TENNESSEE. October 6,

Transcription

1 TENNESSEE October 6,

2 Tennessee Workers Compensation State Advisory Forum Transforming Workers Compensation Legislative, Regulatory, and Judicial Issues Guest Speaker: Administrator Abbie Hudgens, Tennessee Bureau of Workers Compensation Workers Compensation System Overview Tennessee and Countrywide Filing Activity Nationwide Economic Outlook How Does Tennessee s Economy Compare? Claim Frequency Indemnity and Medical Severity Tennessee s Residual Market Q & A Closing Remarks 2

3 Transforming Tennessee Workers Compensation Premium Growth and Favorable Results Continued Reform Implementation Encouraging Economic Environment Enhancements to Residual Market Programs 3

4 Legislative, Regulatory, and Judicial Issues

5 Key Workers Compensation-Related Topics National Trends in 2016 First Responder Presumption Exclusive Remedy Employer/Employee Definition Independent Contractors and Misclassification Medical Cost Management In Tennessee: Fee schedule updates Drug formulary Tennessee Rule , effective August 28, 2016 Alternative Workers Compensation Mechanisms In Tennessee: Opt-out legislation unsuccessfully attempted in 2014 and

6 Court of Workers Compensation Claims 12 judges Average number of weeks that claims have stayed open has dropped from 95 weeks to 38 weeks Mediation Tennessee Regulatory and Legislative Activity 2013 Reform Act Continued Implementation Ombudsman Program Treatment Guidelines and Drug Formulary 6

7 Closed Drug Formulary A list of drugs with an associated reimbursement status Status Y N * Description Preauthorized for use Not allowed or needs authorization Both Y and N are possible depending on intended purpose Goals are to: Reduce overprescribing (opioids in particular) Maximize healing and improve return-to-work outcomes Contain drug costs On average, 24% of drug costs and 17% of prescriptions in a service year are for N drugs The ODG Drug Formulary is a product of the Work Loss Data Institute 7

8 Tennessee s Drug Formulary Rule % impact Effective 8/28/2016 8

9 Tennessee Regulatory and Legislative Activity 2016 Statutory Changes Public Chapter 816 (SB 2563/HB 1559) Effective April 14, 2016 Clean-up bill Added LLCs to the definition of sole proprietors and partners related to inclusions and exclusions from workers compensation coverage Public Chapter 1056 Effective July 1, 2016 Attorneys fees can be awarded if the employer/carrier wrongfully denied a claim, delayed benefit payments, or failed to provide medical treatment that has been awarded to the claimant or agreed to by the employer/carrier Ombudsmans who are also attorneys can provide legal advice Public Chapter 803 (SB 1880/HB 2038) Effective January 1, 2017 Administrator for the Bureau of Workers Compensation can establish medical case management standards 9

10 Alternative Workers Compensation Mechanisms In Texas, workers compensation insurance is not compulsory 2013 Oklahoma enacted the Employee Injury Benefit Act, effective February 1, Legislation introduced: Tennessee South Carolina 2016 Minimal legislative activity to date 10

11 Alternative Workers Compensation (WC) Mechanisms Judicial Activity Oklahoma Supreme Court (9/13/2016) Oklahoma s opt-out law is unconstitutional Opt out employers now required to obtain WC coverage or self-insure. Decision governs all other pending opt out cases in Oklahoma Large Jury Verdicts in Texas Kroger Co. v. Milanes West Star Transportation, Inc. v. Robison 11

12 Alternative Workers Compensation Mechanisms Other Activity Association for Responsible Alternatives to Workers Compensation (ARAWC) Lobbying for opt-out laws in the states National Association of Insurance Commissioners (NAIC) Monitoring opt-out reform efforts National Conference of Insurance Legislators (NCOIL) Examining opt-out systems and proposed opt-out legislation in 2016 Federal Activity Congressional letter to the US Department of Labor 12

13 General Observations on 2016 Workers Compensation Legislation Legislative activity for 2016 was about normal for an election year No significant workers compensation measures progressed Opt-out proposals in SC and TN did not advance Impact of proposed legislation ranged from 3.7% to +6.0% New terminology for the gig economy and independent contractors emerged: Qualified Marketplace Contractor 13

14 Key Judicial Decisions in 2016 Castellanos v. Next Door Company The Florida Supreme court declared that the mandatory attorney fee schedule in workers compensation cases is a violation of due process and is therefore unconstitutional. Westphal v. City of St. Petersburg The Florida Supreme Court concluded that the 104 week limitation on temporary total disability benefits results in a statutory gap in benefits and is therefore unconstitutional. The decision restores the 260 week limitation that preceded the 1994 amendments to the statutes. Maxwell v. Sprint, PCS The Oklahoma Supreme Court declared as unconstitutional a provision of the state's workers compensation act that defers benefits for injured employees who return to work. 14

