December 19, 217 WCIRB Report on September 3, 217 Insurer Experience 1 WCIRB Report on September 3, 217 Insurer Experience
WCIRB California Research and Analysis WCIRB Report on September 3, 217 Insurer Experience The WCIRB has completed its review and analysis of September 3, 217 experience submitted by insurers. This report is based on data reported to the WCIRB by insurers who wrote almost 1% of the statewide market. In reviewing this information, the following should be noted: 1. This report reflects a compilation of individual insurer submissions of accident year and calendar year premium and loss data to the WCIRB. While the individual insurer data submissions are regularly checked for consistency and comparability with other data submitted by the insurer as well as with data submitted by other insurers, the source information underlying each insurer s data submission is not verified by the WCIRB. 2. Some of the figures and ratios shown are based on WCIRB actuarial projections of future claim payments using information reported by insurers through September 3, 217. Although the actuarial methodologies and assumptions upon which these projections are predicated are periodically reviewed by the WCIRB s Actuarial Committee, the actual costs that will ultimately emerge could differ from the amounts projected. Many of these projections will be updated regularly by the WCIRB as more mature information on these claims is reported in subsequent quarters. 3. The amounts and ratios shown represent statewide totals based on the amounts reported by insurers writing workers compensation insurance in California. The results for any individual insurer can differ significantly from the statewide average. An individual insurer s results are related to its underwriting book of business, claims and reserving practices, as well as the nature of its reinsurance arrangements. 4. Insurer-reported losses, which are compared in Exhibit 9 to the WCIRB s projections of ultimate losses, include insurers estimates of incurred but not reported (IBNR) losses that may, in part, reflect allocations of IBNR losses to line of business, state, and accident year, and are on a basis that does not reflect anticipated reinsurance recoveries or employer-paid deductibles. As a result, the amounts shown in Exhibit 9 do not necessarily equate to specific estimates of the adequacy of insurers reserves for unpaid losses. 5. Senate Bill No. 863 (SB 863) increased benefits and provided for a number of structural changes to the California workers compensation benefit delivery system starting in 213. Some provisions of SB 863 impact costs on older claims. WCIRB projections of ultimate losses and ultimate loss severities have been adjusted to reflect the impact of SB 863 based on methodologies developed by the WCIRB. 6. Beginning with claims incurred on policies incepting on or after July 1, 21, the cost of medical cost containment programs (MCCP) is reported to the WCIRB as allocated loss adjustment expense (ALAE) rather than as medical loss. As a result, some portion of MCCP costs for accident years 21 and 211 has been reported as medical loss and some portion has been reported as ALAE. In order to provide consistent comparisons across years, to the extent appropriate, the amounts and ratios shown represent the combined cost of losses and ALAE. In several other exhibits, in order to facilitate consistent comparison from year to year of medical losses and ALAE, accident year 21 MCCP costs reported as ALAE have been shifted to medical loss and the estimated amount of accident year 211 MCCP costs reported as medical loss have been shifted to ALAE. Exhibits 1 through 9, which summarize the WCIRB s review of reported September 3, 217 insurer experience, reflect the following information: California written premium (gross of deductible credits) for 216 is approximately $18.1 billion, which is 3% above the written premium reported for 215 (Exhibit 1). Written premium for the first nine months of 217 is $13.5 billion, which is 4% below the written premium reported for the first nine months of 216. 2 WCIRB Report on September 3, 217 Insurer Experience
WCIRB California Research and Analysis The projected industry average charged rate (rates charged by insurers that reflect all rating plan adjustments except deductible credits, retrospective rating plan adjustments, terrorism charges, and policyholder dividends) per $1 of payroll for policies incepting in the first nine months of 217 is $2.47 (Exhibit 2). This is 1% below the average rate charged in 216 and 17% below the average rate charged in 215. The approved January 1, 218 advisory pure premium rates are on average approximately 3% below the January 1, 215 advisory pure premium rates. The WCIRB projects total ultimate losses and ALAE for accident year 216 to be approximately $12. billion (Exhibit 3), which is 3% above the projection for accident year 215 and represents the seventh consecutive year of increasing ultimate losses and