Workers Compensation Insurance Rating Bureau of California Workers Compensation Insurance Rating Bureau of California Report on Concrete Sawing or Drilling Industry Excerpt from the WCIRB Classification and Rating Committee Minutes June 14, 2013 About this Report The WCIRB prepares and presents reports to the WCIRB s Classification and Rating Committee to assist in the formulation of proposed changes to the Insurance Commissioner s regulations. Once adopted by the Classification and Rating Committee, the recommendations contained in the report are provided to the WCIRB Governing Committee and may be included in a WCIRB regulatory filing that is submitted to the Insurance Commissioner for approval. About the WCIRB 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. Learn more at www.wcirb.com.
Notice This Report was developed by the Workers Compensation Insurance Rating Bureau of California (WCIRB) to assist in the formulation of proposed changes to the Insurance Commissioner s regulations. The WCIRB has made reasonable efforts to ensure the accuracy of this Report. You must make an independent assessment regarding the use of this Report based upon your particular facts and circumstances. 2013 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 in this copyright notice or by federal copyright law. Each WCIRB member company, including any registered third-party entities, (Company) and agents and brokers licensed to transact workers compensation insurance in the state of California are authorized to reproduce any part of this work solely for the purpose of transacting workers compensation insurance and for no other purpose. 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 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 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, 525 Market Street, Suite 800, San Francisco, California 94105-2767.
Report on Concrete Sawing or Drilling Industry 3724(1), Millwright Work N.O.C. erection or repair of machinery or equipment 3724(2), Electrical Machinery or Auxiliary Apparatus installation or repair including incidental wiring 3724(3), Concrete Sawing or Drilling N.O.C. Executive Summary Objective In 2012, WCIRB staff began a two-year comprehensive review of the Advisory Rulings and Interpretations (R & I) Companion to the California Workers Compensation Uniform Statistical Reporting Plan 1995 (USRP) to determine whether information from the R & I should be formally incorporated into the USRP. In connection with this review, Classification 3724(3), Concrete Sawing or Drilling N.O.C., was established as an alternate wording to Classifications 3724(1), Millwright Work N.O.C., and 3724(2), Electrical Machinery or Auxiliary Apparatus installation or repair including incidental wiring, for contractors engaged in concrete sawing or drilling for other concerns. At that time, it was noted that based on the WCIRB s library of inspection reports, a significant number of contractors engage in concrete sawing or drilling; therefore, the Classification and Rating Committee directed WCIRB staff to further study Classification 3724(3) to determine if firms engaged in concrete sawing or drilling develop sufficient payroll and loss data to develop a statistically credible advisory pure premium rate. Findings Based upon a review of the available data for California employers engaged in concrete sawing or drilling for other concerns, the WCIRB finds: 1. The operations of employers engaged in concrete sawing or drilling are identifiable and different from those assignable to Classifications 3724(1) and 3724(2). 2. The statistical credibility of the payroll and loss data generated by concrete sawing or drilling contractors is within the range the WCIRB considers sufficient to create an advisory pure premium rate. 3. During the period of 2005-2009, the payroll developed by this industry decreased significantly each year. Based on this trend, the statistical credibility of the industry s data most likely will decline in the next few years. Recommendation The WCIRB recommends that (1) a new classification be established for concrete sawing and drilling contractors; however, due to the credibility of the payroll and loss data and the downward trend of the payroll for the industry, (2) the new classification be combined with Classification 3724 for ratemaking purposes. The WCIRB will periodically review the payroll and loss data developed by this industry to determine if a unique advisory premium rate can be established in the future. 1 WCIRB California
