Workers Compensation Insurance Rating Bureau of California. Workers Compensation Insurance Rating Bureau of California

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1 Workers Compensation Insurance Rating Bureau of California Workers Compensation Insurance Rating Bureau of California Report on Retail Dry Cleaning or Laundries, Commercial Laundries and Dry Cleaning or Dyeing Excerpt from the WCIRB Classification and Rating Committee Minutes June 14, 2013 About this Report The WCIRB prepares and presents reports to the WCIRB s Classification and Rating Committee to assist in the formulation of proposed changes to the Insurance Commissioner s regulations. Once adopted by the Classification and Rating Committee, the recommendations contained in the report are provided to the WCIRB Governing Committee and may be included in a WCIRB regulatory filing that is submitted to the Insurance Commissioner for approval. About the WCIRB The WCIRB is California's trusted, objective provider of actuarially-based information and research, advisory pure premium rates, and educational services integral to a healthy workers' compensation system. Learn more at

2 Notice This Report was developed by the Workers Compensation Insurance Rating Bureau of California (WCIRB) to assist in the formulation of proposed changes to the Insurance Commissioner s regulations. 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 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) and agents and brokers licensed to transact workers compensation insurance in the state of California are authorized to reproduce any part of this work 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 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 Report on Retail Dry Cleaning or Laundries, Commercial Laundries and Dry Cleaning or Dyeing 2589, Dry Cleaning or Laundry retail including repairing or pressing, and cash and carry departments on premises 2585, Laundries N.O.C. all employees including cash and carry departments on plant premises 2586(1), Dry Cleaning or Dyeing N.O.C. including repairing or pressing, and cash and carry departments on plant premises 2586(2), Yarn or Thread Dyeing or Finishing no yarn or thread manufacturing 2586(3), Hide or Fur Cleaning, Processing or Preserving Executive Summary Objectives This study addresses two objectives: 1. Review dry cleaning and laundry operations currently assigned to Classifications 2589, Dry Cleaning or Laundry retail, and 2586(1), Dry Cleaning or Dyeing N.O.C., to determine (a) the line of demarcation between these two classifications, and (b) depending on the findings, whether Classification 2589 should be revised to accurately describe the operations assignable to this classification. 2. In view of the lack of full statistical credibility for Classification 2586, review the operations assigned to this classification to determine if the classification should be eliminated and its constituents be reassigned to one or more classifications. Findings Based on its review, the WCIRB has determined that: 1. The dry cleaning of garments and similar articles is performed in the same manner (i.e., same types of machinery and processes) irrespective of whether performed for (a) the general public (Classification 2589), or (b) commercial customers, such as hotels, restaurants and retail cash and carry (drop off) stores (Classification 2586); 2. The laundering of garments and similar articles that are owned by the general public is performed in the same manner (i.e., same types of machinery and processes) irrespective of whether performed by (a) firms that operate store front laundry facilities where garments are received by walk-in trade, or (b) firms that operate laundry facilities that are located in commercial or industrial locations where garments are brought to the facilities by route drivers; 3. The primary operations assigned to Classification 2586 consist of dyeing garments, yarn or thread. The machinery, equipment and processes involved in these operations are comparable to those associated with commercial laundries, which are assigned to Classification 2585; 4. Classification 2586 also includes firms engaged in hide or fur cleaning, processing or preserving. The WCIRB is aware of two companies that process hides in California. If Classification 2586 is eliminated, these operations shall be assigned by analogy to another classification most representative of the process and hazard on a case by case basis. Recommendation In view of the above, the WCIRB recommends the following actions: 1. Eliminate Classifications 2586(1), 2586(2) and 2586(3); 1

4 2. Amend Classification 2589 to reflect its applicability to locations at which more than 50% of gross receipts is derived from the dry cleaning or laundering of garments, linens and other household items that are owned by the general public; 3. Establish Classification 2589 (2) as an alternate wording to Classification 2589 for employers engaged in dry cleaning that is not otherwise classified; 4. Establish Classification 2585 (2) as an alternate wording to Classification 2585 for employers engaged in dyeing; and 5. Assign employers engaged in hide or fur cleaning, processing or preserving by analogy to classifications most representative of the process and hazard. 2

