Classification and Rating Committee

Transcription

1 Meeting Agenda Date Time Location Staff Contact June 14, :00 AM Hotel Nikko Brenda J. Keys Bay View Room 25 th Floor 222 Mason Street San Francisco, CA 525 Market Street, Suite 800 San Francisco, CA Fax Released: May 31, 2013 To Members of the Classification and Rating Committee, WCIRB Members and All Interested Parties: This meeting is Open to the Public. I. Approval of Minutes Meeting held March 5, 2013 II. III. Unfinished Business New Business A. CR : Potential January 1, 2015 Changes to Experience Rating B. CR : Draft Report on the 2013 Study of Dual Wage Thresholds C. CR : Draft Report on Dual Wage Construction or Erection Classifications Time Card Verification of Hourly Wage D. CR : Draft Report on the Dual Wage Threshold for the Painting Industry E. CR : Draft Report on Farmers Markets and Amusement Parks or Exhibitions F. CR : Draft Report on Concrete Sawing or Drilling Industry G. CR : Draft Report on Retail Dry Cleaning or Laundries, Commercial Laundries and Dry Cleaning or Dyeing H. CR : Reporting of Penalty Amounts I. CR : Payroll Remuneration J. CR : Filing Process for Regulatory Changes K. CR : Electronic Data Reporting Requirements L. CR : Report on the Advisory Rulings and Interpretations Companion to the California Workers Compensation Uniform Statistical Reporting Plan 1995 M. CR : Proposed Non-Substantive Amendments Antitrust Notice As members of the Workers Compensation Insurance Rating Bureau of California, you are bound, when involved in meetings or other activities of the WCIRB California, to limit your actions (and discussions other than social ones) to matters relating to the business of the WCIRB California. Matters that do not relate directly to WCIRB California business should be avoided. Members should particularly avoid discussions or conduct that could be construed as intended to affect competition (or access to markets). Thus, as members, you should not discuss or pursue the business interests of individual insurers or others, including, in particular, the plans of individual members involving, or the possibility or desirability of (a) raising, lowering, or stabilizing prices (premiums or commissions); (b) doing business or refusing to do business with particular, or classes of, insurers, reinsurers, agents, brokers, or insureds, or in particular locales; or (c) potential actions that would affect the availability of products or service either generally or in specific markets or locales. 1

2 Released: May 31, 2013 IV. Matters Arising at Time of Meeting V. Next Meeting Date: July 23, 2013 VI. Adjournment Notice The information in this Agenda was developed by the Workers Compensation Insurance Rating Bureau of California (WCIRB) for the purpose of assisting the WCIRB Classification and Rating Committee. The WCIRB cannot make any guarantees if this information is used for any other purpose and the WCIRB shall not be liable for any damages, of any kind, whether direct, indirect, incidental, punitive or consequential, arising from the use of or reliance upon this information for any other purpose. WCIRB California 525 Market Street, Suite 800 San Francisco, CA Tel Fax 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. Each WCIRB member company, including any registered third party entities, (Company) are 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 Web site or through any computer or electronic means for any purpose. 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, 525 Market Street, Suite 800, San Francisco, California

3 Item CR Potential January 1, 2015 Changes to Experience Rating At its June 13, 2012 meeting, the Classification and Rating Committee reviewed potential updates to the current $7,000 primary and excess split point in the Experience Rating Plan formula. The Committee was advised that while the overall indication was to increase the primary and excess split point form $7,000 to $9,000, prior staff research suggested that the threshold should potentially be decreased for smaller employers and increased even further for larger employers. As a result, the Committee agreed that the current $7,000 should at least temporarily be maintained and that staff should commence an analysis of alternative approaches to experience rating smaller employers in After obtaining input from the Actuarial Research Working Group (ARWG) as well as an informal working group of employer and labor representatives, the staff reviewed a wide range of experience rating alternatives (e.g., frequency-based experience rating for smaller employers, plans structured on payroll or expected claim count rather than expected losses, debit/credit schedules for a given number of claims, and multiple split points). While a number of these alternatives were actuarially feasible, concerns were expressed by both the ARWG and the employer and labor representatives with making a major overhaul to the Plan that could (a) create significant shifts and dislocations in employer experience modifications, (b) create potential issues at transition points if the plan was bifurcated based on employer size, (c) would be fundamentally different from experience rating plans in other jurisdictions (most insurers and many employers operate in multiple states) or (d) would require a major effort to re-educate employers, producers and insurers about the new plan. As a result, the staff is not exploring a major restructuring of the Plan at this time, but is continuing to assess whether the performance of the Plan can be significantly improved by varying the primary and excess split point by employer size. In the interim, in response to concerns expressed by employers and others as to the wide fluctuation in smaller employer experience modifications, 2 staff has explored several targeted changes to the Experience Rating Plan formula. Specifically, after considering several alternative approaches with the ARWG, staff is recommending that the Committee consider the following: 1. For employers who have incurred only one claim during the experience rating period, limit the impact of that claim on the experience modification to 25 percentage points. 2. Establish a schedule of maximum debit experience modifications beginning at 200% for the smallest experience rated employers. The staff believes that these refinements should address the volatility of the Plan for smaller employers without significantly impacting the Plan s actuarial performance and with only a modest adjustment (less than 0.5%) to expected losses or the experience rating off-balance to adjust for the experience modification limitations. If the Committee agrees to recommend moving forward in this regard, staff suggests making these changes effective January 1, This effective date will allow sufficient time to make the appropriate changes to the experience rating worksheet and various electronic files distributed related to experience modification calculations and to undertake a comprehensive employer, producer and insurer outreach effort explaining the changes. For employers whose modifications are constrained or their debit modification capped, staff expects to publish on the rate sheet the unconstrained, uncapped modification for informational purposes only. Additional information on the potential changes to the formula as well as a summary of the Actuarial Committee s review of the changes will be presented at the meeting. 1 This recommendation was also made by the WCIRB Actuarial Committee and adopted by the Governing Committee. 2 Under the current formula, a small employer s experience modification can be impacted by 50 points or more by a single claim. 3

