Workers Compensation Insurance Rating Bureau of California Workers Compensation Insurance Rating Bureau of California Report on Mining and Quarries Excerpt from the WCIRB Classification and Rating Committee Minutes October 22, 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.
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Report on Mining and Quarries 1122, Mining surface no shafts, tunnels, or drifts all employees 1624(1), Quarries including all employees engaged in the construction, repair and maintenance of all buildings, structures or equipment and installation of machinery 1624(2), Excavation rock no tunneling Executive Summary Objective Pursuant to a directive from the Classification and Rating Committee, the WCIRB is reviewing all instances wherein the experience of two or more classifications is combined for experience rating purposes. As part of this review, the WCIRB reviewed the current procedure of combining, for ratemaking purposes, the experience of Classifications 1122, Mining surface, 1624(1), Quarries, and 1624(2), Excavation rock, to determine whether to continue the long-standing procedure of combining the experience of these classifications for ratemaking purposes. Findings Based on its review of the above matter, the WCIRB has determined that: 1. The operations contemplated by Classification 1122 are separate, distinct, and identifiable from those contemplated by Classification 1624; 2. Classifications 1122 and 1624 each develop sufficient data to produce credible advisory pure premium rates; 3. Classification 1122 has a Selected (Unlimited) Loss to Payroll Ratio that is 12.8% less than the current Selected (Unlimited) Loss to Payroll Ratio for Classifications 1122 and 1624 combined; 4. Classification 1624 has a Selected (Unlimited) Loss to Payroll Ratio that is 8.3% greater than the current Selected (Unlimited) Loss to Payroll Ratio for Classifications 1122 and 1624 combined; and 5. Information to more easily identify the operations associated with each classification, and references to similar or related classifications, should be added to Classifications 1122 and 1624 for clarity and to ensure the continued delineation between the two classifications. Recommendations In view of the above, the WCIRB recommends discontinuing the combination of the experience of Classifications 1122 and 1624 for ratemaking purposes and allowing each classification to develop its own advisory pure premium rate effective January 1, 2015. Further, to reinforce the distinction between these classifications and to provide direction regarding the classification of specific operations commonly associated with these classifications, staff recommends the following changes to the California Workers Compensation Uniform Statistical Reporting Plan 1995 (USRP) to be effective January 1, 2015: 1. Amend Classification 1122, Mining surface, to direct that (1) this classification applies to surface mining of ores and minerals, as well as coal, (2) subsequent ore milling operations shall be separately classified as 1452, Mining ore milling, (3) underground mining operations are classified as 1123, Mining underground, and 1124, Mining Surface Employees of underground mining, and (4) rock quarrying operations are classified as 1624(1), Quarries. 2. Amend Classification 1624(1), Quarries, to direct that (1) this classification applies to open quarries for the removal of rock such as but not limited to granite, limestone, sandstone and 1
soapstone, (2) surface mining (open pit method) of ores and minerals is classified as 1122, Mining surface, and (3) underground mining operations are classified as 1123, Mining underground, and 1124, Mining Surface Employees of underground mining. 3. Amend Classification 1624(2), Excavation rock, to direct that (1) this classification applies to rock excavation in connection with construction projects, (2) crushing operations shall be separately classified, (3) quarrying operations are classified as 1624(1) Quarries, and (4) tunneling is classified as 6251, Tunneling all work to completion. Introduction Pursuant to a directive from the Classification and Rating Committee, the WCIRB reviewed the procedure of combining, for ratemaking purposes, the experience of Classifications 1122, Mining surface, 1624(1), Quarries, and 1624(2), Excavation rock. Typically, classifications are combined for ratemaking purposes for the following reasons: 1. Similarity in Operations Classifications are combined for ratemaking purposes when the classification may be difficult to determine due to a significant similarity in operations, for example, a clear delineation does not exist between the two classifications. 