Insurance Commissioner, including: Classifications added, eliminated or amended Amended minimum and maximum payroll limitations Amended hourly wage thresholds Eligibility based on expected loss rates rather than advisory pure premium rates 2017 Debit modifications excluding unaudited payroll 2017 Variable split plan 3 Who is the WCIRB? Workers Compensation Insurance Rating Bureau of California Our Mission The WCIRB is California's trusted, objective provider of actuarially based information and research, advisory pure premium rates, and educational services integral to a healthy workers' compensation system. The WCIRB is a private, nonprofit association Members include all insurers licensed to write workers comp insurance in California Funded by member fees and premium assessments Not a government entity & not funded by state money 4 4

5 What is the WCIRBs Role? The WCIRB is a licensed rating organization and the California Insurance Commissioners designated statistical agent, as defined by the California Insurance Code. Collects workers compensation loss and expense statistics Recommends advisory pure premium rates for approval by the Insurance Commissioner Maintains the Standard Classification System Conducts classification inspections and test audits Publishes experience modifications for eligible California businesses Administers and proposes amendments to the Insurance Commissioners workers compensation regulations 5 WCIRB January 1, 2016 Regulatory Filing The WCIRB submitted its January 1, 2016 Regulatory Filing to the California Department of Insurance on June 26, 2015 Proposing changes to the Uniform Statistical Reporting Plan and the Experience Rating Plan Most of the amendments are effective January 1, 2016, but some are effective January 1, 2017 Approved by the Insurance Commissioner 6 5

6 Uniform Statistical Reporting Plan Changes Effective January 1, 2016 Classifications added, eliminated or amended Amended minimum and maximum payroll limitations Amended hourly wage thresholds #IRMI The Standard Classification System Approximately 500 industry classifications used to group together businesses with similar operations Basis for data collection and rate development 8 6

7 The Standard Classification System Classification studies conducted annually by the WCIRB to establish: New classifications Eliminated classifications Amended classifications 9 Amended Classifications In 2013, WCIRB began multi year comprehensive review of the scope of all classifications In 2016, over 300 classifications have been updated to Clarify intended application Direct how related operations are classified Amend cross references The amendments are not intended to change the way classifications are currently administered Refer to Part 3, Section VII, Standard Classifications, of the Uniform Statistical Reporting Plan 10 7

8 2016 Payroll Minimum and Maximum Changes Code Phraseology Payroll Minimum N/A Executive Officers, Partners, Individual Employers and Members of an LLC Payroll Maximum $45,500 $117, Taxicab Operations $32,700 N/A 8039 Stores department stores $1,000,000 N/A 7610 Radio / Television Stations N/A $117, Theaters music ensembles N/A $117, Theaters dance / opera N/A $117, Athletic Teams / Parks N/A $117, Motion Pictures production N/A $117, Dual Wage Classification Threshold Changes Code Phraseology 2015 Threshold 2016 Threshold 5403 / 5432 Carpentry $29 $ / 5447 Wallboard Application $31 $ / 5470 Glaziers $29 $ / 5633 Steel Framing $29 $30 Note: Construction or erection classifications with no dual wage threshold changes for 2016 are not listed. For a complete list of all such classifications and their thresholds: > Publications and Filings > Classification Information 12 8

9 New Classification Classification 7207(5), Racing Stables harness racing Applies to employers that operate stables in connection with harness racing Established as an alternate wording to classifications 7207(1), Stables all employees 7207(2), Clubs riding 7207(3), Horse Shows stable employees 7207(4), Pack Trains 13 Eliminated Classifications 8204(1), Building Material Dealers dealers in secondhand materials 8232(2), Building Material Dealers commercial 8204(2), Pipe Reclaiming 8111(1), Plumbers Supplies Dealers 8113, Oil or Gas Well Supplies or Equipment Dealers secondhand 8111(2), Oil or Gas Well Supplies or Equipment Dealers store or yard only 14 9