4 Item CR Draft Report on the 2013 Study of Dual Wage Thresholds In 2010, the Classification and Rating Committee directed the WCIRB to undertake a multi-year comprehensive review of the thresholds in the dual wage classification system. In 2011, the WCIRB studied eight dual wage classifications, and in 2012 five additional dual wage classifications were studied. Enclosed are draft reports for the final five dual wage classifications: 5185/5186, Automatic Sprinkler Installation; 5484/5485, Plastering or Stucco Work; 6218/6220, Excavation; 6304/6316, Sewer Construction; and 6315/6316, Water/Gas Main or Connections Construction. 4

5 Draft Report on the 2013 Study of Dual Wage Thresholds Executive Summary Objective At the direction of the Classification and Rating (C & R) Committee, the WCIRB commenced a multi-year comprehensive review of the wage thresholds for the construction classifications currently segregated based on hourly wage. In 2011, eight dual wage classifications were studied, and in 2012, an additional five classifications were studied. In 2013, the WCIRB completed the study of threshold values for the remaining five dual wage classifications: Automatic Sprinkler Installation (5185/5186), Plastering or Stucco Work (5484/5485), Excavation (6218/6220), Sewer Construction (6307/6308), and Water/Gas Mains (6315/6316). Findings and Recommendations WCIRB staff conducted a comprehensive wage survey of a random sampling of policyholders engaged in operations assignable to the designated classifications. The sampling comprised 1,220 policyholders encompassing 13,413 employees representing approximately 38% of the total payroll in the classifications under review. Following are the WCRIB s principle findings and recommendations. Classifications 5185/5186, Automatic Sprinkler Installation WCIRB staff finds that at the current threshold of $27 for 5185/5186, Automatic Sprinkler Installation: (a) the volume of experience in both dual wage classifications remains statistically credible with five years of experience, (b) there is a relatively small concentration of wages (10%) within one dollar of the threshold, and (c) the differential in losses per $100 of payroll between employers with average wages below the threshold and those with average wages at or above the threshold is 190%. Staff did not find an alternate threshold that improved on the overall performance of the current threshold. As a result, the WCIRB recommends no change to the current threshold at this time. Classifications 5484/5485, Plastering or Stucco Work WCIRB staff finds that at an increased threshold of $27: (a) there remains a credible volume of experience in both the low wage and high wage classifications, (b) the split of survey employees changes from 66% below the threshold to 75% below the threshold; however the dual wage classification total split based on policy year 2009 and 2010 USR payroll data of 49%/51% remains balanced and credible with three years of experience, (c) the concentration of employees within one dollar of the threshold declines from 10% to 6%, (d) the differential in losses per $100 of payroll between employers with average wages at or above the threshold and those with average wages below the threshold increases from 256% to 315%. Given these findings and that average wages in construction have increased by more than 10% in the five years since the threshold in these classifications was last increased, the WCIRB recommends increasing the threshold for these classifications from $25 to $27. Classifications 6218/6220, Excavation, 6307/6308, Sewer Construction, and 6315/6316, Water/Gas Mains or Connections WCIRB staff finds that at an increased common threshold of $30: (a) the payroll split between the low wage and high wage classifications will improve significantly; (b) credibility in the low wage classifications will be preserved, (c) the loss costs differential improves modestly for each classification and (d) the concentration around the wage threshold improves slightly for Excavation, and worsens slightly for Sewer Construction and Water/Gas Mains. Given these findings, the reduced credibility in the low wage classifications in particular for Sewer Construction and Water/Gas Mains, and that average wages in construction have increased by more than 10% in the five years since the thresholds in these classifications were last increased, the WCIRB recommends increasing the threshold for these classifications from $26 to $30. 5