15 2016 Law-Only Filings Alaska (approved) 3.7% impact of medical fee schedule changes Florida (pending) +19.6% 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) 15

16 Guest Speaker: Abbie Hudgens Administrator, Tennessee Bureau of Workers Compensation

17 Workers Compensation System Overview Tennessee and Countrywide

18 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 18

19 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 19

20 $ 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 20

21 Percent Countrywide Workers Compensation Impact of Discounting on Premium NCCI States Private Carriers p Policy Year p Preliminary Sources: NAIC s Annual Statement Statutory Page 14 and NCCI s Financial Call data NCCI s benchmark level does not include a profit and contingency provision Based on data valued as of 12/31/2015 for all states where NCCI provides ratemaking services, excluding TX 21

22 Countrywide Workers Compensation Impact of Discounting on Premium NCCI States Private Carriers 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 s benchmark level does not include a profit and contingency provision Based on data valued as of 12/31/2015 for all states where NCCI provides ratemaking services, excluding TX 22

23 Tennessee Workers Compensation System An Overview Premium volume was relatively flat at latest point Combined ratio remains favorable Claim frequency continues to decline Indemnity and medical severity have increased 23

24 Tennessee Accident Year Combined Ratios 110% 98% 93% 93% 93% Accident Year Sources: NCCI s financial data and NAIC s Annual Statement data 24

25 Tennessee Workers Compensation Premium Volume Direct Written Premium in $ Millions $948 $948 $879 $710 $678 $760 $833 $895 $861 $ p Calendar Year Source: NAIC s Annual Statement data 25

26 Impact of Discounting on Workers Compensation Premium in Tennessee Percent 10% 5% 0% 1.7% 0.3% 2.3% 3.6% -5% -10% -15% -3.1% -6.4% -4.5% -1.3% -3.9% -6.6% -9.0% -8.2% -11.1% -4.8% -0.9% -7.7% -20% -18.9% -16.7% -25% -30% -24.5% -27.0% -28.0% p Policy Year Rate/Loss Cost Departure Schedule Rating Dividends Totals p Preliminary Based on data through 12/31/2015 Dividend ratios are based on calendar year statistics 26

27 Filing Activity

28 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 28

29 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 29

30 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 30

31 Current Voluntary Market Rates/Loss Costs Southeastern NAIC Zone *Pending Georgia 3/1/ % South Carolina 9/1/ % Louisiana 5/1/16 2.7% Arkansas 7/1/16 4.3% Florida 1/1/16 4.7% Kentucky 10/1/16 5.0% Virginia* 4/1/17 5.5% Mississippi 3/1/16 7.9% Alabama* 3/1/ % Tennessee* 3/1/ % North Carolina* 4/1/ % West Virginia 11/1/ % 31

32 Tennessee s Filing Activity Voluntary Loss Cost and Assigned Risk Rate Changes 4.2% -0.9% -2.7% -2.7% -4.5% -7.0% -5.9% -5.9% -7.0% -8.2% -12.8% -10.7% 3/1/2014 7/1/2014 3/1/2015 3/1/2016 8/28/2016 3/1/2017* Voluntary Assigned Risk *Pending approval 32

33 Tennessee March 1, 2017 Loss Cost Filing Overall Loss Cost Level Change 12.8% Changes due to: Experience 9.8% Trend 3.8% Benefits +0.4% LAE +0.3% Experience Period 8.1% Indemnity 3.9% Indemnity (SAWW) +1.0% AOE +0.3% Loss Development 1.9% Medical 3.7% Medical (Schedule) +0.1% DCCE +0.0% Assigned Risk Rate Change 10.7% 33

34 Tennessee March 1, 2017 Filing Average Changes by Industry Group Manufacturing 11.7% Contracting 13.8% Office and Clerical 13.7% Goods and Services 12.5% Miscellaneous 13.0% Overall 12.8% 34

35 Average Voluntary Pure Loss Cost Quartiles $0.35 $0.98 $0.99 $1.21 $1.22 $1.41 $1.42 $2.16 Not Included Countrywide = $1.01 Tennessee = $1.05 Based on the latest NCCI approved rates and loss costs in the various states 35