2. Low Statistical Credibility The experience of two or more classifications is combined for ratemaking purposes when one or more of the classifications lack statistical credibility. Although the classification(s) may be clearly defined, due to insufficient statistical credibility, the classifications are combined based on similarity in industry type and operations. 3. Temporary Variance in Experience There is a temporary dissimilarity in the relative experience of two related classifications that results in a relationship between the relativities for the classifications that are not expected to continue into the future. That is, based on historical experience for each classification and other factors, there is a high likelihood that the advisory pure premium rate relativities for the classifications will change. With respect to the combination of experience of Classifications 1122 and 1624, this report focuses on: 1. Whether Classifications 1122 and 1624 describe two separate and distinct industries that would permit, from a classification administration standpoint, the development of accurate advisory pure premium rates. If so, 2. Whether there is sufficient data to produce statistically credible advisory pure premium rates for Classifications 1122 and 1624. Classification History A. The history of Classification 1122 is as follows: 1934: Classification 1122, Mining surface, was established to apply to all types of surface mines. 1 Prior to 1934, multiple classifications applied to mining based on the extracted product. 1935: Classification 1122 was amended to include drivers, chauffeurs and their helpers. 1 In 1934, Classification 1123, Mining underground, also was established for underground mines. 2
1973: The experience of Classifications 1122 and 1624 was combined for ratemaking purposes following a study performed by WCIRB staff. The study reviewed the operations assignable to Classifications 1624, Quarries N.O.C., 1654, Quarries Cement Rock or Limestone, 1605, Excavation Rock, and 1122, Mining surface, and found that there were similarities in the equipment used and operations conducted by employers assigned to these classifications. Further, the advisory pure premium rates for these classifications were similar, which indicated a similarity in hazards. The record makes no mention of statistical credibility being a factor in combining these classifications for ratemaking purposes. In addition, the two quarry classifications (1624 and 1625) were combined into a single classification Classification 1624 and Classification 1605, Excavation rock, was amended to Classification 1624(2), an alternate wording to Classification 1624. B. The history of Classification 1624 is as follows: 1941: Classifications 1620, Quarries crushed stone, rip rap, rubble or slate with or without the operation of crushers including Drivers, Chauffeurs and their Helpers and all employees engaged in the construction, repair and maintenance of all buildings, structures or equipment and installation of machinery, and 1622, Quarries N.O.C. including Drivers, Chauffeurs and their Helpers and all employees engaged in the construction, repair and maintenance of all buildings, structures or equipment and installation of machinery, were eliminated and Classification 1624, was established. 1967: The quarry classifications were amended to separately rate rock crushing. 1973: An alternate wording to Classification 1624(1) was established for rock excavation. Description of Operations Following are the classification phraseologies, footnotes and respective summaries of operations for Classifications 1122, Mining surface, 1624(1), Quarries, and 1624(2), Excavation rock. MINING Refer to Section IV, Special Industry Classification Procedures, Rule 4, pertaining to the following Mining Classifications. MINING surface no shafts, tunnels, or drifts all employees 1122 This classification includes commissary department employees, watchpersons and all employees engaged in any work incidental to or in connection with the construction of buildings, the reconditioning, preparation, development, operation and/or maintenance of the project, including the operation of tramways not connected with underground haulage, the installation of surface equipment and surface machinery, construction of roads, the clearing of ground, construction, repair and maintenance of flumes, ditches, sluice boxes, water systems, power lines, buildings, structures or equipment, and the operation of blacksmith shops, sawmills, machine shops, car repair shops, mechanical gold separators, and drivers and their helpers. Classification 1122 applies to the surface mining of ore, which includes strip mining, open pit mining and mountain top removal mining. Surface mining operations contemplate the removal of soil and rock overlying the mineral deposit (overlayment material or overburden) using earthmoving equipment. Surface mining is utilized when the desired minerals are found near the surface, or the material of interest is structurally unsuitable for removal by tunneling. It differs from underground mining, in which the overlying rock is left in place and the desired mineral is removed through shafts or tunnels. 3