10 Consolidated Classifications 7424(2), Aircraft Operation patrol; photography; mapping; skywriting; advertising or survey work 7424(1), Aircraft Operation members of the flying crew 8601(3), Geophysical Exploration 8601(2), Oil or Gas Geologists or Scouts 8286(2), Livestock Auctioneers 8286(1), Livestock Dealers or Commission Merchants 8028(2), Machinery or Equipment Rental Yards 8028(1), Equipment or Machinery Rental Yards 1741(2), Talc Mills no longer performed in California 15 Classification Search Tool ( search) 16 10

11 Experience Rating Plan Changes Effective January 1, 2016 Eligibility based on expected loss rates rather than advisory pure premium rates #IRMI2016 What is Experience Rating? Experience rating is a merit rating system that benchmarks an employer against others in its industry based on historical claim experience Provides a direct financial incentive for employers to reduce accidents Intended to equitably distribute cost of workers compensation among employers in an industry Approximately 20% of employers (more than 100,000) are experience rated, representing almost 90% of premium Most small employers do not qualify since their claims experience is not typically predictive of future losses 18 11

12 Experience Rating Issues Late issuance of January experience modifications $7,000 split point not adjusted since 2010 Large impact of a single claim on smaller employers One size fits all approach may not be appropriate Complexity of the formula 19 Limited Experience Modifications Effective 2015, when an employer only has a single claim in the calculation, the experience modification is limited to no more than 25 percentage points above the loss free rating

13 Eligibility for Experience Rating Effective January 1, 2016, the Experience Rating Plan uses expected loss rates rather than advisory pure premium rates to determine eligibility for an experience modification. This allows the WCIRB to begin issuing January 2016 experience modifications months sooner than previously possible. 21 The Experience Period 01/01/11 01/01/12 01/01/13 01/01/14 01/01/15 01/01/16 01/01/17 Policy Period Current Policy Policy Period NOT USED Policy Period NOT USED Policy Period 3rd USR Valued July nd USR Valued July st USR Valued July 2015 Policy Period Policy Period 04/01/11 04/01/14 EXPERIENCE PERIOD January 1, 2016 ARD 22 13

14 14 Experience Rating Eligibility Threshold $16,700 $23,300 $25,225 $27,500 $30,300 $31,700 $28,461 $10,300 $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 Jan 2011 Jan 2012 July 2012 Jan 2013 Jan 2014 Jan 2015 July 2015 Jan Expected Loss Rates vs. Pure Premium Rates Expected loss rates reflect average losses by classification for the experience period. For 2016, expected loss rates reflect average losses estimated by classification for 2014 policies (valued at 18 months) 2013 policies (valued at 30 months) 2012 policies (valued at 42 months) Expected loss rates reflect a maximum loss value of $175,000. Pure premium rates reflect rates sufficient to cover all losses to ultimate closure, which may be 50 years or longer, and include allocated loss adjustment expenses. 24

15 Eligibility Example Libbes Rubber Belt Company started business in 2012 Classification 4410, Rubber Goods Mfg N.O.C Expected Loss Rate = $3.23 per $100 of payroll Table of Expected Loss Rates and D-ratios Code No. Expected Loss Rate* D-Ratio Available at > Publications and Filings > Manuals and Plans 25 Eligibility Example Policy Period Class Code Reported Payroll 2016 Expected Loss Rate Totals 1/1/14 1/1/ ( ) 300, $9,690 1/1/13 1/1/ ( ) 200, $6,460 1/1/12 1/1/ ( ) 100, $3,230 Total Eligibility Premium $19,380 The 2016 eligibility threshold is $10,300, so this employer qualifies to be experience rated

16 Lets Test Your Knowledge Approximately how many California employers are large enough to qualify for an experience modification? a. 500 b. 10,000 c. 100,000 d. 500,000 True or False: A new employer may qualify for experience rating within the first year of business. What is the purpose of the 2016 eligibility change? a) To increase the number of experience rated employers b) To decrease the number of experience rated employers c) To expedite the issuance of January experience modifications 27 Experience Rating Plan Changes Effective January 1, 2017 The Impact of Unaudited Payroll on Experience Rating Eligibility 2017 Debit Experience Modifications that Exclude Unaudited Payroll #IRMI