6 Introduction Effective January 1, 1986, the Dual Classification by Wage Level Program (Program) was adopted by the California Insurance Commissioner for six construction classifications. The Program was adopted following a WCIRB study initiated in response to employer concerns about the potential inequities in premiums paid due to variations in wage levels for construction employees. The study showed that in certain construction classifications, high wage paying employers were, on average, paying more manual premium per loss dollar than low wage paying employers. As a result, the Program was established for six construction classifications that were large enough to be segregated into two statistically credible classifications and for which survey results showed (a) a significant variation in wages paid by employers and (b) a significant disparity in claim costs per $100 of payroll by wage level. The Program involves segregating a classification into two distinct classifications based on the hourly wages paid by employers assigned to the classification. Specifically, an hourly wage threshold is established for each classification. Then, in lieu of a single classification, two classifications are created in which the payroll and claims experience of employees earning hourly wages below the threshold are assigned to one of the two (dual) classifications, and the payroll and claims experience of employees earning hourly wages at or above the threshold are assigned to the other (dual) classification. Since an employer often pays different wages within a single classification based upon a worker s skill and experience level, it is not uncommon for a single employer to have experience assigned to both of the dual classifications. The advisory pure premium rate for each of the dual classifications is based on the payroll and losses reported within that particular classification. Effective January 1, 1992, nine additional construction classifications were added to the Program. Effective January 1, 1995, two additional classifications were added related to Automatic Sprinkler Installation and effective January 1, 1996, four additional construction classifications were added for Steel Framing light gauge, residential and commercial. The wage threshold was originally established for each classification at a level so that (a) both the high and low wage dual classifications would have credible experience, (b) relatively few employees in the classifications were paid wages at a level close to the threshold and (c) there was a significant differential indicated between the losses per $100 of payroll among employers with average wages below the threshold and those with average wages above the threshold. The wage threshold for each dual wage classification has been regularly updated based on wage inflation in the construction industry. In reviewing the impact of wage inflation on a classification threshold, the WCIRB monitors a number of wage inflation indicators, as well as the distribution of reported payroll between high wage and low wage classifications. Threshold increases are recommended when necessary to ensure that each classification maintains its approximate existing constituency and the experience assigned to the lower wage classification remains credible. Given concerns that employees may be inappropriately assigned to the high wage classification, in 2007, the Insurance Commissioner adopted amendments to the California Workers Compensation Uniform Statistical Reporting Plan 1995 (USRP) to clarify how to determine the regular hourly wage for dual wage construction or erection classifications. Specifically, the amendments provided that assignment of the high wage classification to any employee (other than a salaried employee) is contingent on a reconciliation of the number of hours worked against actual time cards or time sheets that document the daily start and stop times for each employee. Determination of an employee s regular hourly wage requires employers to produce records to verify the number of actual hours worked as well as actual time cards or time sheets that document the daily start and stop times for each employee. The changes were adopted effective on policies incepting on or after January 1,

7 Additional concerns were voiced by industry representatives during outreach meetings conducted by the WCIRB in 2012 over the assignment of employee wages to the high wage classification. In response, the WCIRB proposed and the Insurance Commissioner adopted amendments to the USRP requiring regular physical audits of policies producing final premium of less than $10,000 and developing exposure in a high wage dual classification. These changes are effective on policies incepting on or after January 1, Existing regulations already require annual audits on policies producing final premium of $10,000 or more and those insuring holders of a C-39 Roofing Contractor license from the California Contractors State License Board. Background Given concerns regarding the appropriateness of the current dual wage thresholds which had last been updated in 2009, the C & R Committee directed the WCIRB to undertake a multi-year comprehensive review of the wage threshold for the construction classifications segregated based on hourly wage. In 2011, the WCIRB studied Classifications 5403/5432 and 5645/5697, Carpentry, along with 5630/5631 and 5632/5633, Steel Framing, 5190/5140, Electrical Wiring, 5183/5187, Plumbing, 5474/5482, Painting, and 5538/5542, Sheet Metal Work. Due to anomalies in the data, particularly for the Painting classifications and concerns about the viability of the dual wage system in California, the Governing Committee deferred recommending any changes to the threshold values, and instead, directed the WCIRB to study the viability of the dual wage system in 2012, 1 and to continue wage threshold studies. In 2012, the WCIRB studied five additional dual wage classifications: 5201/5202, Concrete or Cement Work, 5027/5028, Masonry, 5467/5470, Glaziers, 5446/5447, Wallboard Application, and 5552/5553, Roofing. At the August 15, 2012 meeting, the Governing Committee adopted the 2012 study recommendations to retain the existing program structure and to recommend updated wage thresholds based on the results of the WCIRB s comprehensive review of the dual wage thresholds studied in 2011 and As a result, the WCIRB included proposed changes to the wage thresholds for the classifications studied in 2011 and 2012 in the January 1, 2013 Pure Premium Rate Filing. The Governing Committee also directed staff to complete the study of the remaining dual wage thresholds in While many of the filed changes to the threshold values were approved by the Insurance Commissioner, the changes to Plumbing, Electrical Wiring and Sheet Metal Work were not adopted. Table 1 summarizes the dual wage classifications studied in 2011 and 2012, the recommended threshold values and the 2013 wage thresholds. Dual Wage Classification Table 1 Dual Wage Classification Summary Year Established Recommended 2013 Threshold Adopted 2013 Threshold /5028, Masonry 1992 $27 $ /5187, Plumbing 1986 $29 $ /5140, Electrical Wiring 1986 $30 $ /5205, Concrete or Cement Work 1992 $24 $ /5432, Carpentry* 1986 $29 $ /5447, Wallboard Application 1992 $31 $31 1 Comprehensive Evaluation of California s Dual Wage Classifications 7