5 Introduction At its meeting on July 31, 2012, the Classification and Rating (C & R) Committee decided that (1) Classifications 2586(1), Dry Cleaning or Dyeing N.O.C., and 2589, Dry Cleaning or Laundry retail, should be separated for ratemaking purposes so that each classification could develop unique advisory pure premium rates; and (2) Classification 2586(1) should be amended to remove the qualifying term walk-in since retail dry cleaning and laundering services are often provided for the general public who do not enter dry cleaning and laundering establishments. These changes were made effective January 1, Additionally, the C & R Committee directed the WCIRB to (1) study dry cleaning and laundry operations currently assigned to Classifications 2589 and 2586(1) to determine (a) the line of demarcation between retail and commercial dry cleaning and laundry operations, and (b) depending on the findings, whether Classification 2589 should be revised to accurately describe the operations assignable to this classification; and (2) in view of the lack of full statistical credibility for Classification 2586, review the operations assigned to this classification to determine if the classification should be eliminated and its constituents be assigned to one or more classifications. Classification History The history of Classifications 2585, 2586(1), 2586(2), 2586(3) and 2589 is provided in the report on Commercial Dry Cleaning or Dyeing and Retail Dry Cleaning or Laundry, Underwriting Working Group meeting held on April 11, 2012, attached as Appendix 1. Description of Operations Following are the classification phraseologies, footnotes and relevant summaries of operations currently assigned to Classifications 2589, Dry Cleaning or Laundry retail, 2585, Laundries N.O.C., 2586(1), Dry Cleaning or Dyeing N.O.C., 2586(2), Yarn or Thread Dyeing or Finishing no yarn or thread manufacturing, and 2586(3), Hide or Fur Cleaning, Processing or Preserving. DRY CLEANING OR LAUNDRY retail including repairing or pressing, and cash and carry departments on premises This classification applies to those retail establishments engaged primarily (in excess of 50% of gross receipts) in the dry cleaning or laundering of garments, linens and other household items for the general public. This classification also applies to coin-operated laundries that retain attendants to perform fluff and fold activities. Cash and carry facilities, situated away from the dry cleaning or laundry location, that solely engage in the receipt and distribution of items to be cleaned shall be classified as 8017(1), Stores retail N.O.C. This classification does not apply to diaper service companies or uniform and linen rental or service companies. Such firms shall be classified as 2585, Laundries, or 2586(1), Dry Cleaning or Dyeing Retail dry cleaning or laundry firms operate in two general manners: (a) firms that operate store front dry cleaning and laundry facilities where garments and linens are received by the walk-in trade and cleaned, and (b) firms that operate dry cleaning and laundry facilities that are located in commercial or industrial locations and the garments are brought to the facilities by the firm s route drivers for cleaning. In either case, the cleaning operations are the same. The garments and linens are individually tagged, sorted and spot cleaned as needed. Soiled items to be dry cleaned are placed into dry cleaning machines along with solvents. Soiled items to be laundered are placed into industrial washing machines along with detergents. Cleaned items are removed from the machines and placed into industrial dryers. Cleaned items are removed from the dryers, inspected and pressed. As needed, items are repaired or altered. Cleaned items are individually hung, covered with plastic and set aside for customer pick-up or delivery. Some employers operate cash and carry or drop off store locations where garments and linen are received from the walk-in trade; however, no cleaning is performed. The garments are transferred to the 3