Introduction To establish a unique classification for a group of employers, the following conditions must exist: The operations performed by members of the group are unique and identifiable from the operations described by an existing classification. The operations performed by members of the group are relatively homogenous. The payroll and loss data developed by the group is statistically credible. In 2012, specialty contractors engaged in concrete sawing and drilling were identified as a homogenous and identifiable group of employers and Classification 3724(3), Concrete Sawing or Drilling N.O.C., was established as an alternate wording to Classifications 3724(1), Millwright Work N.O.C., and 3724(2), Electrical Machinery or Auxiliary Apparatus installation or repair including incidental wiring. An initial review of inspection reports indicated that such employers represented a sizable group; accordingly, the WCIRB was directed to study this industry to determine if it develops sufficient payroll and loss data to warrant its own standard classification. Classification History Classification 3724(1), Millwright Work, was established in 1915 to apply to contractors engaged in the installation, service and repair of machinery or equipment. Effective January 1, 2013, Classification 3724(3), Concrete Sawing or Drilling N.O.C., was established as an alternate wording for contractors engaged in concrete sawing or drilling for other concerns. Description of Operations Following are brief summaries of the operations currently assigned to Classifications 3724(1), 3724(2) and 3724(3). MILLWRIGHT WORK N.O.C. erection or repair of machinery or equipment 3724(1) This classification is not available for division of payroll of employees of an employer engaged in millwright work on the premises both occupied and operated by the employer. Such payroll shall be included in the governing classification. Classification 3724(1) contemplates a wide array of machinery installation and repair operations performed on a fee basis at customers locations. As Classification 3724(1) is an N.O.C., (not otherwise classified) classification it applies to the outside installation and repair of machinery when such activities are not specifically described by another classification. This classification does not apply to the installation or repair of machinery or equipment used by the employer. Examples of operations assigned to Classification 3724(1) include the installation or repair of pumps (such as gasoline, oil and water), sawmill equipment, conveyer systems, food processing equipment, printing presses, automated pick and place machinery, industrial laundry equipment, filling and bottling equipment, industrial scales and air compressors. Installation activities entail placing the equipment into position, after which it is leveled and bolted into position. As required, the system components are installed, connected to a power source, calibrated and tested to complete. ELECTRICAL MACHINERY OR AUXILIARY APPARATUS installation or repair including incidental wiring This classification is not available for division of payroll of employees of employers engaged in the installation or repair of electrical apparatus on the premises both occupied and operated by the employer. Such payroll shall be included in the governing classification. 3724(2) The erection of poles, stringing of wires, installation of service transformers on poles or on the outside of buildings, or the making of service connections shall be separately classified. 2 WCIRB California
Classification 3724(2) contemplates the installation or repair of industrial electrical equipment, such as transformers, generators and control panels at customer locations. Operations entail bolting the electrical apparatus in to position, installing necessary components, making electrical wiring connections and testing to complete. This classification includes the installation of electrical wiring when performed incidental to the installation of the electrical machinery or equipment. CONCRETE SAWING OR DRILLING N.O.C. 3724(3) This classification is not available for division of payroll when the concrete sawing or drilling is in support of a construction activity performed by the employer. Such concrete sawing or drilling shall be assigned to the appropriate construction classification. Classification 3724(3) is