8 Dual Wage Classification Year Established Recommended 2013 Threshold Adopted 2013 Threshold /5470, Glaziers 1992 $29 $ /5482, Painting 1986 $24 $ /5542, Sheet Metal Work 1986 $28 $ /5633, Steel Framing light gauge commercial** 1986 $29 $ /5553, Roofing 1992 $23 $23 * 5645/5697, Carpentry private residence, was consolidated with Carpentry, in 2012 ** 5630/5631, Steel Framing light gauge residential, was consolidated with Steel Framing light gauge, in Dual Wage Threshold Study by Classification In 2013, the WCIRB studied the threshold values for the remaining five dual wage classifications: Automatic Sprinkler Installation (5185/5186), Plastering or Stucco Work (5484/5485), Excavation (6218/6220), Sewer Construction (6307/6308), and Water/Gas Mains (6315/6316). The current wage thresholds for these classifications are summarized in Table 2. Dual Wage Classification Table 2 Threshold Values Year Established Original Threshold 2013 Threshold /5186, Automatic Sprinkler Installation 1995 $21 $ /5485, Plastering or Stucco Work 1992 $18 $ /6220, Excavation 1992 $21 $ /6308, Sewer Construction 1992 $19 $ /6316, Water/Gas Mains 1992 $19 $26 As part of the study, WCIRB staff reviewed several sources of wage inflation to help assess how wages are growing in the construction industries. In the five years since the dual wage thresholds were last increased effective January 1, 2009, UCLA Anderson Forecast projects statewide average wages across construction to grow by approximately 10.8% (1.8% in 2009, 0.1% in 2010, 4.7% in 2011, 3.4% in 2012 and 0.4% in 2013). The California Department of Finance (DOF) forecasts the average increase in annual wages in construction as 1.8% in 2009, 0.1% in 2010, 3.6% in 2011, 4.5% in 2012 and 2.6% in 2013; or 13.2% for the five years since the thresholds included in this study were last increased. The WCIRB s studies of the dual wage classifications primarily involved surveying hundreds of employers in each pair of dual wage classifications to obtain hourly wage information for each of their employees for a specified time period and then linking the information on wages gathered through the survey with the individual employer s loss and payroll history reported to the WCIRB. Prior to beginning the wage level surveys, the WCIRB contacted the trade associations related to the affected classifications in November and December 2011 and advised that the survey would be conducted during January through March of The WCIRB then used unit statistical data to select a random sample of employers stratified by size 8

9 with reported payroll in the dual wage classifications being studied. WCIRB staff visited the selected policyholders to obtain the employee hourly wage for each employee assigned to the dual wage classifications for the week of October 17-21, Employee hourly wage data was obtained from 1,220 employers, representing 13,413 employees in the dual wage classifications being studied in Survey wages were rounded to the nearest dollar. For each surveyed policyholder, a payroll and loss history in the affected classifications was obtained from WCIRB unit statistical records for the two most current policy years, 2009 and 2010 (on a preliminary basis). The results of the 2013 wage level surveys and the WCIRB analysis are summarized separately for each of the dual wage classifications studied. Classifications 5185/5186, Automatic Sprinkler Installation Dual wage classifications 5185/5186 were established in 1995 with the further expansion of the dual wage program. The threshold wage, currently at $27, was originally established at $21 and has been increased over the years as summarized in Table 3. Table 3 Automatic Sprinkler Installation Hourly Wage Thresholds Effective Date (Jan 1) Hourly Wage Threshold 1995 $ $ $ $ $ $ $27 9

10 The January 1, 2013 advisory pure premium rate for the low wage Classification 5185 is $9.10 per $100 of payroll, which is 327% of the 2013 advisory pure premium rate of $2.78 for the high wage Classification Table 4 summarizes the advisory pure premium rates for automatic sprinkler installation over the past ten years as of January 1 each year. The differential in the advisory pure premium rate for the 5185 and 5186 dual wage classification has been consistently among the highest of all the pairs of dual wage classifications. Table 4 Automatic Sprinkler Installation Advisory Pure Premium Rates and Rate Relativities Effective Date (January 1) Low Wage Rate High Wage Rate Low Wage/High Wage Rate Relativity 2013 $9.10 $ % 2012 $7.22 $ % 2011 $5.26 $ % 2010 $5.37 $ % 2009 $5.27 $ % 2008 $4.74 $ % 2007 $6.12 $ % 2006 $7.75 $ % 2005 $11.06 $ % 2004 $13.77 $ % 10

