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 Classification Relativities Preliminary Draft WCIRB Classification & Rating Committee Meeting June 1, 2017 1
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2018 Classification Relativities Preliminary Draft Relativities will underlie proposed January 1, 2018 advisory pure premium rates Almost 100% of policy year experience included Data from one insolvent insurer excluded Methodologies generally consistent with 1/1/17 Filing Reflects class definition changes resulting from research studies adopted by Committee at 4/25/17 meeting Reflects adjustment for wage level changes by classification reviewed at 3/14/17 meeting Reflects updates to Retro Hazard Groups for 2018 Preliminary draft does not include (will be reflected for filing): Adjustment for approved July 1, 2017 pure premium rates Some data corrections in response to queries received after draft date 3
Classification Relativities Summary of Process Reflects changes in classification s pure premium rate relative to statewide average (relativity changes balance to 0%) Based on unit statistical data on losses and payroll by classification Through policy year 2014 Data subject to series of data quality controls Excludes data of insolvent insurers Principal components of computation Expected loss to payroll ratios Adjusted (actual) loss to payroll ratios Selected loss to payroll ratios 25% change limitation 4
Expected Loss to Payroll Ratios Reflects loss component of approved January 1, 2017 pure premium rate change Adjustments Large loss limitation ($500,000 per claim) Change in industrial sector average relativity 5
Adjusted (Actual) Loss to Payroll Ratios Based on 2, 3, 4, or 5 years of experience Adjusted payroll computation (new for 2018) Wage level changes through PY 2018 adjusted on a relative basis Includes projected wage inflation and minimum wage changes No change in total payroll level Adjusted losses computation Development to ultimate Current benefit level (new for 2018: includes impact of wage inflation on indemnity benefit levels) Earlier years adjusted to current years average losses (new for 2018: factors also applied to latest two years losses) Large loss limitation ($500,000 per claim) Overall expected level of experience 6
Selected Loss to Payroll Ratios Combination of adjusted (actual) and expected loss to payroll ratios Credibility Full credibility standards based on claim counts and average claim size Classification s credibility based on total expected losses for years used in computation of classification relativities Full credibility Expected loss to payroll ratio not used in computation 7
25% Change Limitation Relativity changes limited to 25% Net impact of limitation spread across all classifications Some special restrictions applied to classes with definitional changes 8
Classifications with Recommended Definition Changes for 2018 8071, Stores Books, Video or Audio Retail Data transferred from 8071, 8070 (eliminated), and 8017(1) No special adjustments needed 8870, Fitness Instruction Programs or Studios (NEW) Data transferred from 8868, 9053(2), and 9101 Relativity restricted to 25% increase from 8868 expected relativity (67% increase if unrestricted) Slightly reduces relativity for 8868 9053, Health Clubs or Gyms Data from some subclasses transferred to 8870 and 9054 No special adjustments needed 9054, Spas or Baths (NEW) Data transferred from 9053(1) Relativity restricted to 25% increase from 9053 expected relativity (78% increase if unrestricted) Significantly reduces relativity for 9053 9
Classifications with Recommended Definition Changes for 2018 Continued 8370, Auto. or Truck Radio or Alarm Installation or Repair (NEW) Data transferred from 9516(2) No special adjustments needed 9531, Telecom. Antenna Equipment Installation or Repair (NEW) Data transferred from 9516(1) No special adjustments needed Significantly reduces relativity for 9516 (44% decrease if unrestricted) 5191, Office Machine or POS Equip. Installation or Repair Data from 5191(2) and 5191(3) transferred to 5193 Includes proportionate data not specifically assignable to 5191 or 5193 Relativity restricted to 25% increase from prior 5191 expected relativity (32% increase if unrestricted) 5193, Computer or Telephone Installation or Repair (NEW) Data transferred from 5191(2) and 5191(3) Includes proportionate data not specifically assignable to 5191 or 5193 Relativity for new classification 18% below 5191 relativity 10
Classifications with Recommended Definition Changes for 2018 Continued 5128, Instrument Installation or Repair Data transferred to 5129 and 5130 Includes proportionate data not specifically assignable to 5128, 5129 or 5130 5129, Circuit or Semiconductor Equip. Installation or Repair (NEW) Data transferred from 5128 Includes proportionate data not specifically assignable to 5128, 5129 or 5130 Relativity restricted to 25% decrease from prior 5128 expected relativity (28% decrease if unrestricted) 5130, Programmable Controls Installation or Repair (NEW) Data transferred from 5128 Includes proportionate data not specifically assignable to 5128, 5129 or 5130 11
Classifications with Recommended Definition Changes for 2018 Continued 8744, Boy/Girl Scout Councils District Execs (NEW) Combined with 8742 for ratemaking 8746, Newspaper Publishing Reporters/Photographers (NEW) Combined with 8742 for ratemaking 8811, Libraries Private Professional Employees (NEW) Combined with 8810 for ratemaking 8812, Libraries Public (NEW) Combined with 8810 for ratemaking 12
Other 2018 Classifications with Limited Relativity Changes 1330, Blasting (-35%) 2081, Butchering (+71%) 2163, Bottling Beverages (+35%) 3574, Machine Mfg. Office or Sewing (+34%) 3683, Speaker Mfg. (-46%) 3808, Auto or Motorcycle Mfg. or Assembling (+35%) 5222, Concrete Construction Bridges (+36%) 7424, Aircraft Op. Flying Crew (+27%) 8286, Livestock Dealers/Commission Merchants (-29%) 13
Impact of Payroll Adjustment on Relativity Changes 250 Distribution of Classifications by Change in Relativity Payroll-Adjusted vs. Unadjusted - Preliminary 200 150 100 50 0 Below -10% -10% to -5% -5% to -3% -3% to -1% -1% to 1% 1% to 3% 3% to 5% 5% to 10% Above 10% 14
Distribution of Preliminary Indicated Classification Relativity Changes 50% 40% % of Classifications 2017 2018 - No Wage Adjustment 2018 - With Wage Adjustment (Proposed) 30% 20% 10% 0% Less than -25% -25% to -15% -15% to -10% -10% to -5% -5% to +5% +5% to +10% Change in Relativity from Prior Year +10% to +15% +15% to +25% Greater than +25% 15