Once overlying soil and rock is removed, equipment such as front-end loaders, dragline excavators or bucket wheel excavators are employed to remove the ore or mineral bearing materials. Drilling and blasting may be used to break up the earth so that the desired ore may be extracted. The earth containing the ore is transported to crushing equipment that is used to crush the ore to a uniform size. The crushed ore is transported by truck and stock piled pending further operations. Strip mining, shown in Figure 1, is the practice of mining a seam of mineral by first removing a long strip of overlying soil and rock. It is most commonly used to mine coal. Strip mining is only practical when the ore body to be excavated is relatively near the surface. This type of mining uses some of the largest machines on earth, including bucket-wheel excavators, which can move as much as 12,000 cubic meters of earth per hour. Figure 1: Strip mining. The mineral being extracted is at left, the removed overburden being placed at right. Note that it is a largely flat mine for a horizontal mineral. Open-pit mining, open-cut mining or opencast mining is a surface mining technique for extracting minerals from the earth. As shown in Figure 2, open-pit mines are dug on benches, which describe vertical levels of the hole. The inclined section of the wall is known as the batter, and the flat part of the step is known as the bench or berm. The steps in the walls help prevent rock falls continuing down the entire face of the wall. Some open-pit mines reach depths of over 1,000 feet. Figure 2: Open Pit Mine. The benches and batters, reflected here are identifying traits of open pit mines. 4
Mountaintop mining (MTM), shown in Figure 3, is a form of surface mining that involves the mining of the summit or summit ridge of a mountain. Ore is extracted from a mountain by removing the land, or overburden, above the seams. The land may be dumped back on the ridge and compacted to reflect the approximate original contour of the mountain. Explosives may be used to remove overburden to expose the underlying ore. Figure 3: Mountaintop removal mining. QUARRIES including all employees engaged in the construction, repair and maintenance of all buildings, structures or equipment and installation of machinery Crushing operations shall be separately classified. This classification includes the hauling of material from the quarry to a stone crusher operated by the quarry. 1624(1) A quarry is a type of open-pit mine from which rock is extracted. Quarries are generally used for extracting building materials, such as dimension stone, granite, construction aggregate and riprap. Quarries are normally shallower than open-pit mines. In the quarry, heavy machinery, such as large frontend loaders and pneumatic drills or blasting materials, are used to dislodge the rock. Loaders are employed to load the rock into open-bed trucks for transport to crushing, grinding or cutting areas. Crushing, grinding and cutting operations are separately classified. Figure 4 shows a granite rock quarry. 5
Figure 4: Image of heavy machinery and vehicles at a granite rock quarry. EXCAVATION rock no tunneling 1624(2) Classification 1624(2) contemplates the excavation and removal of large amounts of solid rock, typically in association with construction projects. Excavation may be performed using earthmoving equipment, such as front-end loaders, or by blasting. Excavated pieces of rock may be fragmented using pneumatic drills and jackhammers or similar equipment. Following excavation and fragmentation, the rock is loaded onto trucks for transport to crushing plants or other locations for disposal. Classification Analysis Based on the description of operations provided above, firms assigned to Classification 1122, Mining surface, conduct surface mining for the recovery of ore that contains minerals and metals, as well as coal. Firms assigned to Classifications 1624(1), Quarries, and 1624(2), Excavation rock, operate quarries and rock excavation sites for the removal of various types of rocks and stones such as dimension stone (e.g., granite, limestone, marble, sandstone and quartz). Accordingly, the essential line of demarcation for Classifications 1122 and 1624 is the commodity being extracted. A review of 2010 policy year unit statistical reports (USRs) revealed that 21 employers reported payroll in Classification 1122 and 72 employers reported payroll in Classification 1624. There were no employers reporting payroll in both classifications. Staff identified 19 inspection reports that assigned Classification 1122 and 72 inspection reports that assigned Classification 1624. None of the reports assigned both Classifications 1122 and 1624. These 6