11 Surveyed Employees by Hourly Wage The percentage of low wages to total payroll for the classification was 51% in 1997, allowing for full implementation of the classifications. For policy year 2009, 44% of the payroll was in the low wage classification. Table 5 summarizes the survey results distribution of hourly wages comprising 221 employers with 2,087 employees representing 58% of the payroll of the automatic sprinkler installation dual wage classifications. Table 5 Number of Surveyed Employees by Hourly Wage Level Based on Sample of 221 Employers Number of Employees in Hourly Wage Range Hourly Wage Range Based on the survey data, there is a credible volume of experience in the automatic sprinkler installation classifications with averages wage both below (47% of surveyed employees) and above (53% of surveyed employees) the current wage threshold. There is a small concentration in wages around the current wage threshold of $27 with 10% of the total sample distribution within one dollar of the current threshold. The largest concentration of employees, 183 (9%) occurs in the $13 to $15 wage range, followed by 167 (8%) employees in the $51 and above wage range. The lowest concentration of employees in the low wage classification is in the $26 range and the lowest concentration in the high wage classification is in the $47 to $48 range. 11

12 Payroll by Employer Average Wage Table 6 shows the percentage of surveyed employers whose average wage for all automatic sprinkler installation employees falls within a particular range (e.g., the $20 label represents a range from $20.00 to $20.99). The table shows that the employer average wage distribution varies across wage intervals ranging from 0% to almost 8% for each dollar interval with greater concentrations in the low wage classification. Table 6 Percent of Total Employers by Employer Average Wage Level % 8% 7% Percent of Surveyed Employers 6% 5% 4% 3% 2% 1% 0% Hourly Wage Range

13 Employers Payroll by Employer Average Wage Table 7 shows, for each wage range, the total automatic sprinkler installation payroll of all surveyed employers whose average wage falls within that range, as a percentage of the total automatic sprinkler installation payroll of all surveyed employers. This table illustrates the spread between the low wage and high wage employers. Based on the surveyed employers payroll, there is a greater concentration of high wage employers representing 65% of the survey, with the greatest concentration (30%) of wages falling in the range $36 per hour to $40 per hour for high wage employers. Table 7 25% Percent of Survey Payroll by Employer Average Wage Level % Percent of Survey Payroll 15% 10% 5% 0% Hourly Wage Range

14 Loss Cost per $100 of Payroll Differential Table 8 depicts for each wage range, the loss cost per $100 payroll for all surveyed employers whose average wage falls within that range, relative to the average loss cost per $100 of payroll, for all of the surveyed employers. Please note the losses used in this analysis are developed and limited to $100,000 to mitigate the extremes caused by large losses when classification data is reviewed at the more granular levels presented herein. The loss cost per $100 of payroll of the surveyed employers with average wages below the current threshold of $27 is 287% of that of surveyed employers at or above the threshold. Table 8 The WCIRB reviewed alternate thresholds but did not find any that improved on the overall performance of the current threshold value. The current payroll distribution between 5185 and 5186 is fairly well balanced with a 47%/53% distribution in the survey data and 44%/56% in policy year 2009 experience. An increase in threshold value would improve the balance; however, the the loss cost differential per $100 of payroll is eroded as more favorable experience is included in the low wage classification. At a lower threshold value, the payroll distribution in the low wage classification declines eroding credibility in the low wage classification below the level usually targeted in dual wage classifications. 14

15 The WCIRB also reviewed the loss cost differentials by the size of the surveyed automatic sprinkler installation employers. Table 9 shows the loss cost relativity by employer size. In this table, employer size is defined by the number of employees, rather than by total payroll or total premium, and larger employers generally have lower relative loss costs. Table 9 Automatic Sprinkler Installation Loss Cost Relativity by Size of Employer Size of Employer: Number of Employees Loss Cost Relativity 0 to % 11 to % 31 and over 52% Summary Findings and Recommendations The WCIRB finds that at the current threshold of $27 for 5185/5186, Automatic Sprinkler Installation: (a) the volume of experience in both dual wage classifications remains statistically credible with five years of experience, (b) there is a relatively small concentration of wages (10%) within one dollar of the threshold, and (c) the differential in losses per $100 of payroll between employers with average wages below the threshold and those with average wages at or above the threshold is 287%. The WCIRB did not find an alternate threshold that improved the overall performance of the current threshold which provides reasonably balanced payroll between the two classifications, no significant concentration of wages around the threshold value and a significant loss cost differential between the two classifications. 2 As a result, the WCIRB recommends no change to the current threshold for the automatic sprinkler installation classifications at this time. Classifications 5484/5485, Plastering or Stucco Work Dual wage classifications 5484/5485 were established in 1992 with expansion of the dual wage program. The threshold wage, currently at $25, was originally established at $18 and has been increased over the years as summarized in Table 10. Table 10 Plastering or Stucco Work Hourly Wage Thresholds Effective Date (Jan 1) Hourly Wage Threshold 1992 $ $ $ $ $ $ $25 2 A higher threshold improves the distribution of employees by hourly wage but not the loss cost differential. A lower threshold reduces the payroll distribution in the low wage classification eroding credibility of the low wage classification below the level usually targeted in dual wage classifications. 15

