September 13, 217 WCIRB Report on June 3, 217 Insurer Experience 1 WCIRB Report on June 3, 217 Insurer Experience
WCIRB California Research and Analysis WCIRB Report on June 3, 217 Insurer Experience The WCIRB has completed its review and analysis of June 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 June 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 June 3, 217 insurer experience, reflect the following information: California written premium (gross of deductible credits) for 216 is approximately $.1 billion, which is 3% above the written premium reported for 215 (Exhibit 1). Written premium for the first half of 217 is $9.1 billion, which is 4% below the written premium reported for the first half of 216. 2 WCIRB Report on June 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 between January 1, 217 and June 3, 217 is $2.52 (Exhibit 2). This is 5% below the average rate charged for the second six months of 216 and 16% below the average rate charged for the first six months of 215. The WCIRB projects total ultimate losses and ALAE for accident year 216 to be approximately $12.4 billion (Exhibit 3), which is 5% above the projection for accident year 215 and represents the seventh consecutive year of increasing ultimate losses and ALAE. Total ultimate losses and ALAE projected for 215 and 216 as of June 3, 217 experience are below those projected as of March 31, 217 experience as a result of lower than projected loss development in the second quarter of 217. The WCIRB projects an ultimate accident year loss and ALAE ratio of 69.1% 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 March 31, 217 experience as a result of favorable loss development experienced in the second quarter of 217. The WCIRB projects an ultimate accident year combined loss and expense ratio of 93% for 216 (Exhibit 5). Of this ratio, 56% is attributable to the indemnity and medical loss ratio, 19% is attributable to the loss adjustment expense ratio, and % 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 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 half of 217 is approximately 3% higher than that for 216. The WCIRB projects the average cost (or severity ) of a 216 indemnity claim to be approximately $8,9, which is 3% higher than the projected severity for 215 and 8% higher than that for 213 (Exhibit 8.1). The WCIRB projects that the average indemnity cost of a 216 indemnity claim is 16% 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 4% above that for 215, which represents the first significant increase in average medical costs following 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 $3.3 billion less than the amounts reported by insurers (Exhibit 9). 3 WCIRB Report on June 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 2 15 1 12. 15.6 16.4 13. Source: Insurer aggregate financial data submissions to the WCIRB 17.6.1 16.5 14.8 12.5 1.6 1.8 13.3 9.8 8.8 13. 9.1 5 7.1 6.4 5.7 5.1 5.3 5.7 8.6 11. 14.8 16.3 15.2 11.3 8.9 7.6 6.6 7.1 8. 9.2 1.7 11.9 6.7 95 97 99 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17 6 Months Calendar Year Exhibit 1
Industry Average Charged Rate per $1 of Payroll 8. $ Dollars Source: Insurer unit statistical reports through 214 and WCIRB projections for 215 through 217 6.29 6. 5.49 4.66 4.36 4. 2.56 2.33 2.69 2.85 2.3 2.15 2.1 2.25 2.32 2.47 2.59 2.9 2.97 3.1 2.82 2.83 2.65 2.52 2.. 1996 1998 2 22 7/3-12/3 7/4-12/4 7/5-12/5 7/6-12/6 7/7-12/7 28 29 21 211 1/12-6/12 7/12-12/12 213 214 1/15-6/15 7/15-12/15 1/16-6/16 7/16-12/16 1/17-6/17 Policy Effective Period Exhibit 2
Projected Ultimate Losses and ALAE by Accident Year $ Billions Source: WCIRB projections As of June 3, 217 15 14.2 14.3 12 9 12.4 12.8 9.6 8.2 8.5 9.2 9.6 9.4 9.9 1.1 1.4 1.7 11.3 11.8 12.4 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 June 3, 217 Source: WCIRB projections 159.1 15 1 13.2 13.7 12.6 96.9 86. 63. 69.1 74.1 69.8 69.2 69.1 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* As of June 3, 217 2 Source: WCIRB projections Other Expenses LAE 172 Losses 15 2 23 15 137 136 134 1 5 129 21 111 119 16 85 84 15 14 55 61 58 14 14 11 11 36 33 72 16 13 43 95 17 6 117 2 2 77 22 23 23 25 24 32 9 89 79 112 2 22 7 98 94 93 93 2 19 19 19 6 57 56 56 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. Exhibit 5
Calendar Year Combined Loss and Expense Ratios 2 Source: Insurer aggregate financial data submissions to the WCIRB Other Expenses LAE Losses 15 1 5 138 2 16 12 124 122 16 12 12 94 94 16 15 11 8 86 14 1 62 79 14 11 54 74 16 13 45 85 14 53 11 2 17 64 116 117 122 114 23 18 22 23 14 2 99 94 21 2 25 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 June 3, 217 Source: WCIRB projections 1 6.8 1. -1.5-3. -2.3-3.9-2. -.2 3.6.5 1.1 [1] -.8-1. [1] 2.7 [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 June 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, 8, 6, $ Dollars As of June 3, 217 Source: WCIRB projections 57,878 Average Ultimate Indemnity + Medical + ALAE per Indemnity Claim 67,26 67,47 65,688 58,149 56,78 61,665 68,25 78,941 79,69 78,794 74,643 76,216 74,874 76,728 78,249 8,877 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 June 3, 217 Source: WCIRB projections 3, 25, 2, 27,2 26,265 25,836 24,682 24,773 25,854 25,558 25,21 24,743 25,85 22,593 21,8 2,752,999 28,687 27,967 27,61 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 June 3, 217 Source: WCIRB projections Average Ultimate Medical per Indemnity Claim - Including MCCP Costs Average Ultimate Medical per Indemnity Claim - Excluding MCCP Costs 4, 3, 42,272 42,632 42,796 4,129 4,472 39,736 38,995 38,534 38,2 38,225 36,74 36,887 35,19 34,498 34,696 36,163 32,312 32,724 32,751 31,261 28,959 29,874 27,147 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 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 24 $ Billions As of June 3, 217 Source: WCIRB projections and insurer reported losses on aggregate financial data submissions to the WCIRB 12 11.6 13.6 12. 7.5 6-6 2.6 2. 1.9 1.4.5.2 -.6-1.3-2.5-1.5-2.7-3.2-3.3 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 June 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