findings indicate that there is no overlap in operations between employers engaged in mining and employers engaged in quarrying, that is, employers engaged in the recovery of ore or coal (Classification 1122) do not also engage in the recovery of rocks and stones (Classification 1624), and vice versa. Each classification is clearly defined and the potential for misclassification of payroll is low. Therefore, from a classification perspective, there appears to be no compelling reason to continue to combine Classifications 1122 and 1624 for ratemaking purposes. Statistical Analysis Table 1 presents the classification relativity data for Classifications 1122 and 1624 at policy year 2014 level: Year Table 1: Mining (1122) and Quarries (1624) Combined Classification Relativity Data at Policy Year 2014 Level Number of Unit Statistical Reports Payroll Losses Loss to Payroll Ratio 2006 118 63,819,173 4,789,085 7.504 2007 112 76,395,278 5,843,602 7.649 2008 100 68,150,498 3,597,683 5.279 2009 96 66,049,661 6,489,174 9.825 2010 93 62,673,914 4,006,959 6.393 Total 337,088,524 24,726,503 Selected (Unlimited) Loss to Payroll Ratio 9.901 Credibility 2 Indemnity Medical 1.00 1.00 Tables 2 and 3 present the classification relativity at the policy year 2014 level for each classification independently: 3 2 The relativity for each classification in the upcoming policy year is determined based on a comparison 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. 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). 3 The classifications shown independently in Tables 2 and 3 require five years of data to achieve credibility, and the classifications combined as shown in Table 3 require four years of data to achieve credibility. 7
Year Table 2: Mining (1122) Relativity Data at Policy Year 2014 Level Number of Unit Statistical Reports Payroll Losses Loss to Payroll Ratio 2006 28 7,997,882 155,520 1.945 2007 20 12,737,067 1,351,201 10.608 2008 19 19,027,899 576,246 3.028 2009 16 21,599,452 1,937,260 8.969 2010 21 21,851,874 533,101 2.440 Total 83,214,174 4,553,327 Selected (Unlimited) Loss to Payroll Ratio 8.638 Credibility Indemnity Medical 0.66 0.62 Year Table 3: Quarries (1624) Relativity Data at Policy Year 2014 Level Number of Unit Statistical Reports Payroll Losses Loss to Payroll Ratio 2006 90 55,821,291 4,633,566 8.301 2007 92 63,658,211 4,492,401 7.057 2008 81 49,122,599 3,021,437 6.151 2009 80 44,450,209 4,551,914 10.240 2010 72 40,822,040 3,473,858 8.510 Total 253,874,350 20,173,176 Selected (Unlimited) Loss to Payroll Ratio 10.723 Credibility Indemnity Medical 1.00 0.96 8
Classifications 1122 and 1624, while not 100% credible, each develop sufficient payroll and loss data to produce separate advisory pure premium rates. Therefore, from a ratemaking viewpoint, there is no compelling reason to continue to combine Classifications 1122 and 1624. Impact Analysis Tables 4 and 5 depict the impact on affected policyholders if separate classification relativities and thus advisory pure premium rates are established for Classifications 1122 and 1624. Table 4: Classifications 1122 and 1624 Combined vs. Classification 1122 Comparison of Selected (Unlimited) Loss to Payroll Ratio at Policy Year 2014 Level Classifications 1122 and 1624 Classification 1122 Difference 9.901 8.638-1.263 (-12.8%) Table 5: Classifications 1122 and 1624 Combined vs. Classification 1624 Comparison of Selected (Unlimited) Loss to Payroll Ratio at Policy Year 2014 Level Classifications 1122 and 1624 Classification 1624 Difference 9.901 10.723 +0.822 (+8.3%) As shown above, Classification 1122 has a Selected (Unlimited) Loss to Payroll Ratio that is 12.8% less than the Loss to Payroll Ratio for Classifications 1122 and 1624 combined; and Classification 1624 has a Selected (Unlimited) Loss to Payroll Ratio that is 8.3% greater than the Loss to Payroll Ratio for Classification 1122 and 1624 combined. Conclusion Based on its review of Classifications 1122 and 1624, WCIRB staff finds the following: 1. The operations contemplated by Classification 1122 are separate, distinct, and identifiable from those contemplated by Classification 1624; 2. Classification 1122 and Classification 1624 develop sufficient data to produce credible advisory pure premium rates; 3. Classification 1122 has a Selected (Unlimited) Loss to Payroll Ratio that is 12.8% less than the current Selected (Unlimited) Loss to Payroll Ratio for Classifications 1122 and 1624 combined; 4. Classification 1624 has a Selected (Unlimited) Loss to Payroll Ratio that is 8.3% greater than the current Selected (Unlimited) Loss to Payroll Ratio for Classifications 1122 and 1624 combined; and 5. Information to more easily identify the operations associated with each classification, and references to similar or related classifications, should be added to Classifications 1122 and 1624 for clarity and to ensure the continued delineation between the two classifications. Recommendations 9