6 cleaning facility, cleaned and returned to the store by route drivers. Cash and carry store locations are assignable to Classification 8017(1), Stores retail N.O.C. LAUNDRIES N.O.C. all employees including cash and carry departments on plant premises Retail dry cleaning and laundering establishments engaged primarily (in excess of 50% of gross receipts) in the cleaning of garments, linens and other household items for the general public shall be classified as 2589, Dry Cleaning or Laundry retail Commercial laundry firms provide laundry services to commercial concerns. Typically, route drivers pick up soiled items such as towels, sheets, table cloths, napkins and uniforms from commercial, industrial and institutional concerns and transport the soiled items to the laundry facility. Items are unloaded and sorted according to type. The items are not individually tagged as is done with items owned by the general public. The soiled items are spot cleaned and placed into large industrial washing machines along with detergents. Commercial launderers typically use tunnel washers that consist of a long metal cylinder with separate compartments. Laundry is moved from one compartment to another where they are rinsed or washed with varying detergents and chemicals. The washed items are removed from the tunnel washer or washing machines and placed into industrial dryers. Cleaned items are removed from the dryers, repaired or altered if necessary, pressed, folded, stacked, packaged in a bulk manner, set on pallets and made ready for delivery to the customer by route drivers. DRY CLEANING OR DYEING N.O.C. including repairing or pressing, and cash and carry departments on plant premises Retail dry cleaning and laundering establishments engaged primarily (in excess of 50% of gross receipts) in the cleaning of garments, linens and other household items for the general public shall be classified as 2589, Dry Cleaning or Laundry retail. 2586(1) Dry Cleaning Commercial dry cleaning firms provide dry cleaning services for hotels, restaurants, spas, hospitals, janitorial companies and similar clients, as well as from drop off storefront locations operated by separate concerns. Typically, route drivers pick up soiled garments and linens from commercial locations and transport the soiled garments to the dry cleaning facility. Garments are unloaded, sorted and individually tagged. The garments are spot treated and loaded into industrial dry cleaning machines along with solvents. The cleaned garments are repaired or altered, if necessary, and pressed. The individual garments are hung on hangers, covered in plastic and delivered to customers. Dyeing Classification 2586(1) also contemplates the dyeing of garments for clothing manufacturers. Garments are received and sorted by size or sets consisting of large batches. Garments are bulk loaded into garment machines and fabrics are bulk loaded into jet dyeing machines along with water, chemicals, and dyes and submersed for a prescribed amount of time. Examples of garment machines include batch washers that can wash 800 pounds per hour; and washer-extractors that can wash 25 pounds to 700 pounds per hour. The items are pulled and placed into extraction systems such as hydroextractors to remove excess dye solution. Wet materials are placed in the extractor which has a wall of perforated metal, generally stainless steel, and the drum rotates at high speed throwing out the water contained in it. In some cases, garments such as denim jeans may be tumbled with pumice to soften and condition the fabric through stone washing. Sometimes a tenter frame is used to spread the fabric that is then dried in an oven. The dyed items are folded and packaged into a buggy or rolled up onto an A-frame and set aside for delivery. 4