36 Average Voluntary Pure Loss Cost Quartiles Using Tennessee s Payroll Distribution $0.54 $0.99 $1.00 $1.24 $1.25 $1.39 $1.40 $2.06 Not Included Countrywide = $1.15 Tennessee = $1.05 Based on the latest NCCI approved rates and loss costs in the various states 36

37 Loss Ratio Tennessee s Indemnity and Medical Loss Ratios Policy Year Indemnity Medical Based on NCCI s financial data at current benefit level and developed to ultimate 37

38 Nationwide Economic Outlook

39 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 39

40 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 40

41 Annual Growth Rate Percent 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 41

42 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 42

43 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 43

44 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 44

45 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. 45

46 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 46

47 US Dollar Index (January 1997 = 100) 130 The Dollar Is Forecast to Continue to Rise This Year, Reducing Exports Net Exports of Goods & Services, $ Billions US Dollar Index Net Exports of Goods & Services f 2017f f Forecast Weighted average exchange value of the US dollar: Broad Index nominal; Net Exports of Goods and Services: billions of 2009 US dollars Frequency of observation: annual; latest historical data point: 2015; forecast years: 2016 and 2017 Sources: Federal Reserve Board, US Bureau of Economic Analysis, and Moody s Analytics 47

48 Housing Starts Are Expected to Continue to Rise Total Housing Starts Millions f 2017f f Forecast Frequency of observation: annual; latest historical data point: 2015; forecast years: 2016 and 2017 Sources: US Census Bureau and Moody s Analytics 48

49 How Does the Tennessee Economy Compare?

50 Change in Private Employment Private Employment Growth Is Above Average Percent 4 July 2014 July 2015 July Tennessee 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), 50

51 Change in Private Employment Comparison of Private Employment Growth Across States 51 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), 51

52 Change in Employment by Industry Employment Has Increased for All Industries in the Past 12 Months Other Services Manufacturing Financial Activities Trade, Transportation, and Utilities Leisure and Hospitality Information Government Industrial Sector Construction and Mining/Natural Resources Education and Health Services Professional and Business Services 12-Month Percent Change, July 2016 Sector Size % Share 12-Month Change TN , ,700 US +1.2 TN , ,200 US +2.9 TN , ,400 US +1.1 TN , ,000 US 0.3 TN , ,800 US +2.0 TN , ,700 US +1.4 TN , ,500 US +2.8 TN , US +1.0 TN , ,300 US +2.8 TN , US +0.7 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), 52

53 Change in Average Weekly Wages Wage Growth Is Above the Rest of the Nation Percent Tennessee 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), 53

54 Headline Unemployment Rate The Unemployment Rate Is Below the National Average Percent July 2014 July 2015 July Tennessee United States Headline Unemployment Rate, seasonally adjusted Frequency of observation: monthly; latest available data point: July 2016 Source: US Bureau of Labor Statistics (BLS), 54

55 Tennessee s Economic Highlights Tennessee s unemployment rate is below the US rate Employment growth is above the US rate: The Construction and Mining/Natural Resources sector posted the largest percentage increase with growth four times the national pace Education and Health Services added the most jobs Manufacturing and Trade, Transportation, and Utilities also added a number of jobs Tennessee wage growth is above the US average 55

56 Claim Frequency

57 Percent Countrywide Workers Compensation Lost-Time Claim Frequency Change in Lost-Time Claims per $1M Pure Premium Private Carriers and State Funds 10 5 Average Annual Change of 3.6% ( ) p Accident Year 2010 and 2011 adjusted primarily for significant changes in audit activity p Preliminary based on data valued as of 12/31/2015 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

58 Frequency Index Countrywide Lost-Time Claim Frequency by Size of Total Loss Quintiles K 3K 10K 10K 20K 20K 50K 50K Over p Accident Year p Preliminary Source: NCCI s Statistical Plan data Frequency is lost time claims at 1st report per $1M premium at current wage and NCCI pure loss cost level Prior to assigning individual claims to size of loss categories, reported loss amounts are adjusted for inflation through 2014 For all states where NCCI provides ratemaking services 58

59 Frequency Countrywide Lost-Time Claim Frequency by Part-of-Body Groupings Accident Year p 3.50 Cumulative changes ( ): +21% +9% -18% +3% 0% -3% -7% -15% -9% +2% +4% -7% +3% +7% p Preliminary Source: NCCI s Statistical Plan data Frequency is lost time claims at 1st report per $1M premium at current wage and NCCI pure loss cost level For all states where NCCI provides ratemaking services 59