assignable to contractors engaged in the cutting and drilling of concrete for other concerns. The operations involved in the cutting and drilling of concrete are different than those assignable to Classifications 3724(1) and 3724(2) and include, but are not limited to, cutting and drilling of concrete streets, roads, walls, floors and other structures and surfaces on a fee basis as requested by the customer. The drilling or cutting may be performed in areas to create openings for, or access to electrical wiring or plumbing piping, HVAC and mechanical work, seismic anchors, structural beams and similar items. Such activities are performed using portable gasoline driven concrete cutting diamond saws and diamond core drills. This classification is not available for division of payroll when the concrete sawing or drilling is in support of another construction activity performed by the employer. Staff contacted the Concrete Sawing and Drilling Association (CSDA) to obtain general information about the industry, its potential for growth and future business direction. The CSDA considers the concrete sawing and drilling operations to be a specialty operation in the construction industry. The association advised that there are approximately 100 specialty contractors engaged in concrete sawing and drilling in California. The WCIRB was able to locate 84 inspection reports for employers that conduct concrete sawing or drilling operations for other concerns on a fee basis. Of the 84 employers, over 70% conduct no other construction activities. Payroll and Loss Data Shown in Table 1 is the Classification Relativity data at policy year 2013 level for the concrete sawing or drilling industry (Exhibit 1). Table 1: Concrete Sawing or Drilling Relativity Data at Policy Year 2013 Level Year 2005 2006 2007 2008 2009 No. of Reports 69 68 69 69 64 Payroll Losses Loss to Payroll Ratio 44,279,175 41,352,232 38,651,476 30,176,986 26,675,236 4,427,996 2,684,043 1,568,416 1,887,174 1,946,984 10.000 6.491 4.058 6.254 7.299 Total 181,135,105 12,514,613 3 WCIRB California
Indicated (Unlimited) Loss to Payroll Ratio 8.054 Selected Loss to Payroll Ratio (Restricted to 25% Change) 1 5.230 Indemnity Credibility 2 Medical.64.62 The payroll and loss experience for the concrete sawing or drilling industry is within the range the WCIRB considers sufficient to create an advisory pure premium rate; however, the year-to-year payrolls are declining significantly. Based on this trend, the statistical credibility of the industry s data most likely will decline in the next few years. Based on the current statistical credibility and declining payrolls, the WCIRB does not recommend that a unique advisory premium rate for concrete sawing and drilling be established at this time. Rather, the WCIRB should periodically monitor the industry s payroll and loss data to determine if a unique advisory pure premium rate can be established in the future. Staff discussed the lack of statistical credibility and downward payroll trend with the CSDA. The CSDA advised that they are currently seeing increased payroll for concrete sawing and drilling firms and an increase in sales of the equipment used in such operations. The CSDA supports the WCIRB s intent to periodically review the industry s payroll and loss data to determine if a unique advisory premium rate can be established for the industry in the future. The CSDA is currently engaged in an alliance with OSHA and has implemented safety and training programs that they believe will improve the industry s future loss experience. For informational purposes, presented below are the classification relativities for Classification 3724 and Classification 3724 less concrete sawing or drilling and comparisons of loss to payroll ratios. Table 2 shows Classification 3724 classification relativity data at policy year 2013 level (Exhibit 2). 1 Classification relativity changes are limited to an annual increase or decrease of 25%. If concrete sawing and drilling had not been combined with Classification 3724 for ratemaking purposes, its 2013 Selected Loss to Payroll Ratio would have been 5.230, not the indicated unlimited amount of 8.054. 