17 Unaudited Payroll Experience Rating Plan directs not to use unaudited payroll in experience modifications When insurer reports that a policyholder has not cooperated with the audit, the WCIRB sends a letter to the policyholder Explanation of experience rating and the impact on insurance premium due to an incomplete audit Urges policyholder to contact the insurer to schedule an audit If audited exposure is not received within 60 days, the WCIRB will attempt to promulgate an experience modification using any reported losses but excluding the unaudited payroll 29 Experience Modification Calculation Example Excluding Unaudited Payroll Policy Period Payroll Expected Losses # Claims Actual Losses 2/1/2014 2/1/2015 $ ,973 2/1/2013 2/1/2014 $1,151,685 41, /1/2012 2/1/2013 $1,057,068 36, ,515 Totals $2,208,753 78, ,488 Experience Modification = 103% 30 17

18 Experience Modification Calculation Example With Audited Payroll Policy Period Payroll Expected Losses # Claims Actual Losses 2/1/2014 2/1/2015 $1,371,629 49, ,973 2/1/2013 2/1/2014 $1,151,685 41, /1/2012 2/1/2013 $1,057,068 36, ,515 Totals $3,580, , ,488 Experience Modification = 86% 31 Eligibility for Experience Rating Current Impact of Unaudited Payroll on Eligibility Policy Period Class Code Reported Payroll 2016 Expected Loss Rate 1/1/14 1/1/ ( ) $0 Totals 1/1/13 1/1/ ( ) 200, $6,460 1/1/12 1/1/ ( ) 100, $3,230 Total Eligibility Premium $9,690 The 2016 eligibility threshold is $10,300, so this employer does not qualify to be experience rated

19 Impact of Unaudited Payroll on Eligibility Change Effective January 1, 2017 For 2017, the Experience Rating Plan permits debit experience modifications (>100%) to be issued that would otherwise be ineligible for experience rating due to unaudited payroll When the exclusion of estimated payroll results in not meeting the eligibility threshold, an experience modification will be published if: The policyholder was experience rated in the immediately preceding year, and The experience modification is over 100% 33 Experience Modifications that Exclude Unaudited Payroll The Experience Rating Form (ratesheet) will contain a designation that the calculation excludes unaudited payroll data A letter is sent to the policyholder advising that the experience modification excludes the estimated payroll but includes any losses 34 19

20 Revision of Experience Modifications that Exclude Unaudited Payroll If the WCIRB subsequently receives a USR correction with audited exposure, the current and two immediately preceding experience ratings are subject to revision In accordance with the Experience Rating Plan, Section V, Rule 6, Experience Modification Corrections Effective Dates 35 Experience Rating Plan Changes Effective January 1, Split Point that Varies Based on the Size of the Employer #IRMI

21 Californias Variable Split Point Experience Rating Plan The 2017 Experience Rating Plan replaces the fixed $7,000 primary and excess loss split point with a variable split point that changes based on the size of the employer Enhances the accuracy of the experience rating formula, especially for smaller employers Reduces volatility Provides flexibility for simplifying the experience rating formula in future years 37 What is a Split Point? The split point is used to divide claims into a primary amount and an excess amount Primary losses represent the more predictive and controllable portion of a claim, which is used in entirety in the experience modification formula Excess losses represent the less controllable portion, which is used to a lesser extent, or not at all, depending on the size of the employer Places greater weight on the frequency of claims rather than severity of claims, as generally, an employer has some control over the frequency of claims, but little control over the ultimate cost of claims 38 21

22 Actual Losses on the Rate Sheet 39 Development of the Variable Split Plan 2007 Early WCIRB research showed the optimal split point varied with the size of the employer 2013 WCIRB research based on policy year 2010 found that variable split plan would enhance experience rating accuracy 2014 Research based on policy year 2011 confirmed potential to enhance experience rating by varying primary/excess split point by size of employer 2014 Feedback solicited from representatives of employers, workers, insurers and producers 2015 Variable split plan reviewed and recommended by WCIRB committees September 2015 Insurance Commissioner approved variable split plan to be effective January 1,