16 The January 1, 2013 advisory pure premium rate for the low wage classification 5484 is $17.41 per $100 of payroll, which is 181% of the 2013 advisory pure premium rate of $9.60 for Classification Table 11 summarizes the advisory pure premium rates for plastering or stucco work over the past ten years as of January 1 each year. Table 11 Plastering or Stucco Work Advisory Pure Premium Rates and Rate Relativities Effective Date (January 1) Low Wage Rate High Wage Rate Low Wage/High Wage Rate Relativity 2013 $17.41 $ % 2012 $12.11 $ % 2011 $9.28 $ % 2010 $9.34 $ % 2009 $9.66 $ % 2008 $8.30 $ % 2007 $11.65 $ % 2006 $13.03 $ % 2005 $16.92 $ % 2004 $19.68 $ % 16

17 Surveyed Employees by Hourly Wage The percentage of low wages to total payroll for the classification was 57% in 1994, allowing for full implementation of the classifications. For policy year 2009, 49% of the payroll was in the low wage classification. Table 12 summarizes the survey results distribution of hourly wages comprising 188 employers with 1,841 employees representing 45% of the plastering or stucco work dual wage classifications. Table 12 Number of Surveyed Employees by Hourly Wage Level Based on Sample of 188 Employers Number of Employees in Hourly Wage Range Hourly Wage Range Based on the survey data, there is a credible volume of experience in the plastering or stucco work classifications with averages wages both below (66% of surveyed employees) and above (34% of surveyed employees) the current wage threshold. There is a small concentration in wages around the current wage threshold of $25 with 10% of the total sample distribution within one dollar of the current threshold. The largest concentration of employees, 321 (17%) occurs in the $13 to $15 wage range, followed by 167 (9%) employees in the $18 wage range. The lowest concentration of employees in the low wage classification is in the $24 range and the lowest concentration in the high wage classification is in the $47 to $48 range. 17

18 Payroll by Employer Average Wage Table 13 shows the percentage of surveyed employers whose average wage for all plastering or stucco work employees falls within a particular range (e.g., the $20 label represents a range from $20.00 to $20.99). The table shows that the employer average wage distribution varies across wage intervals ranging from 0% to over 10% for each dollar interval with greater concentrations in the low wage classification. Table 13 Percent of Total Employers by Employer Average Wage Level 12% % Percent of Surveyed Employers 8% 6% 4% 2% 0% Hourly Wage Range

19 Employers Payroll by Employer Average Wage Table 14 shows, for each wage range, the total plastering or stucco work payroll of all surveyed employers whose average wage falls within that range, as a percentage of the total plastering or stucco work payroll of all surveyed employers. This table illustrates the spread between the low wage and high wage employers. Based on the surveyed employers payroll, there is a greater concentration of low wage employers representing 57% of the survey, with the greatest concentration (27%) of wages falling in the range $13 per hour to $16 per hour for low wage employers. Table 14 Percent of Survey Payroll by Employer Average Wage Level 18% % 14% 12% Percent of Survey Payroll 10% 8% 6% 4% 2% 0% Hourly Wage Range

20 Loss Cost per $100 of Payroll Differential Table 15 depicts for each wage range, the loss cost per $100 payroll for all surveyed employers where the average wage falls within that range, relative to the average loss cost per $100 of payroll, for all of the surveyed employers. Please note the losses used in this analysis are developed and limited to $100,000 to mitigate the extremes caused by large losses when classification data is reviewed at the more granular levels presented herein. The loss cost per $100 of payroll of the surveyed employers with average wages below the current threshold of $25 is 256% of that of surveyed employers at or above the threshold. Table 15 20

21 Based on the survey data, the WCIRB reviewed alternate threshold values and determined that there is improvement in the differential in loss costs per $100 of payroll between employers paying average wages at or above a $27 threshold as shown in Table 16. The loss cost per $100 of payroll of the surveyed employers with average wages below a threshold of $27 is 315% of that of surveyed employers at or above a $27 threshold. The survey payroll percentage in the low wage classification increases to 75% from 66%; however, for both policy year 2009 and preliminary policy year 2010, 49% of payroll was in the low wage classification which is credible with three years of experience. In addition, the concentration in payroll within one dollar of a $27 threshold declines to 6%. Table 16 21