2 The relativity, or "Selected (Unlimited) Loss to Payroll Ratio", for each classification in the upcoming policy year is determined based on a weighted average of that classification s actual losses per $100 of payroll and the ratio of losses per $100 of payroll underlying the current pure premium rate, using credibilities as weights. The credibilities assigned to a classification are the statistical weights assigned to that classification s experience as a predictor of future claim experience relative to the loss per $100 of payroll underlying the classification s current pure premium rate. The predictability or credibilities assigned to a classification s recent historical experience depends on the volume of indemnity and medical claims incurred during the experience period. The WCIRB strives to have classifications that are fully, or 100%, statistically credible based on historical experience over five or fewer years, which means that the classification s relativity in the upcoming policy year can be best estimated using only the loss per $100 of payroll experience from the latest two-, three-, four- or five-year periods. The WCIRB generally will not recommend the establishment of a new classification if the credibility factors are less than one-half (< 0.50). 4 WCIRB California
Table 2: Classification 3724 Classification Relativity Data at Policy Year 2013 Level Year Payroll Losses Loss to Payroll Ratio 2008 1,046,318,461 33,572,344 3.209 2009 1,001,047,357 33,193,146 3.316 Total 2,047,365,818 66,765,490 Selected (Unlimited) Loss to Payroll Ratio 4.91 Indemnity Credibility Medical 1.00 1.00 Table 3 depicts the Classification 3724 at policy year 2013, with the data for concrete sawing or drilling removed (Exhibit 3). Table 3: Classification 3724 Less Concrete Sawing or Drilling Loss to Payroll Ratio at Policy Year 2013 Level Year Payroll Losses Loss to Payroll Ratio 2008 1,016,141,475 31,685,170 3.118 2009 974,372,121 31,246,162 3.207 Total 1,990,513,596 62,931,332 Selected (Unlimited) Loss to Payroll Ratio 4.773 Credibility Indemnity Medical 1.00 1.00 5 WCIRB California
Table 4 depicts the first year impact on concrete sawing or drilling policyholders if a separate classification relativity and thus an advisory pure premium rate is established for contractors engaged in concrete sawing or drilling. In this Table, the classification relativity for concrete sawing and drilling is limited to a 25% increase. Table 4: Classification 3724 vs. Concrete Sawing or Drilling Comparison of Selected (Limited) Loss and Payroll Ratios at Policy Year 2013 Level Classification 3724 Concrete Sawing or Drilling Study Group Limited to 25% Change Difference 4.910 5.230 +0.320 (6.52%) In Table 5, the classification relativity for concrete sawing or drilling is not limited to a 25% increase. This comparison depicts the possible ultimate impact on concrete sawing or drilling policyholders. Table 5: Classification 3724 vs. Concrete Sawing or Drilling (Unlimited) Comparison of Indicated Loss and Payroll Ratios at Policy Year 2013 Level Classification 3724 Concrete Sawing or Drilling Study Group (Unlimited) Difference 4.910 8.054 +3.144 (64.03%) Table 6 shows the impact on policyholders assigned to Classification 3724 if a separate relativity and advisory pure premium rate is established for concrete sawing or drilling. Table 6: Classifications 3724 vs. Classification 3724 Excluding Concrete Sawing or Drilling Comparison of Selected (Unlimited) Loss to Payroll Ratio at Policy year 2013 Level Classification 3724 Residual of Classification 3724 Difference 4.910 4.773-0.137 (-2.79%) Conclusion and Recommendation The operations of employers engaged in concrete sawing or drilling are identifiable and different from those assignable to Classifications 3724(1) and 3724(2). The classification relativity for concrete sawing or drilling is significantly different than that of Classification 3724; however, the statistical credibility of the industry s payroll and loss data is not optimal and year-to-year payrolls have decreased significantly. In view of the above, the WCIRB recommends that (1) a new classification be established for concrete sawing and drilling contractors, and (2) the new classification be combined with Classification 3724 for ratemaking purposes. The WCIRB will periodically monitor the industry s payroll and loss data to determine if such data can be used to establish an advisory pure premium rate in the future. 6 WCIRB California
