W o r k e r s C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a January 1, 2015 Pure Premium Rate Filing WCIRB Executive Summary CDI Public Hearing October 8, 2014 1 Notice The information provided in this presentation was developed by the Workers Compensation Insurance Rating Bureau of California (WCIRB) solely for the purpose of discussion during this presentation. The WCIRB shall not be liable for any damages, of any kind, whether direct, indirect, incidental, punitive or consequential, arising from the use, inability to use, or reliance upon information provided in this presentation. 2014 Workers Compensation Insurance Rating Bureau of California. All rights reserved. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including, without limitation, photocopying and recording, or by any information storage or retrieval system without the prior written permission of the Workers Compensation Insurance Rating Bureau of California (WCIRB), unless such copying is expressly permitted by federal copyright law. 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 at www.wcirb.com. 2 1
Executive Summary 1/1/15 Filing Submitted on 8/18/14 Based on 3/31/14 Experience Amended Filing Submitted on 9/5/14 Based on 6/30/14 Experience Lowered proposed advisory pure premium rates to an average of $2.77 per $100 of payroll down from $2.86 Primary drivers lowering indication Moderation in medical loss development Moderation in rate of claim frequency growth WCIRB Indication of $2.77 is 7.9% above average filed pure premium rate as of 7/1/14 of $2.57 and 1% above 1/1/14 Indication of $2.74 Primary upward cost driver is recognition of higher long-term medical loss development Primary downward cost driver is better than projected accident year 2013 experience SB 863 emerging cost impacts generally consistent with projections 3 Indicated Advisory Pure Premium Rates Per $100 of Payroll $3.25 $3.00 1/1/14 Filing Projected Increase to PY 2015: +$0.05 Recognition of Longterm Medical Loss Development +$0.07 Impact of Favorable Emerging Experience: -$0.09 $2.75 $2.68 $2.74 $2.86 $2.79 $0.07 $0.05 $0.05 $2.74 $2.74 $2.77 $2.50 $2.25 Approved 2014 PPRate WCIRB Indicated 2014 PPRate 2014 Filing: WCIRB Projected PY 2015 Indicated PPRate 2014 Filing: WCIRB Projected PY 2015 PPRate with Long-term Medical Adjustment WCIRB Indicated 2015 PPRate Based on 6/30/14 Experience. 4 2
Presentation Summary Recognition of Long-Term Medical Loss Development Impact of Updated Experience SB 863 Cost Monitoring Results 5 1/1/14 Filing Wide Divergence Between Incurred and Paid Medical Loss Development Projections 65% 60% Latest Year Incurred Latest Year Paid 58.1% 55% 50% 48.2% 45% 40% 1/1/14 Filing Medical Loss Projections 6 3
Dramatic Shift in Ratio of Incurred to Paid Medical Losses at 156 Months Identified as Causation from 2014 WCIRB Research 1.20 1.16 1.12 1995-2000: Incurred medical 16% greater than paid 1.08 1983-1991: Incurred medical 5% greater than paid 1.04 1.00 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 Accident Year 7 Large Shift in Medical Payout Pattern in Late 1990 s Not Experienced in Other States 2.00 Medical Paid Development from 3 to 8 Years 1.80 California Countrywide * 1.77 1.60 1.40 1.20 1.22 1.26 1.16 1.17 1.19 1.00 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Calendar Year * NCCI countrywide pattern is from NCCI Annual Statistical Bulletins (latest year) and excludes California and several other states. 8 4
Recognizing Shift in Medical Payout Corrects for Differences in Medical Loss Projection 65% 60% Latest Year Incurred Latest Year Paid 58.1% 55% 50% 48.2% 49.3% 50.7% 45% 40% 1/1/14 Filing - Medical Loss Projections 1/1/15 Filing - Medical Loss Projections Note that the 1/1/15 filing medical loss projections also reflects the impact of an additional year of experience. 9 Presentation Summary Recognition of Long-Term Medical Loss Development Impact of Updated Experience SB 863 Cost Monitoring Results 10 5
