January 1, 2019 Regulatory Filing Proposed Classification Changes IIABCal August 7, 2018

January 1, 2019 Regulatory Filing Proposed Classification Changes IIABCal August 7, 2018 Brian Gray Director, Classification Administration and Education Webinar will Start Shortly

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01Proposed Changes to Private School Classifications

Basis of Standard Classification System Approximately 500 Industry Classifications Changes Subject to Insurance Commissioner Approval Objectives - Group homogeneous businesses with similar operations and exposure to workers compensation losses - Groups should be large enough to develop credible advisory pure premium rates 3 01. Proposed Changes to Private School Classifications

Standard Classification System Classification Changes Subject to Insurance Commissioner Approval Changes to Standard Classification System Address - New and evolving industries in California - Lack of homogeneity of businesses within a classification - Declining industries - Ambiguity in classification definitions 4 01. Proposed Changes to Private School Classifications

Review of Private School Classifications WCIRB Concerns - Private school classifications (8868/9101) include non-homogeneous groups of employers - Industries assigned over time to private school classifications have workers compensation exposures beyond original private school scope January 1, 2018 Approved Change - Created Classification 8870, Fitness Instruction Programs or Studios, and reassigned applicable employers from private school classifications Current Study Objectives and Process - Comprehensive review of businesses assigned to Classifications 8868/9101 - Identify subgroups that are distinct and relatively homogeneous from a workers compensation exposure perspective - Review underlying operations, claim and payroll history of each identified segment - Assess whether new classification for subgroup is warranted - Develop new classification descriptions for each new or revised classification - Consider whether companion classifications applied to non-academic staff should be created for each subgroup - Conduct comprehensive outreach effort to affected employer groups, agents/brokers and insurers 5 01. Proposed Changes to Private School Classifications

Claim Frequency Varies Significantly by Private School Subgroup Number of Claims per $10 Million Payroll During Policy Years 2010-2014 25 20 21 19 15 10 5 0 3 4 K-College Schools Vocational Schools Supplemental Education Training or Adult Day Program Centers for Adults with Developmental Disabilities 1 Special Educational Services for Children or Youth 8 Social Services 9 Adult Day Health Care/Adult Day Program Centers and Senior Day Programs/Activity Center 6 01. Proposed Changes to Private School Classifications

Causes of Injuries Vary Significantly by Private School Subgroup Causes of Injury as a % of All Injuries During Policy Years 2010-2014 40% 40% Struck or Injured Strain or Injury Fall, Slip or Trip 35% 30% 25% 20% 15% 10% 5% 0% 25% 26% 26% 22% 20% 13% 15% 27% 22% 29% 29% 12% K-College Schools Vocational Schools Supplemental Education Training or Adult Day Program Centers for Adults with Developmental Disabilities 20% 9% Special Educational Services for Children or Youth 23% 24% 14% 14% Social Services 29% 21% Adult Day Health Care/Adult Day Program Centers and Senior Day Programs/Activity Centers 7 01. Proposed Changes to Private School Classifications

Average Experience Modifications Vary Significantly by Private School Subgroup Average Experience Modification for Policy Year 2014 140% 130% 140% 120% 100% 108% 95% 115% 112% 80% 60% 40% 20% 0% 81% K-College Schools Vocational Schools Supplemental Education Training or Adult Day Program Centers for Adults with Developmental Disabilities Special Educational Services for Children or Youth Social Services Adult Day Health Care/Adult Day Program Centers and Senior Day Programs/Activity Centers 8 01. Proposed Changes to Private School Classifications

Proposed 2019 Changes to Private School Classifications Current Class 8868 Private Schools Academic Professionals WCIRB Proposed Classification Process Class 8871 Supplemental Education Current Class 9101 Private Schools Non-Academic Professionals Class 8868 K-College Schools Academic Professionals (includes 8742 & 8810) Class 8869 Vocational Schools Academic Professionals Class 8872 Social Services (includes 8742 & 8810) Class 8873 Training or Adult Day Program Centers for Adults with Development Disabilities Class 8874 Special Educational Services for Children or Youth Class 8876 Adult Day Health Care/Adult Day Program Centers and Senior Day Programs or Activity Centers Class 9101 K-College Schools Non-Academic Professionals Class 9102 Vocational Schools Non-Academic Professionals 9 01. Proposed Changes to Private School Classifications