60 Frequency per Million of On-Leveled Premium Tennessee Claim Frequency Policy Year Based on NCCI s financial data Frequency of lost-time claims adjusted to a common wage level 60

61 Tennessee s Workers Compensation Lost-Time Claim Frequency Lost-Time Claims Percent Change 7% Cumulative Change of 25% ( ) 4% 2% 0% -3% -1% -4% -4% -2% -5% -4% -3% -7% -10% Policy Year Based on data through 12/31/2015, developed to ultimate 61

62 Tennessee s Average Lost-Time Claim Frequency Frequency per 100,000 Workers Lost-Time Claims TN AL AR GA KY MS NC VA Based on NCCI s Statistical Plan data 62

63 Tennessee Distribution of Claims by Injury Type Tennessee 77.5% 12.9% 9.5% 0.1% Region 0.1% 77.7% 14.2% 7.9% 0.1% Countrywide 0.1% 75.2% 15.2% 9.4% 0.1% 0% 20% 40% 60% 80% 100% Medical Only Temporary Total Permanent Partial Permanent Total Fatal Regional states are AL, AR, GA, KY, MS, NC, and VA Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist 63

64 Key Takeaways Claim Frequency Claim frequency continues to decline in Tennessee Claim frequency is a key cost driver Higher frequency compared with most other states in the region 64

65 Indemnity and Medical Severity

66 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 $19.3 Accident Year +6.6% $20.5 $22.4 $22.6 $22.1 $22.2 $22.2 $22.9 $23.2 $23.5 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 For all states where NCCI provides ratemaking services, excluding WV 66

67 Countrywide Relative Growth Rates Indemnity Severity vs. Wage Inflation Private Carriers and State Funds NCCI States Cumulative Change in Indemnity Claim Severity Cumulative Change in US Average Weekly Wage (AWW) 1995 to to to 2015p Severity Growth > US AWW Growth Severity Growth > US AWW Growth US AWW Growth > Severity Growth p Preliminary based on data valued as of 12/31/2015 Sources: Severity: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies; : based on data through 12/31/2014 US Average Weekly Wage: and , Quarterly Census of Employment and Wages; , NCCI; 2015p, NCCI and Moody s Economy.com Includes all states where NCCI provides ratemaking services; WV is included in 2014 and subsequent 67

68 Tennessee s Average Indemnity Claim Severity Lost-Time Claim Severity in $ Thousands Cumulative Change of +6.1% ( ) -0.7% -1.7% 6.1% 0.9% -0.8% 11.0% -1.4% -1.5% -2.2% -5.4% -0.9% 0.2% -3.3% 6.9% $17.0 $15.9 $16.5 $16.5 $16.6 $17.5 $17.9 $18.2 $18.5 $16.7 $16.8 $16.6 $15.7 $16.0 $ Policy Year Based on data through 12/31/2015, on-leveled and developed to ultimate 68

69 Indemnity Average Claim Severity ($ '000s) Tennessee 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 69

70 Medical Benefits Constitute the Majority of Total Benefit Costs in Tennessee Tennessee Indemnity 31% Medical 69% Region Indemnity 44% Medical 56% Countrywide Indemnity 41% Medical 59% 0% 20% 40% 60% 80% 100% Regional states are AL, AR, GA, KY, MS, NC, and VA Based on NCCI s financial data 70

71 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 71

72 Countrywide Relative Growth Rates Medical Severity vs. Medical Care Inflation Private Carriers and State Funds NCCI States Cumulative Change in Lost-Time Medical Claim Severity Cumulative Change in US Medical Consumer Price Index (CPI) 1995 to to to 2015p Severity Growth > US MCPI Growth Severity Growth > US MCPI Growth US MCPI Growth > Severity Growth p Preliminary based on data valued as of 12/31/2015 Sources: Severity: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies; : based on data through 12/31/2014 US Medical CPI: US Bureau of Labor Statistics Includes all states where NCCI provides ratemaking services; WV is included in 2014 and subsequent 72

73 Tennessee s Average Medical Claim Severity Lost-Time Claim Severity in $ Thousands Cumulative Change of +65.2% ( ) -3.6% 8.6% 11.5% 10.4% 3.8% 4.2% 10.5% -1.5% 4.7% -9.0% 0.5% 10.4% 1.1% 2.0% $34.0 $33.4 $33.0 $29.9 $29.8 $32.7 $31.2 $31.7 $28.7 $27.6 $26.5 $24.0 $21.6 $19.8 $ Policy Year Based on data through 12/31/2015, on-leveled and developed to ultimate 73