Updated Experience From 1/1/14 Filing Primary Factors Factors Increasing Indication Increasing Claim Frequency Increasing LAE Costs Factors Moderating Indication 2013 Severities Emerging At or Below Projections Reduced Future Severity Inflation Assumptions 11 Updated Experience Primary Factors Increasing Indication 15 10 5 0-5 -10 % As of June 30, 2014 Projected Post-SB 863 Actual 6.2 4.1 3.2 3.8 2.3-1.3-7.8-15 2012 Indemnity Claim Frequency Change 2013 Indemnity Claim Frequency Change -12.3 2013 ALAE Severity Change 2013 ULAE Severity Change 12 6
Updated Experience Primary Factors Moderating Indication Accident Year 2013 Severity Changes 4% Projected 1.6% Actual 1.8% 2.1% 0% -4% Indemnity Medical -3.4% Projected Future Annual Severity Growth Trend 5% 1/1/14 WCIRB Filing 1/1/15 WCIRB Filing 5.0% 4.0% 2.5% 1.0% 0% Indemnity Medical 13 2013 Accident Year Losses Emerging Better than Projected 90% 80% Projected Combined Indemnity and Medical Adjusted or On-Level Loss Ratio 87.6% 6% Annual Rate of Growth from 2008 to 2012 81.0% 79.7% 75.7% 81.4% 70% 68.5% 63.2% 60% 50% 2008 2009 2010 2011 2012 2013 Accident Year (Trended Estimate) 2013 Actual 14 7
Presentation Summary Recognition of Long-Term Medical Loss Development Impact of Updated Experience SB 863 Cost Monitoring Results 15 SB 863 Cost Monitoring Results Comprehensive Monitoring Plan Submitted to CDI on March 27, 2013 Identifies Cost Components to Be Measured, Data Elements and Methodology, and Scheduled Timeframes 2013 Cost Monitoring Report Submitted October 28, 2013 1/1/15 Filing Reflects Updated Estimates Related to Liens & IMR 16 8
Post-SB 863 Liens Filed Below Projections In Thousands 500 400 460K liens filed in 2011 65.5 1.2 million liens filed in 2012 47.3 Los Angeles Area Rest of State 300 200 398.3 19.8 21.9 30.4 292.8 465.7 190K liens filed in 2013 100 0 166.1 135.3 5.2 63.9 4.2 5.1 5.7 5.7 5.9 25.9 35.9 40.4 35.8 41.4 2011 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 Calendar Year/Quarter Source: EAMS Liens Data 17 Volume of IMRs Far Above Projections Number of IMRs Through June 30, 2014 200,000 194,000 150,000 121,000 100,000 50,000 60,000 0 Number of IMRs Requested Number of Eligible IMRs* Initially Projected Annual IMRs * Information from DWC shows 43,000 IMR request were duplicate requests and another 30,000 were ineligible. 18 9
WCIRB SB 863 Cost Monitoring 1/1/15 Filing Adjustments 1/1/15 Filing WCIRB Original Preliminary Monitoring Adjustments to SB Cost Estimates Results Impact on Net 863 Savings SB 863 Provisions ($ s in billions) SB 863 Savings ($ s in billions) 2013 & 2014 PD Benefit Changes +$1.2 --------- Elimination of PD Add-ons ($0.2) TBD --------- Three-Tiered Weekly PD Benefits ($0.1) TBD --------- Liens ($0.5) +$0.2 Surgical Implant Hardware ($0.1) -------- ASC Fees ($0.1) -------- IMR - Impact on Frictional Costs ($0.2) (-$0.2) IMR Impact on TD Duration ($0.2) TBD -------- Ogilvie Decision ($0.2) TBD -------- MPN Strengthening ($0.2) TBD -------- RBRVS Fee Schedule +$0.3 TBD -------- Indemnity Severity Small Increase -------- Medical Severities Small Increase -------- ALAE and ULAE Severities Significant Decline -------- Total Estimate ($0.2) -------- $0.0 19 Differences in Indicated Pure Premium Rates Primarily Due to Estimates of SB 863 Impacts $3.00 Projected 1/1/15 Average Pure Premium Rate $2.75 $2.77 $2.75 $2.69 $2.50 $2.25 WCIRB 1/1/15 Filng CDI 1/1/14 Decision Methodology* Bickmore 9/16/14 Summary - Middle Estimate $0.75 Estimated SB 863 Savings - Including RBRVS Policy Year 2014 Estimate $0.50 $0.25 $0.00 $0.03 $0.06 $0.22 WCIRB 1/1/15 Filing CDI 1/1/14 Decision Methodology Bickmore 9/16/14 Summary - Middle Estimate * Based on methodology reflected in the decision on the 1/1/14 Filing with the adjustment to long-term medical loss development adopted by the WCIRB Actuarial Committee. 20 10
W o r k e r s C o m p e n s a t i o n I n s u r a n c e R a t i n g B u r e a u o f C a l i f o r n i a January 1, 2015 Pure Premium Rate Filing WCIRB Executive Summary CDI Public Hearing October 8, 2014 21 11