Insurance Market Pricing Already Partly Reflects Advisory Pure Premium Rate Differential by Private School Subgroup Relativity of Select Private School Subgroups to Average of All Private School Subgroups 350% 2019 Indicated Unlimited Advisory Pure Premium Rate* 2019 Indicated Limited Advisory Pure Premium Rate* Policy Year 2014 Average Charged Premiums 310% 300% 250% 200% 150% 100% 50% 0% 60% 77% 71% 240% 212% * Imputed based on 2019 Classification Relativity and assuming an 0% overall average pure premium rate change for January 1, 2019. 211% 246% 148% 127% 123% 127% 127% 127% 119% K-College Schools (8868) Vocational Schools (8869) Training or Adult Day Program Centers for Adults with Developmental Disabilities (8873) Special Educational Services for Youth (8874) Adult Day Health Care/Adult Day Program Centers and Senior Day Programs/Activity Centers (8876) 10 01. Proposed Changes to Private School Classifications

02Proposed Changes to Breweries, Wineries & Distilleries Classifications

Proposed Changes to Brewery, Winery and Distillery Classifications Basis of Study WCIRB Concerns Lack of consistent classification direction for the following: - Facility tours and product tastings - Product sales to retail customers - Preparing and serving alcoholic beverages or hot food Multiple Enterprises rule does not ensure consistent classification determinations for these ancillary operations - Retail stores, tasting rooms and restaurant or tavern operations are often not physically separated from the manufacturing operations - If these operations are not physically separated from the governing manufacturing operations, then the operations may be assignable to the highest rated classification - The classification assignment may change when the rate relativities between potentially applicable classifications fluctuate from year-to-year 12 02. Proposed Changes to Breweries, Wineries and Distilleries Classifications

Brewery, Winery and Distillery Classifications Findings Facility Tours Tours of the manufacturing facilities normally prevail at these locations and do not constitute multiple enterprises Product Tastings Tasting rooms at wineries are used to promote the retail sale of wine for off-site consumption - Historically assigned to Classification 8060, Stores wine, beer or spirits Product tastings at distilleries are commonly performed in connection with facility tours - Historically assigned to manufacturing classification Taprooms at breweries are used to sell beer for on-site consumption - Historically assigned to Classification 9079(1), Restaurants or Taverns 13 02. Proposed Changes to Breweries, Wineries and Distilleries Classifications

Brewery, Winery and Distillery Classifications Findings Product Sales Some retail stores operating under an off-sale license issued by the California ABC provide product tastings that promote the retail sale of alcoholic beverages for off-site consumption - Historically assigned to Classification 8060, Stores wine, beer or spirits Food and Beverage Preparation and Service On-site restaurants, taverns or food preparation departments are operated for the preparation and serving of hot food or the preparation, pouring and serving of alcoholic beverages - Historically assigned to Classification 9079(1), Restaurants or Taverns 14 02. Proposed Changes to Breweries, Wineries and Distilleries Classifications

Brewery, Winery and Distillery Classifications Recommendations Facility Tours Tours of the manufacturing facilities should be included in the applicable manufacturing classification Including the provision of product tasting samples to customers in connection with facility tours Tasting Rooms Tasting rooms at wineries should be assigned to Classification 8060, Stores wine, beer or spirits Tasting rooms/taverns at distilleries should be assigned to Classification 9079(1), Restaurants or Taverns Tasting rooms/taprooms at breweries should be assigned to Classification 9079(1), Restaurants or Taverns Product Sales The operation of retail stores should be separately classified to the appropriate Stores classification - Includes product tastings in connection with retail store sales Food and Beverage Preparation and Service The operation of restaurants or taverns and the preparation and serving of hot food should be separately classified as 9079(1), Restaurants or Taverns 15 02. Proposed Changes to Breweries, Wineries and Distilleries Classifications

Brewpub Restaurants Findings & Recommendations Findings Brew pubs are restaurants with on-site beer brewing operations On-site beer brewing operations are secondary to integral restaurant operations Beer brewing operations often not physically separated from the restaurant operations The majority of payroll consistently developed in the more labor-intensive restaurant operations Application of Multiple Enterprises rule has resulted in inconsistent classification assignments for employers performing the same combination of operations NCCI specifically excludes brewery operations performed at brew pubs from assignment to Classification 2121, Breweries including bottling or canning, and assigns these operations to a restaurant classification Recommendation Amend Classification 9079(1), Restaurants or Taverns, to clarify that it also applies to brewing taproom operations and on-site beer making operations performed by restaurants where the beer brewed is primarily sold to the general public for consumption on the premises 16 02. Proposed Changes to Breweries, Wineries and Distilleries Classifications