23 How Many Split Points Will There Be? Approximately 90 Primary Threshold split points Values range from $4,500 to $75,000 Ranges based on employers total expected losses in the experience period Final values will be proposed to Insurance Commissioner in 2016 WCIRB Regulatory Filing NOTE: Table is for explanatory purposes only, and the values are not final. 41 Impacts of Transitioning to a Variable Split Plan No overall pure premium impact and no impact on average modification Net movements of mods above/below key thresholds (e.g. credit/debit, 125%, 200%) generally expected to be < 1% Generally, the variable split plan places greater emphasis on claim frequency and less emphasis on the severity of claims Employers with high claim frequency relative to their peers will generally have higher experience modifications Employers with very large shock losses will generally have lower modifications under the variable split plan 42 23

24 Distribution of Expected Modification Changes from Transitioning to the Variable Split Plan 30% Current $7,000 Fixed Split to Variable Split 25% Percent of Employers 20% 15% 10% 5% 0% < > Percentage Change in Modification 43 Example X Mods for Employer with 2011 Written Premium of $25,000 Variable Split: $11, % 140% 120% Current $7,000 Split Plan 111% Variable Split Plan 141% 119% 119% 100% 80% 74% 72% 60% 40% 20% 0% Claim-Free Five $500 Claims & $25,000 Claim Five $500 Claims & $150,000 Claim 44 24

25 The Experience Modification Formula Current Formula: Ap = Actual Primary Losses Ae = Actual Excess Losses Cp = Credibility Primary Value Ce = Credibility Excess Value Ep = Expected Primary losses Ee = Expected Excess Losses *Current variable split indications are for 100% primary credibility (Cp) and E = Expected losses 0% excess credibility (Ce). 45 Potential to Simplify the Formula Variable split plan indications are for 100% primary credibility (Cp) and 0% excess credibility (Ce). Potential future simplification of the formula: Ap = Actual Primary Losses Ee = Expected Excess Losses E = Expected losses 46 25

26 2017 Changes to Experience Rating Summary of Differences Current Fixed Split Plan 2017 Variable Split Plan One split point for all sizes of employers Split point varies based on the size of the employer (total expected losses) Split point = $7,000 Split points from $4,500 to $75,000 1 split point + 1 table of D-Ratio values for each classification code Large impact of a single claim on smaller employers Weight given to claims in excess of $7,000 ranges from 0.00 to 0.78 Complicated formula Claim frequency is weighted more heavily than claim severity Approximately 90 split points, each with a unique table of D-Ratio values Impact of large shock loss is generally reduced No weight given to claims in excess of the variable split point Potential to simplify formula Even more weight given to claim frequency and less to claim severity Changes to Experience Rating What to Expect this Year Feb 25 Mod Talks #1 April 7 Mod Talks #2 May 26 Mod Talks #3 June Proposed 2017 rating values X-Mod Calculator July 28 Mod Talks #4 September Earliest issuance of January 2017 mods Sep 29 Mod Talks #5 Nov 17 Mod Talks #

27 Lets Review Late issuance of January experience modifications 2016 Eligibility based on expected loss rates Policyholder uncooperative at the time of the final audit 2017 Debit modifications excluding unaudited payroll 49 Lets Review One split point may not fit all sizes of employers Large impact of a single claim on smaller employers The experience modification formula is complicated 2017 Variable split point that changes based on the size of the employer 50 27

28 Resources to Learn More WCIRB January 1, 2016 Regulatory Filing available under Publications and Filings E Newsletters WCIRB News & Notes WCIRB Wire Stories 2016 Quick Reference Guide WCIRB Webinars

29 WCIRB.com Resources for Agents and Brokers 53 WCIRB Webinars 54 29

30 Expected Loss Rates Available on WCIRB.com 55 Summary This presentation highlighted 2016 changes to the Uniform Statistical Reporting Plan and Experience Rating Plan, including: Classifications added, eliminated or amended Amended minimum and maximum payroll limitations Amended hourly wage thresholds Eligibility based on expected loss rates rather than advisory pure premium rates 2017 Experience modifications excluding unaudited payroll 2017 Variable split plan 56 30