7 YARN OR THREAD DYEING OR FINISHING no yarn or thread manufacturing 2586(2) This classification shall not be used for division of payroll in connection with any other classification (other than the Standard Exceptions or General Exclusions) unless the operations described by Classification 2586(2) constitute a separate and distinct enterprise having no connection with the operations covered by any other applicable classification. Firms that specialize in dyeing yarn and thread receive raw yarn and thread in skein form (wound on a reel) or loose. Loose yarn or thread is wrapped around a spool and referred to as a package. Each package typically weighs 2 to 3 pounds and is eight to ten inches wide. Operations involve stacking the skeins on a spindle, bleaching or mercerizing the yarn or thread in order to strengthen the fibers and make the yarn or thread more receptive to dyes. Packages are secured to perforated tubes. Water, chemicals and dyes are added and the yarn or thread is submersed for a prescribed amount of time. After dyeing, the yarn or thread is placed into a hydroextractor to remove excess dye solution. Infrared dryers, continuous dryers or heated rooms are used to dry the yarn or thread. The dyed yarn or thread is packaged and set aside for delivery. HIDE OR FUR CLEANING, PROCESSING OR PRESERVING 2586(3) Hide processing involves receiving raw animal hides, typically purchased from slaughterhouses. Hides are graded by size and color and washed to remove loose blood and soil. The hides are placed into a salt solution or brine, which acts as a preservative, for a prescribed amount of time. The brined hides are removed from the brine tanks and placed into fleshing machines that remove excess flesh and fats from the hides. The processed hides are folded, stacked and compressed to remove moisture. The hides are transferred to a climate-controlled area where they are stored pending shipment to tanneries. Fur processing involves sorting pelts by animal type and size, removing excess flesh and placing them in tumblers to soak in a mild acid solution that softens the skin. Pelts are also soaked in preservative chemicals for a prescribed amount of time. Some pelts are oiled to further soften and condition the skin. The oiled pelts are placed into tumblers along with sawdust to remove the excess oil. The furs are groomed and sheared for uniformity. A heated press is used to stretch the fur and the skin is buffed smooth. The processed furs are transferred to a climate-controlled area where they are stored pending shipment. Classification Analysis Laundries The line of demarcation between retail and commercial laundering of garments and linens is the nature of the items and the manner in which the items are cleaned and processed, which in most cases is determined by the owner of the items. Items owned by the general public are typically garments that are individually processed. Items owned by commercial concerns typically are linens such as towels, sheets, table cloths and napkins that are processed in bulk. In most cases, Classification 2589 (retail laundries) and Classification 2585 (commercial laundries) are administered in this manner. However, Classification 2589 should be amended to clarify that this classification applies to employers that launder garments, linens and other household items that primarily are owned by the general public. Dry Cleaning Currently, the commercial dry cleaning of garments and linens (Classification 2586(1)) and the retail dry cleaning of garments and similar items (Classification 2589) are separately classified based on whether the insured is engaged primarily in the dry cleaning of such items for commercial accounts, such as retail drop off stores operated by other concerns, or the general public. However, this study has found that the dry cleaning of garments whether assigned to Classification 2589 or 2586 is performed in the same manner (i.e., same types of machinery and processes). That is, in most cases, the garments are owned by the general public and, in all cases, the garments are cleaned and individually processed in the same manner. Therefore, consideration should be given to assigning all dry cleaning operations to 5

8 Classification It is noted that according to the WCIRB s library of inspection reports, there are less than 20 commercial dry cleaners in California. Dyeing The dyeing of garments and linens (Classification 2586(1)) involves the use of large washing machines and laundry equipment such as batch washers and washer-extractors, extraction systems and dryers of the types that are used by commercial laundries, which are assigned to Classification Dry cleaning machinery is not used. The dyeing process includes the use of water, detergents and chemicals. Garments are typically dyed in large batches and are not processed individually. Accordingly, dyeing operations are similar to commercial laundry operations. That is, each operation is a wet process that employs the same type of washing and drying machinery to wash or dye and otherwise process large batches of garments and linens on a commercial basis. Therefore, consideration should be given to assigning the dyeing of garments and linens and commercial laundries to Classification Yarn or Thread Dyeing Classification 2586(2) contemplates yarn or thread dyeing operations. These operations are a wet process that employs large batch machinery that is similar to that used by commercial laundries. Accordingly, consideration should be given to reassigning the dyeing of yarn or thread to Classification Hide or Fur Cleaning or Processing Classification 2586(3) contemplates a broad range of operations including cleaning, processing and preserving of animal hide or fur. These are unique operations that involve the use of conveyor systems, fleshing machines or tumblers. The WCIRB is aware of two companies that perform these operations in California. The first employer receives green cattle hides from slaughter houses, removes tails and ears, processes them in fleshing machines, soaks them in salt water tanks and presses them to remove all moisture. This employer operates similarly to that of a leather goods manufacturer, which is assignable to Classification 2688, Leather Goods Mfg. N.O.C. The second employer receives animal pelts from customers which have already had excess flesh removed and been dried and salted. The pelts are soaked in oil and/or chemicals, placed in tumblers, stretching machines and cleaned for taxidermists, museums and universities. This employer operates similarly to that of a taxidermist, which is assignable to Classification 4038(2), Taxidermist. The WCIRB recommends all hide or fur cleaning or processing operations be assigned by analogy to the classification most comparable based on hazard and risk to the business of the employer. Operational Analysis Summary The determination of the laundry classification (2589 retail vs commercial) should be based on the ownership of the items to be cleaned. All dry cleaning operations currently assigned to Classification 2586(1) should be assigned to Classification 2589; and The dyeing of garments, linens, yarn and thread that is currently assigned to Classifications 2586(1) and 2586(2) should be assigned to Classification