Brewery, Winery and Distillery Classifications Impact of Proposed Changes Changes primarily clarify current classification procedures and provide for consistency Will not result in complete reclassification of employers operations In limited instances, a component of an employer s operation will be reclassified Should avoid year-to-year reclassifications based on changes in classifications relative advisory pure premium rates 17 02. Proposed Changes to Breweries, Wineries and Distilleries Classifications

03Proposed Changes to Salvage Material Dealers Classifications

Proposed Changes to Salvage Material Dealers Classifications Basis of Study WCIRB Concerns Currently, eight phraseologies for four classification codes - Defining characteristics overlap - Applicable classifications can easily change based on changes in rate relativities and scrap material market values, with no significant change in operations Objective: Perform a comprehensive review of the Salvage Material Dealers Industry Group - Simplify administration - Consolidate classifications - Update descriptions 19 03. Proposed Changes to Salvage Material Dealers Classifications

Proposed Changes to Salvage Material Dealers Classifications Salvage Material Dealers Industry Group 8847, Beverage Container Collection or Redemption 8264(2), Bottle Dealers secondhand 8265(1), Iron or Steel Scrap Dealers 8265(2), Junk Dealers N.O.C. 8500, Metal Scrap Dealers nonferrous 8264(1), Paper Stock Dealers secondhand 8264(3), Rubber Stock Dealers secondhand 8264(4), Wiping Cloth or Rag Dealers including all laundry operations 20 03. Proposed Changes to Salvage Material Dealers Classifications

Salvage Material Dealers Classifications Basis of Study Recycling Industry and Refuse Management Industry are converging - Zero Waste philosophy at transfer stations and landfills to recover recyclable materials Expanded scope of study to include classifications: - 9403(1),Garbage or Refuse Collecting - 9424, Garbage or Refuse Landfill, Transfer Station and Material Recovery Facility Operations all employees 21 03. Proposed Changes to Salvage Material Dealers Classifications

Metal Scrap Dealers 8500 & 8265(1) Findings - Significant overlap in the operations of employers that recycle ferrous and nonferrous scrap metal - Operationally similar and have similar loss to payroll ratios Recommendations - Eliminate Classification 8265(1), Iron or Steel Scrap Dealers, and assign its constituents to Classification 8500, Metal Scrap Dealers ferrous or nonferrous - Amend Classification 8500 to apply to the purchase, sorting, consolidation and sale of both ferrous and nonferrous scrap metals, provided metal sales equal or exceed 25% of gross receipts 22 03. Proposed Changes to Salvage Material Dealers Classifications

Impact of Proposed Changes Advisory Pure Premium Rates per $100 of Payroll $15 $12 $9 $6 $3 $0 13.15 12.85 7.70 Source: Approved advisory pure premium rates and 2019 Classification Relativity worksheets. Note: * Imputed based on 2019 Classification Relativity and assuming an 0% overall average pure premium rate change for January 1, 2019. 8.43 8.09 8500 - Jan 2015 8265 - Jan 2015 8500 - Jul 2018 8265 - Jul 2018 8500 Jan 2019* [8500 & 8265(1) Combined] 23 03. Proposed Changes to Salvage Material Dealers Classifications

Mobile Shredding and Document Destruction Operations 8264(1) Findings - These operations are distinct and significant subset of operations within Classification 8264(1), Paper Stock Dealers secondhand, and are dissimilar from the rest of 8264 classifications - The loss to payroll for this subset of 8264(1) is significantly lower than the rest of 8264 - These operations are comparable to the curbside collection of refuse and recyclables assigned to Classification 9403(1), Garbage or Refuse Collecting, and they have similar loss to payroll ratios Recommendation - Establish Classification 9403(3), Document Destruction including mobile paper shredding 24 03. Proposed Changes to Salvage Material Dealers Classifications

Impact of Proposed Changes Advisory Pure Premium Rates per $100 of Payroll $15 $12 $9 $6 $3 $0 11.30 12.46 6.88 9403 - Jan 2015 8264 - Jan 2015 9403 - Jul 2018 8264 - Jul 2018 9403 Jan 2019* [8264(1) & 9403 Combined] 9.70 Source: Approved advisory pure premium rates and 2019 Classification Relativity worksheets. Note: * Imputed based on 2019 Classification Relativity and assuming an 0% overall average pure premium rate change for January 1, 2019. 7.85 25 03. Proposed Changes to Salvage Material Dealers Classifications