The WCIRB recommends that effective January 1, 2015, Classifications 1122 and 1624 be permitted to develop separate advisory pure premium rates. Further, to reinforce the distinction between these classifications and to provide direction regarding the classification of specific operations commonly associated with these classifications, staff recommends the following changes to the USRP to be effective January 1, 2015: 1. Amend Classification 1122, Mining surface to direct that (1) this classification applies to surface mining of ores and minerals, as well as coal, (2) subsequent ore milling operations shall be separately classified as 1452, Mining ore milling, (3) underground mining operations are classified as 1123, Mining underground, and 1124, Mining Surface Employees of underground mining, and (4) rock quarrying operations are classified as 1624(1), Quarries. 2. Amend Classification 1624(1), Quarries to direct that (1) this classification applies to open quarries for the removal of rock such as but not limited to granite, limestone, sandstone and soapstone, (2) surface mining (open pit method) of ores and minerals is classified as 1122, Mining surface, and (3) underground mining operations are classified as 1123, Mining underground, and 1124, Mining Surface Employees of underground mining. 3. Amend Classification 1624(2), Excavation rock, to direct that (1) this classification applies to rock excavation in connection with construction projects, (2) crushing operations shall be separately classified, (3) quarrying operations are classified as 1624(1) Quarries, and (4) tunneling is classified as 6251, Tunneling all work to completion. 10
Recommendation Amend Classification 1122, Mining surface, within the Mining Industry Group, to identify associated operations and include references to similar or related classifications. PROPOSED MINING Refer to Section IV, Special Industry Classification Procedures, Rule 4, pertaining to the following Mining Classifications. MINING surface no shafts, tunnels, or drifts all employees 1122 This classification includes commissary department employees, watchpersons and all employees engaged in any work incidental to or in connection with the construction of buildings, the reconditioning, preparation, development, operation and/or maintenance of the project, including the operation of tramways not connected with underground haulage, the installation of surface equipment and surface machinery, construction of roads, the clearing of ground, construction, repair and maintenance of flumes, ditches, sluice boxes, water systems, power lines, buildings, structures or equipment, and the operation of blacksmith shops, sawmills, machine shops, car repair shops, mechanical gold separators, and drivers and their helpers. This classification applies to surface mining (open pit method) of ores and minerals including, but not limited to, gold, borax, tungsten, graphite, gypsum, and coal. Subsequent ore milling operations shall be separately classified as 1452, Mining ore milling. Underground mining operations shall be classified as 1123, Mining underground, and 1124, Mining Surface Employees of underground mining. Rock quarrying operations shall be classified as 1624(1), Quarries. * * * * * Recommendation Amend Classification 1624(1), Quarries, to identify the operations associated with the classification and to include references to similar or related classifications. PROPOSED QUARRIES including all employees engaged in the construction, repair and maintenance of all buildings, structures or equipment and installation of machinery Crushing operations shall be separately classified. This classification includes the hauling of material from the quarry to a stone crusher operated by the quarry. This classification applies to open quarries for the removal of rock including, but not limited to, granite, limestone, sandstone and soapstone. Surface mining (open pit method) of ores and minerals shall be classified as 1122, Mining surface. Underground mining shall be classified as 1123, Mining underground, and 1124, Mining Surface Employees of underground mining. 1624(1) * * * * * 11
Recommendation Amend 1624(2), Excavation rock, to identify the operations associated with the classification and to include references to similar or related classifications. PROPOSED EXCAVATION rock no tunneling 1624(2) This classification applies to rock excavation in connection with construction projects. Crushing operations shall be separately classified. Tunneling shall be classified as 6251, Tunneling. Rock quarrying operations shall be classified as 1624(1), Quarries. 12
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