9 Statistical Analysis The following tables present classification relativity data at policy year 2013 level. Table 1 presents the classification relativity data for all cleaning and dyeing operations currently assignable to Classifications 2586(1), 2586(2) and 2586(3) (Exhibit 2). Year Number of Employers Table 1: All of Classification 2586 Payroll Losses Loss to Payroll Ratio ,864,606 2,385, ,289,406 2,373, ,045,733 2,334, ,239,244 3,773, ,723,036 3,588, Total 253,162,025 14,455,184 Selected (Unlimited) Loss to Payroll Ratio Indemnity Credibility 1 Medical Table 2 presents the classification relativity data for dry cleaning operations currently assignable to Classification 2586(1) (Exhibit 3). Table 2: Dry Cleaning Operations (Subset of Classification 2586(1)) Year Number of Employers Payroll Losses Loss to Payroll Ratio ,413, , ,893, , ,192,298 64, ,840, , ,319,773 27, Total 29,659, ,114 Selected (Unlimited) Loss to Payroll Ratio Credibility Indemnity Medical The relativity for each classification in the upcoming policy year is determined based on a comparison of that classification s actual losses per $100 of payroll and the ratio of losses per $100 of payroll underlying the current pure premium rate. The credibilities assigned to a classification are the statistical weights assigned to that classification s experience as a predictor of future claim experience relative to the loss per $100 of payroll underlying the classification s current pure premium rate. The predictability or credibilities assigned to a classification s recent historical experience depends on the volume of indemnity and medical claims incurred during the experience period. The WCIRB strives to have classifications that are fully, or 100%, statistically credible based on historical experience over five or fewer years, which mean that the classification s relativity in the upcoming policy year can be best, estimated using only the loss per $100 of payroll experience from the latest two-, three-, four- or five-year periods. The WCIRB generally will not recommend the establishment of a new classification if the credibility factors are less than one-half (< 0.50). 7

10 Table 3 presents the classification relativity data for all dry cleaning and retail laundry operations currently assignable to Classification 2589 (Exhibit 4). Year Number of Employers Table 3: All of Classification 2589 Payroll Losses Loss to Payroll Ratio , ,761,256 4,618, , ,023,467 5,021, , ,255,877 4,403, , ,196,160 5,251, Total 693,236,760 19,295,338 Selected (Unlimited) Loss to Payroll Ratio Credibility Indemnity Medical Table 4 presents the classification relativity data for Dry Cleaning assigned to Classification 2586(1) combined with Classification 2589, Dry Cleaning or Laundry retail (Exhibit 5). Year Table 4: Dry Cleaning (Subset of Classification 2586(1)) Combined with Classification 2589 Number of Employers Payroll Losses Loss to Payroll Ratio , ,654,449 4,970, , ,215,765 5,111, , ,096,111 4,509, , ,515,933 5,278, Total 716,482,258 19,869,838 Selected (Unlimited) Loss to Payroll Ratio Credibility Indemnity Medical