Wiping Cloth or Rag Dealers 8264(4) Findings - Very few employers are assigned to Classification 8264(4), Wiping Cloth or Rag Dealers including all laundry operations, and their experience has low statistical credibility - Are comparable to the operations assignable to Classification 8032, Stores clothing, shoes, linens or fabric products wholesale Recommendations - Eliminate Classification 8264(4) and assign its constituents to Classification 8032 - Amend Classification 8032 to include the purchase, sorting, cutting, laundering, bundling and resale of wiping cloth or rag material 26 03. Proposed Changes to Salvage Material Dealers Classifications

Impact of Proposed Changes Advisory Pure Premium Rates per $100 of Payroll $15 $12 $9 $6 $3 $0 10.36 12.46 6.36 8032 - Jan 2015 8264 - Jan 2015 8032 - Jul 2018 8264 - Jul 2018 8032 Jan 2019* [8264(4) & 8032 Combined] 9.70 Source: Approved advisory pure premium rates and 2019 Classification Relativity worksheets. Note: * Imputed based on 2019 Classification Relativity and assuming an 0% overall average pure premium rate change for January 1, 2019. 6.28 27 03. Proposed Changes to Salvage Material Dealers Classifications

Recycled Material Dealers and Resource Recovery Findings - The loss to payroll ratio for Classification 8265(2), Junk Dealers, is significantly lower than that of Classifications 8265(1), Iron or Steel Scrap Dealers and 8500. Employers assigned to 8265(2) primarily handle a variety of miscellaneous materials. - There are very few employers assigned to Classification 8264(2) Bottle Dealers secondhand, and 8264(3), Rubber Stock Dealers secondhand, and their experience has low statistical credibility. - Salvaged and recycled material dealers that handle a variety of materials operate similarly to transfer stations and material recovery facilities assigned to Classification 9424, Garbage or Refuse Landfill, Transfer Station and Material Recovery Facility Operations all employees. - The operations of recycling and waste disposal industries are converging. - The procedure for classifying the collection or redemption of CRV beverage containers at Processing Facilities is unclear. 28 03. Proposed Changes to Salvage Material Dealers Classifications

Recycled Material Dealers and Resource Recovery ( continued) Recommendations - The Salvage Material Dealers Industry Group should be renamed to the Recycling and Refuse Management Industry Group - Eliminate Classification 8265(2) and assign its constituents to the newly established 9424(2), Recycled Material Dealers N.O.C. - Eliminate Classifications 8264(1), 8264(2) and 8264(3) and assign their constituents, other than mobile paper shredding, to the newly established Classification 9424(2) 29 03. Proposed Changes to Salvage Material Dealers Classifications

Impact of Proposed Changes Advisory Pure Premium Rates per $100 of Payroll $15 $12 $9 $6 $3 $0 12.46 12.85 10.51 9.70 8.43 8264 - Jan 2015 8265 - Jan 2015 9424 - Jan 2015 8264 - Jul 2018 8265 - Jul 2018 9424 - Jul 2018 9424 Jan 2019* (8264(1-3), 8265(2) & 9424 Combined) Source: Approved advisory pure premium rates and 2019 Classification Relativity worksheets. * Imputed based on 2019 Classification Relativity and assuming an 0% overall average pure premium rate change for January 1, 2019. 7.28 7.09 30 03. Proposed Changes to Salvage Material Dealers Classifications

Recycled Material Dealers and Resource Recovery Clarifying Changes - Amend Classification 8847, Beverage Container Collection or Redemption, to define Processing Facilities and direct that the collection or redemption of CRV beverage containers at certified Processing Facilities is assignable to Classification 8500, Metal Scrap Dealers - Amend Classification 9424(1), Garbage or Refuse Landfill, Transfer Station and Material Recover Facility Operations to apply to the disposal of medical waste, as well as green waste recycling when conducted at a garbage or refuse landfill, transfer station or material recovery facility location - Amend 9424(1) to direct that California Certified Recycling Centers at a garbage or refuse landfill, transfer station or material recovery facility location that are operated by the same employer be separately classified 31 03. Proposed Changes to Salvage Material Dealers Classifications

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