ALAE. The WCIRB projects an ultimate accident year loss and ALAE ratio of 66.7% for accident year 216 (Exhibit 4). This projection is slightly below the projections for the prior two accident years as well as the projections based on June 3, 217 experience as a result of favorable loss development experienced in the third quarter of 217. The WCIRB projects an ultimate accident year combined loss and expense ratio of 9% for 216 (Exhibit 5). Of this ratio, 54% is attributable to the indemnity and medical loss ratio, 18% is attributable to the loss adjustment expense ratio, and 18% is attributable to the other expense ratio. This projection is generally consistent with the ratios for the prior two accident years, which represent the lowest combined ratios since the 24 through 26 period. The calendar year combined loss and expense ratio for 216 reported by insurers is 94%, which is below the combined ratios for the last several years (Exhibit 6). The lower combined ratios reported for calendar years 215 and 216 are primarily a result of increased premium levels and significant reductions in insurer case reserves in 215 and 216. The WCIRB projects indemnity claim frequency for accident year 216 to be approximately 1% below the frequency for 215 but 1% above the frequency for 29 (Exhibit 7). The frequency increases experienced in 21 through 214 are largely attributed to increases in cumulative injury claims, late reported indemnity claims, claims involving injuries to multiple body parts, and claims from the Los Angeles Basin area. 215 and 216 represent the first consecutive years of projected indemnity claim frequency decline since before the Great Recession. The projected indemnity claim frequency for the first nine months of 217 is approximately 1% higher than that for 216. The WCIRB projects the average cost (or severity ) of a 216 indemnity claim to be approximately $78,, which is 2% higher than the projected severity for 215 (Exhibit 8.1). Total claim severity growth over the last several years has been relatively modest as increases in average indemnity and ALAE costs have been in part offset by declines in average medical costs through 216. The WCIRB projects that the average indemnity cost of a 216 indemnity claim is 13% higher than that for 212, primarily a result of SB 863 increases to permanent disability benefits effective in 213 and 214 and wage inflation impacting average indemnity benefit levels (Exhibit 8.2). The projected average medical cost of a 216 indemnity claim is 2% above that for 215, which follows several years of flat to declining medical severities resulting from the medical cost savings arising from SB 863 (Exhibit 8.3). The projected average ALAE cost of a 216 indemnity claim, excluding MCCP costs, is 3% above that of 215 and 13% above that of 212 (Exhibit 8.4). The WCIRB currently projects the total statewide ultimate losses on all injuries that occurred on or before December 31, 216 is approximately $5.4 billion less than the amounts reported by insurers (Exhibit 9). 3 WCIRB Report on September 3, 217 Insurer Experience
Written Premium 25 $ Billions 21.4 23.5 21.3 Written Premium - Gross of Deductible Credits Written Premium - Net of Deductible Credits 4 2 15 1 5 7.1 6.4 5.7 5.1 5.3 5.7 12. 8.6 15.6 11. 14.8 16.3 15.2 16.4 11.3 13. 8.9 Source: Insurer aggregate financial data submissions to the WCIRB 17.6 18.1 16.5 14.8 13.5 12.5 1.6 1.8 13.3 9.8 8.8 13. 1. 1.7 11.9 9.2 8. 7.6 7.1 6.6 95 97 99 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17 9 Months Calendar Year Exhibit 1
Industry Average Charged Rate per $1 of Payroll 8. $ Dollars Source: Insurer unit statistical reports through 215 and WCIRB projections for 216 through 217 6. 6.2 5.73 4.66 4.74 5 4. 2. 2.57 2.39 2.33 2.35 2.82 3.47 3.24 2.52 2.15 2.1 2.25 2.32 2.5 2.9 2.97 2.96 2.73 2.47. 1996 1997 1998 1999 2 21 22 23 24 25 26 27 28 29 21 211 212 213 214 215 216 1/17-9/17 Policy Year Exhibit 2
Projected Ultimate Losses and ALAE by Accident Year 18 $ Billions Source: WCIRB projections As of September 3, 217 15 14.1 14.2 6 12 9 12.3 12.7 9.5 8.1 8.5 9.1 9.5 9.3 9.8 1. 1.3 1.5 11.1 11.6 12. 6 3 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 Accident Year Exhibit 3
Projected Ultimate Accident Year Loss and ALAE Ratios 2 % As of September 3, 217 Source: WCIRB projections 158.6 15 7 1 12.8 12.8 11.7 96. 85.2 62.7 68.6 73.3 68.7 67.5 66.7 5 95 96 97 98 99 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 Accident Year Exhibit 4
Projected Accident Year Combined Loss and Expense Ratios* 2 Source: WCIRB projections 171 As of September 3, 217 Other Expenses LAE** Losses 8 15 1 5 2 148 23 18 131 131 124 118 2 112 22 23 11 16 23 91 2 97 2 2 2 91 9 18 9 83 23 18 16 15 69 18 21 18 18 18 2 128 59 13 56 13 16 18 18 18 11 14 14 1 84 1 89 88 9 76 78 55 6 69 59 55 54 54 35 43 33 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 Preliminary Accident Year * The cost of medical cost containment programs is reflected in LAE for accident years 211 and subsequent. It is reflected in losses for all other accident years. ** LAE ratios include experience of private insurers only. Exhibit 5