Proposed Revisions to the California Workers Compensation Uniform Statistical Reporting Plan 1995 Recommendation Eliminate Classification 3724(3), Concrete Sawing or Drilling N.O.C., which is an alternate wording to Classifications 3724(1), Millwright Work N.O.C., and 3724(2), Electrical Machinery or Auxiliary Apparatus installation or repair. Concrete sawing or drilling contractors comprise an identifiable and viable industry that merits the establishment of its own classification. PROPOSED CONCRETE SAWING OR DRILLING N.O.C. 3724(3) This classification is not available for division of payroll when the concrete sawing or drilling is in support of a construction activity performed by the employer. Such concrete sawing or drilling shall be assigned to the appropriate construction classification. * * * * * Establish Classification XXXX, Concrete Sawing or Drilling N.O.C., for employers engaged in concrete sawing and drilling for other concerns on a contract basis. PROPOSED CONCRETE SAWING OR DRILLING N.O.C. This classification is not available for division of payroll when the concrete sawing or drilling is in support of a construction activity performed by the employer. Such concrete sawing or drilling shall be assigned to the appropriate construction classification. XXXX 7 WCIRB California
WCIRB January 1, 2013 Pure Premium Rate Filing CLASSIFICATION RELATIVITY REVIEW SHEET Effective January 1, 2013 Code: XXXX RHG: 5 NAICS: 81 ILDG: 2 MLDG: 2 CLASS: CONCRETE SAWING OR DRILLING POLICY YEAR PAYROLL (P/R) CLAIM COUNTS ADJUSTED LOSSES SERIOUS NON- SERIOUS MEDICAL- ONLY INDEMNITY MEDICAL TOTAL ADJ. LOSS TO P/R (00s) 2005 2006 2007 2008 2009 44,279,175 41,352,232 38,651,476 30,176,986 26,675,236 14 7 4 2 1 55 43 33 21 25 84 73 44 37 20 1,815,916 1,197,528 738,901 779,151 1,255,381 2,612,081 1,486,516 829,515 1,108,023 691,603 4,427,996 2,684,043 1,568,416 1,887,174 1,946,984 10.000 6.491 4.058 6.254 7.299 181,135,105 28 177 258 2,509,904 5,786,876 6,727,737 12,514,613 Adjusted Loss to Payroll Ratio: Expected Unlimited Loss to Payroll Ratio: 1.479 2.705 4.184 Expected Limited Loss to Payroll Ratio (adjusted for NAICS diff.): 1.340 1.665 3.005 Credibility: 0.64 0.62 Indicated Limited Loss to Payroll Ratio: Limit Factor: 3.195 3.714 6.909 2.527 2.935 5.463 1.217 1.696 Indicated (Unlimited) Loss to Payroll Ratio: 3.076 4.979 8.054 Indicated Relativity Change: 92.5% Selected Loss to Payroll Ratio (Restricted to 25% Change): 1.997 3.233 5.230 Relativity to Statewide Average Loss to Payroll Ratio: 270.4% 2012 WCIRB California. All rights reserved. 8
WCIRB January 1, 2013 Pure Premium Rate Filing CLASSIFICATION RELATIVITY REVIEW SHEET Effective January 1, 2013 Code: 3724 RHG: 5 NAICS: 81 ILDG: 2 MLDG: 2 CLASS: MILLWRIGHT WORK POLICY YEAR PAYROLL (P/R) CLAIM COUNTS ADJUSTED LOSSES SERIOUS NON- SERIOUS MEDICAL- ONLY INDEMNITY MEDICAL TOTAL ADJ. LOSS TO P/R (00s) 2008 1,046,318,461 48 487 1,157 13,645,370 19,926,974 33,572,344 3.209 2009 1,001,047,357 26 419 865 12,868,201 20,324,945 33,193,146 3.316 2,047,365,818 74 906 2,022 18,331,327 26,513,571 40,251,919 66,765,490 Adjusted Loss to Payroll Ratio: Expected Unlimited Loss to Payroll Ratio: 1.479 2.705 4.184 Expected Limited Loss to Payroll Ratio (adjusted for NAICS diff.): 1.354 1.672 3.026 Credibility: 1.00 1.00 Indicated Limited Loss to Payroll Ratio: Limit Factor: 1.295 1.966 3.261 1.295 1.966 3.261 1.217 1.696 Selected (Unlimited) Loss to Payroll Ratio: 1.576 3.334 4.910 Indicated Relativity Change: 17.4% Relativity to Statewide Average Loss to Payroll Ratio: 253.8% 2012 WCIRB California. All rights reserved. 9
WCIRB January 1, 2013 Pure Premium Rate Filing CLASSIFICATION RELATIVITY REVIEW SHEET Effective January 1, 2013 Code: 3724 RHG: 5 NAICS: 81 ILDG: 2 MLDG: 2 CLASS: MILLWRIGHT WORK LESS CONCRETE SAWING OR DRILLING POLICY YEAR PAYROLL (P/R) CLAIM COUNTS ADJUSTED LOSSES SERIOUS NON- SERIOUS MEDICAL- ONLY INDEMNITY MEDICAL TOTAL ADJ. LOSS TO P/R (00s) 2008 1,016,141,475 46 466 1,120 12,866,219 18,818,951 31,685,170 3.118 2009 974,372,121 25 394 845 11,612,820 19,633,342 31,246,162 3.207 1,990,513,596 71 860 1,965 17,099,062 24,479,039 38,452,293 62,931,332 Adjusted Loss to Payroll Ratio: Expected Unlimited Loss to Payroll Ratio: 1.479 2.705 4.184 Expected Limited Loss to Payroll Ratio (adjusted for NAICS diff.): 1.340 1.665 3.005 Credibility: 1.00 1.00 Indicated Limited Loss to Payroll Ratio: Limit Factor: 1.230 1.932 3.162 1.230 1.932 3.162 1.217 1.696 Selected (Unlimited) Loss to Payroll Ratio: 1.497 3.276 4.773 Indicated Relativity Change: 14.1% Relativity to Statewide Average Loss to Payroll Ratio: 246.8% 2012 WCIRB California. All rights reserved. 10
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