74 Medical Average Claim Severity ($ '000s) Tennessee 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 74

75 Average Indemnity Claim Severity in the Region Lost-Time Claim Severity in $ Thousands $36.2 $33.4 $22.1 $24.1 $21.7 $26.2 $17.0 $17.1 TN AL AR GA KY MS NC VA Based on NCCI s financial data for lost-time claims 75

76 Average Medical Claim Severity in the Region Lost-Time Claim Severity in $ Thousands $47.7 $49.4 $34.0 $27.6 $34.1 $30.9 $31.5 $30.8 TN AL AR GA KY MS NC VA Based on NCCI s financial data for lost-time claims 76

77 Tennessee s Indemnity Loss Distribution by Injury Type Tennessee 34% 62% 4% Region 39% 53% 5% 3% Countrywide 31% 60% 4% 5% 0% 20% 40% 60% 80% 100% Temporary Total Permanent Partial Permanent Total Fatal Regional states are AL, AR, GA, KY, MS, NC, and VA Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist 77

78 Tennessee s Medical Loss Distribution by Injury Type Tennessee 23% 65% 10% 2% Region 32% 43% 12% 12% 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 AL, AR, GA, KY, MS, NC, and VA Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist 78

79 Key Takeaways Severity Indemnity and medical average severity increased in the latest policy year Average indemnity cost is low compared to the region Average medical cost is near the middle of regional states 79

80 Tennessee s Residual Market

81 Residual Market Video Excerpt Jim Nau, General Manager NCCI Residual Markets

82 Where Does NCCI Provide Residual Market Services? 82

83 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 83

84 Workers Compensation Residual Market Premium $ Billions NCCI-Serviced Workers Compensation Residual Market Pools p Policy Year p Preliminary, incomplete policy year projected to ultimate Includes Pool data for all NCCI-serviced workers compensation Residual Market Pool states valued as of 12/31/2015 Tennessee Reinsurance Mechanism premium is not included Source: NCCI s Residual Market Quarterly Results 84

85 Percent 35 Workers Compensation Residual Market Share NCCI-Serviced Workers Compensation Residual Market Pools p Calendar Year p Preliminary Includes Pool and direct assignment data for all NCCI-serviced workers compensation Residual Market Pool states Source: NCCI s Residual Market Management Summary 85

86 Tennessee s 2016 YTD Residual Market Share 93.8% 6.3% Voluntary Market Residual Market *Preliminary/Estimated 86

87 Percent Workers Compensation Combined Ratio NCCI-Serviced Workers Compensation Residual Market Pools p Policy Year p Preliminary, incomplete policy year projected to ultimate Includes Pool data and Plan expenses for pool members for all NCCI-serviced workers compensation Residual Market Pool states valued as of 12/31/2015 Tennessee Reinsurance Mechanism experience is not included in the combined ratios Source: NCCI s Residual Market Quarterly Results 87

88 Total Residual Market New Applications and Premium Assigned in Tennessee Estimated Premium ($ Millions) # Applications $19M $15M 3,990 3, YTD 2016 Calendar Year 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Total New Applications Total New Premium 88

89 Tennessee Residual Market Residual Market Total Policies and Premium in Force as of June 30, 2016 The total number of Assigned Risk Plan policies and estimated premium volume in force, reported as of the date listed above. Policy Count 12,644 Premium Volume $64,209,050 89

90 Tennessee Residual Market Demographics Total Premium Distribution by Size of Risk YTD Data Reported Through June 30, 2016 The total number of Assigned Risk Plan policies reported to NCCI by direct assignment and servicing carriers in a premium range as of the date listed above. Premium Interval Policy Count % of Total Policies Total State Premium % of Total Premium Average Premium $ , % $4,134, % $902 $ , % $3,609, % $3,531 $ % $4,880, % $7,022 $ % $5,382, % $13,627 $ % $6,940, % $30,573 $ % $4,261, % $68,733 $ % $3,355, % $139,817 $ % $2,427, % $269,696 Total 7, % $34,991, % $4,989 90

91 Tennessee s Assigned Risk Programs Loss Sensitive Rating Plan (LSRP) Differential/Surcharge Take-Out Credit (TOC) Program Drug-Free Workplace Premium Credit Program Assigned Risk Adjustment Program* Voluntary Coverage Assistance Program (VCAP Service) *Pending filing 91

92 Q & A

93 Closing Remarks Thank You!

94 Glossary

95 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. 95

96 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. 96

97 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. 97

98 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. 98

99 Appendix

100 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 100

101 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 101

102 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 102

103 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 103

104 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 104

105 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 105