Calendar Year Combined Loss and Expense Ratios 2 Source: Insurer aggregate financial data submissions to the WCIRB Other Expenses LAE Losses 9 15 1 5 138 2 16 12 124 122 18 16 12 12 94 94 16 15 11 8 86 14 1 62 79 14 11 54 74 16 13 45 85 18 14 53 11 2 17 64 116 117 122 114 23 18 22 23 14 2 18 99 94 18 21 2 25 18 18 18 18 18 18 16 73 74 74 76 72 68 63 6 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 Preliminary Calendar Year Exhibit 6
Projected Percentage Change in Indemnity Claim Frequency by Accident Year 2 % As of September 3, 217 Source: WCIRB projections 1 6.8 1 1. -1.5-3. -2.3-3.9-2. -.2 3.6.5 1.1 [1] -.8 -.9 [1] 1.3 [1] -1-6.8-6.5-13.9-2 -17. 99- -1 1-2 2-3 3-4 4-5 5-6 6-7 7-8 8-9 9-1 1-11 11-12 12-13 13-14 14-15 15-16 16-17 Accident Year (1) The 214-215 estimate is based on partial year unit statistical data. The 215-216 and 216-217 estimates are based on a comparison of claim counts based on WCIRB accident year experience as of September 3, 217 relative to the estimated change in statewide employment. Prior years are based on unit statistical data. Exhibit 7
Projected Ultimate Total Loss* and ALAE per Indemnity Claim 1, $ Dollars As of September 3, 217 Source: WCIRB projections 11 8, 6, 57,659 Average Ultimate Indemnity + Medical + ALAE per Indemnity Claim 66,769 66,734 65,4 57,815 56,333 61,242 67,658 78,267 78,366 77,951 73,954 75,368 73,882 75,27 76,186 77,637 4, 2, 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 * Excludes medical-only. Accident Year Exhibit 8.1
Projected Ultimate Indemnity per Indemnity Claim 35, $ Dollars As of September 3, 217 Source: WCIRB projections 12 3, 25, 2, 27,212 26,295 25,876 25,93 25,576 24,78 24,751 25,185 24,771 25,57 22,62 21,97 2,766 19,12 27,58 27,875 26,825 15, 1, 5, 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 Accident Year Exhibit 8.2
Projected Ultimate Medical* per Indemnity Claim 6, 5, $ Dollars As of September 3, 217 Source: WCIRB projections Average Ultimate Medical per Indemnity Claim - Including MCCP Costs Average Ultimate Medical per Indemnity Claim - Excluding MCCP Costs 13 4, 3, 36,184 32,25 32,381 32,314 3,933 28,68 29,486 26,92 39,462 41,549 41,911 41,969 39,596 38,251 37,57 36,78 36,621 37,38 36,111 34,176 33,431 33,38 33,964 2, 1, 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 Accident Year * Excludes medical-only. Exhibit 8.3
Projected Ultimate ALAE per Indemnity Claim* (Excluding MCCP Costs) 15, $ Dollars As of March 31, 217 Source: WCIRB projections 12,454 11,665 12,57 11,255 1,815 1,8791,797 11,1 14 1, 7,532 8,58 8,591 8,11 7,835 8,162 8,872 9,741 6,49 5, 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 Accident Year * Based on data submitted by private insurers only. Exhibit 8.4
Projected Ultimate Losses Less Reported Losses at Successive December 31 Evaluations 22 $ Billions As of September 3, 217 Source: WCIRB projections and insurer reported losses on aggregate financial data submissions to the WCIRB 16 11.5 13.3 11.7 15 1 7.1 4 1. 1.1 1.6.8-2 -8 -.3-1.9-1.3-1. -3.7-3.1-2.9-4.3-5.4 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 Evaluation Year Note: The cost of medical cost containment programs is excluded from losses for accident years 211 and subsequent and included in losses for all other accident years. Exhibit 9
WCIRB California Research and Analysis Notice This Report on September 3, 217 Insurer Experience (Report) was developed by the Workers Compensation Insurance Rating Bureau of California (WCIRB) for the convenience of its users. 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. 217 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. No copyright is claimed in the text of statutes and regulations quoted within this work. Each WCIRB member company, including any registered third party entities, (Company) is authorized to reproduce any part of this work solely for the following purposes in connection with the transaction of workers compensation insurance: (1) as necessary in connection with Company s required filings with the California Department of Insurance; (2) to incorporate portions of this work, as necessary, into Company manuals distributed at no charge only to Company employees; and (3) to the extent reasonably necessary for the training of Company personnel. Each Company and all agents and brokers licensed to transact workers compensation insurance in the state of California are authorized to physically reproduce any part of this work for issuance to a prospective or current policyholder upon request at no charge 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 Connect, WCIRB Inquiry, X-Mod Direct, WCIRB Comp Essentials, 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 WCIRB at customerservice@wcirb.com. Workers Compensation Insurance Rating Bureau of California 1221 Broadway, Suite 9 Oakland, CA 94612 888.229.2474 (CA-WCIRB) www.wcirb.com Twitter: @WCIRB