22 The WCIRB also reviewed the loss cost differentials by the size of the surveyed plastering or stucco work employers. Table 17 shows the loss cost relativity by employer size. In this table, employer size is defined by the number of employees, rather than by total payroll or total premium. For most classifications, larger employers generally have lower relative loss costs.however, for the plastering and stucco dual wage classifications, the larger employers tended to be low wage employers and had signiciantly higher than average loss cost levels. Table 17 Plastering or Stucco Work Loss Cost Relativity by Size of Employer Size of Employer: Number of Employees Loss Cost Relativity 0 to 10 69% 11 to 30 69% 31 and over 182% Summary Findings and Recommendations WCIRB finds that at the current threshold of $25 for 5484/5485, Plastering or Stucco Work: (a) the volume of experience in both dual wage classifications remains statistically credible with three years of experience, (b) the survey distribution of employees between low wage and high wage employers is 66%/34%; however, the distribution is 49%/51% for both policy year 2009 and preliminary policy year 2010, (c) there is a relatively small concentration of wages (10%) within one dollar of the threshold, and (d) the differential in losses per $100 of payroll between employers with average wages below the threshold and those with average wages at or above the threshold is 256%. Alternately, at a threshold of $27, staff finds: (a) there remains a credible volume of experience in both the low wage and high wage classifications, (b) the split of survey employees changes from 66% below the threshold to 75% below the threshold; however, the dual wage classification total split based on policy year 2009 and 2010 USR payroll data of 49%/51% will remain reasonably balanced and credible with three years of experience, (c) the concentration of employees within one dollar of the threshold declines from 10% to 6%, and (d) the differential in losses per $100 of payroll between employers with average wages at or above the threshold and those with average wages below the threshold increases from 256% to 315%. Given these findings and that average wages in construction have increased by more than 10% in the five years since the last increase in the threshold, staff recommends increasing the threshold for these classifications from $25 to $27. 22

23 Classifications 6218/6220, Excavation Dual wage classifications 6218/6220 were established in 1992 with expansion of the dual wage program. The threshold wage, currently at $26, was originally established at $21 and has been increased over the years as summarized in Table 18. Table 18 Excavation Hourly Wage Thresholds Effective Date (Jan 1) Hourly Wage Threshold 1992 $ $ $ $ $ $26 In 2006, as part of the study of the wage threshold for 6218/6220, Excavation, 3 it was noted that it is not unusual for employers to engage in operations using the same employees assignable to Classifications 6218/6220 and 6307/6308, Sewer Construction, or 6315/6316, Water/Gas Mains. At the time, the threshold value for 6318/6220 was $25 and the threshold values for 6307/6308 and 6315/6316 were $23. Given concerns over disparate thresholds potentially applicable to the same workers engaged in similar operations, the C & R Committee approved the report recommendations to freeze the threshold for 6218/6220 at $25 until such time that 6307/6308 and 6315/6316 reach a common threshold which occurred in May 17, 2006 Manual Subcommittee Meeting Minutes for Item II MS Study of the Dual Wage Threshold. 23

24 The January 1, 2013 advisory pure premium rate for the low wage Classification 6218 is $9.27 per $100 of payroll, which is 144% of the 2013 advisory pure premium rate of $6.43 for Classification Table 19 summarizes the advisory pure premium rates for excavation over the past ten years as of January 1 each year. Table 19 Excavation Advisory Pure Premium Rates and Rate Relativities Effective Date (January 1) Low Wage Rate High Wage Rate Low Wage/High Wage Rate Relativity 2013 $9.27 $ % 2012 $6.70 $ % 2011 $5.50 $ % 2010 $5.67 $ % 2009 $6.12 $ % 2008 $5.58 $ % 2007 $5.65 $ % 2006 $7.10 $ % 2005 $10.99 $ % 2004 $12.15 $ % 24

25 Surveyed Employees by Hourly Wage The percentage of low wages to total payroll for the classification was 50% in 1994, allowing for full implementation of the classifications. For policy year 2009, only 30% of the payroll was in the low wage classification. Table 20 summarizes the survey results distribution of hourly wages comprising 420 employers with 5,412 employees representing 30% of the excavation dual wage classifications. Table 20 Number of Surveyed Employees by Hourly Wage Level Based on Sample of 420 Employers Number of Employees in Hourly Wage Range Hourly Wage Range Based on the survey data, there is a credible volume of experience in the excavation classifications with average wages both below (26% of surveyed employees) and above (74% of surveyed employees) the current wage threshold. There is a concentration in wages around the current wage threshold of $26 with 12% of the total sample distribution within one dollar of the current threshold. The largest concentration of employees, 456 (8%) occurs in the $39 to $40 wage range, followed by 337 (6%) employees in the $41 to $42 wage range. The highest concentration of employees in the low wage classification is in the $13 to $15 wage range with 253 employees (5%). 25

26 Payroll by Employer Average Wage Table 21 shows the percentage of surveyed employers whose average wage for all excavation employees falls within a particular range (e.g., the $20 label represents a range from $20.00 to $20.99). The table shows that the employer average wage distribution varies across wage intervals ranging from 1% to over 6% for each dollar interval with greater concentrations in the high wage classification. Table 21 Percent of Total Employers by Employer Average Wage Level 7% % 5% Percent of Surveyed Employers 4% 3% 2% 1% 0% Hourly Wage Range

27 Employers Payroll by Employer Average Wage Table 22 shows, for each wage range, the total excavation payroll of all surveyed employers whose average wage falls within that range, as a percentage of the total excavation work payroll of all surveyed employers. This table illustrates the spread between the low wage and high wage employers. Based on the surveyed employers payroll, there is a greater concentration of high wage employers representing 84% of the survey with the greatest concentration (33%) of wages falling in the range of $30 per hour to $33 per hour for high wage employers. Table 22 Percent of Survey Payroll by Employer Average Wage Level 12% % 8% Percent of Survey Payroll 6% 4% 2% 0% Hourly Wage Range

28 Loss Cost per $100 of Payroll Differential Table 23 depicts, for each wage range, the loss cost per $100 payroll for all surveyed employers whose average wage falls within that range, relative to the average loss cost per $100 of payroll, for all of the surveyed employers. Please note the losses used in this analysis are developed and limited to $100,000 to mitigate the extremes caused by large losses when classification data is reviewed at the more granular levels presented herein. The loss cost per $100 of payroll of the surveyed employers with average wages below the current threshold of $26 is 134% of that of surveyed employers at or above the threshold. Table Loss Costs per $100 as Percentage of Class Average by Employer Average Wage Level Developed and Limited to $100,000 per Loss Loss Costs as % of Class Average Hourly Wage Range 28

29 Based on the survey data the WCIRB reviewed alternate threshold values and determined that there is improvement in the differential in loss costs per $100 of payroll between employers paying average wages at or above a $30 threshold as shown in Table 24. The loss cost per $100 of payroll of the surveyed employers with average wages below a threshold of $30 is 158% of that of surveyed employers at or above a $30 threshold. The survey payroll percentage in the low wage classification increases from 26% to 46% and will improve credibility in the low wage classification. The concentration of employees within one dollar of the threshold is reduced slightly from 12% to 11%. Table Loss Costs per $100 as Percentage of Class Average by Employer Average Wage Level Developed and Limited to $100,000 per Loss Loss Costs as % of Class Average Hourly Wage Range 29

30 The WCIRB also reviewed the loss cost differentials by the size of the excavation employers. Table 25 shows the loss cost relativity by employer size. In this table, employer size is defined by the number of employees rather than by total payroll or total premium, and larger employers generally have lower relative loss costs. Table 25 Excavation Loss Cost Relativity by Size of Employer Size of Employer: Number of Employees Loss Cost Relativity 0 to % 11 to 30 94% 31 and over 66% Summary Findings The WCIRB finds that at the current threshold of $26 for 6218/6220, Excavation: (a) the volume of experience in both dual wage classifications remains statistically credible, (b) the survey distribution between low wage and high wage employers is 26% / 74%, consistent with the policy year 2009 distribution of 30% and 70%, (c) there is a relatively high concentration of wages (12%) within one dollar of the threshold, and (d) the differential in losses per $100 of payroll between employers with average wages below the threshold and those with average wages at or above the threshold is 134%. Alternately, at a threshold of $30, the WCIRB finds: (a) the dual wage classification payroll split will improve and the number of employees in the survey with wages below the threshold increases from 26% to 46%, (b) credibility significantly improves in the low wage classification, (c) the concentration of employees within one dollar of the threshold is reduced slightly from 12% to 11%, and (d) the differential in losses per $100 of payroll between employers with average wages at or above the threshold and those with average wages below the threshold increases from 134% to 158%. 30

31 Classifications 6307/6308, Sewer Construction Dual wage classifications 6307/6308 were established in 1992 with expansion of the dual wage program. The threshold wage was originally established at $19 and has been increased over the years as summarized in Table 26. In 2008, the wage threshold achieved parity with the wage threshold for 6218/6220, Excavation. As adopted by the C & R Committee in 2006, the wage threshold for 6307/6308 is maintained at a consistent level with 6218/6220, Excavation, and 6315/6316, Water/Gas Mains. Table 26 Sewer Construction Hourly Wage Thresholds Effective Date (Jan 1) Hourly Wage Threshold 1992 $ $ $ $ $ $ $26 31

32 The January 1, 2013 advisory pure premium rate for the low wage Classification 6307 is $12.10 per $100 of payroll, which is 141% of the 2013 advisory pure premium rate of $8.56 for Classification Table 27 summarizes the advisory pure premium rates for Sewer Construction over the past ten years as of January 1 each year Table 27 Sewer Construction Advisory Pure Premium Rates and Rate Relativities Effective Date (January 1) Low Wage Rate High Wage Rate Low Wage/High Wage Rate Relativity 2013 $12.10 $ % 2012 $11.29 $ % 2011 $8.11 $ % 2010 $8.32 $ % 2009 $7.07 $ % 2008 $8.26 $ % 2007 $9.62 $ % 2006 $13.34 $ % 2005 $16.63 $ % 2004 $20.61 $ % 32