11 Table 5 presents the classification relativity data for garment dyeing operations assignable to Classification 2586(1) and yarn and thread dyeing operations assignable to Classification 2586(2) (Exhibit 6). Year Table 5: Garment Dyeing (Classification 2586(1)) and Yarn or Thread Dyeing (Classification 2586(2)) Number of Employers Payroll Losses Loss to Payroll Ratio ,502,247 1,111, ,789,922 1,180, ,323,525 1,534, ,673,150 2,652, ,801,585 2,802, Total 144,090,429 9,281,387 Selected (Unlimited) Loss to Payroll Ratio Credibility Indemnity Medical Table 6 presents the classification relativity data for Classification 2585 (commercial laundering operations, Exhibit 7). Year Number of Employers Table 6: All of Classification 2585 Payroll Losses Loss to Payroll Ratio ,259,940 26,491, ,110,176 24,302, Total 833,370,116 50,794,664 Selected (Unlimited) Loss to Payroll Ratio Credibility Indemnity Medical

12 Table 7 presents the classification relativity data for the garment, yarn and thread dyeing operations combined with Classification 2585, Laundries N.O.C. operations (Exhibit 8). Table 7: Garment Dyeing (Classification 2586(1)) and Yarn or Thread Dyeing (Classification 2586(2)) Combined with Classification 2585 Year Number of Employers Payroll Losses Loss to Payroll Ratio ,933,090 29,407, ,911,761 27,498, Total 905,844,851 56,906,732 Selected (Unlimited) Loss to Payroll Ratio Credibility Indemnity Medical Impact Analysis The following tables present classification relativity data at policy year 2013 level. Table 8 depicts the impact on Classification 2589 if the experience of dry cleaners that are currently assigned to Classification 2586 is combined with Classification Table 8: Dry Cleaning Operations (Classification 2586) Combined with Classification 2589 vs. Classification 2589 Classification 2589 Classification 2589 and 2586 Dry Cleaning Operations Difference (.26%) Table 9 depicts the impact on Classification 2585 if the experience of employers engaged in the dyeing of garments, yarn and thread is combined with Classification Table 9: Dyeing (Classifications 2586(1) and 2586(2)) Combined with Classification 2585 vs. Classification 2585 Comparison of Selected (Unlimited) Loss to Payroll Ratios at Policy Year 2013 Level Classification 2585 Classification 2585 and Dyeing Operations Difference (3.14%) As shown above, the combination of the experience of (1) dry cleaners (subset of Classification 2586) with Classification 2589 has little (-0.26%) impact on Classification 2589, and (2) the experience of employers engaged in the dyeing of garments, yarn and thread with Classification 2585 has a +3.14% impact on Classification

13 Table 10 depicts the impact on Dry Cleaning Operations that are currently assigned to Classification 2586(1) if such employers are reassigned to Classification Table 10: Dry Cleaning Operations (Classification 2586) Combined with Classification 2589 vs. Classification 2586 Classification 2586 Classification 2589 and 2586 Dry Cleaning Operations Difference (-47.16%) As shown in Table 10, the Selected (Unlimited) Loss to Payroll Ratio for dry cleaners (subset of Classification 2586) Classification 2589 combined is 47.16% less than that of Classification Table 11 depicts the impact on Dyeing Operations currently assigned to Classifications 2586(1) and 2586(2) if such employers are reassigned to Classification Table 11: Dyeing Operations (Classification 2586) Combined with Classification 2585 vs. Classification 2585 Classification 2586 Classification 2585 and 2586 Dyeing Operations Difference (15.76%) As shown in Table 11, the Selected (Unlimited) Loss to Payroll Ratio for dyeing operations (subset of Classification 2586) and Classification 2585 combined is 15.76% greater than that of Classification Findings and Conclusions Based on its review of Classifications 2589, 2586(1), 2586(2), 2586(3) and 2585, the WCIRB finds that: 1. The dry cleaning of garments and similar articles is performed in the same manner irrespective of whether the customers are the general public or commercial customers; 2. The laundry of garments and similar articles that are owned by the general public is performed in the same manner (i.e., same types of machinery and processes) as that performed by (a) firms that operate store front laundry facilities where garments are received by walk-in trade, and (b) firms that operate laundry facilities that are located in commercial or industrial locations where garments are brought to the facilities by route drivers; 3. In addition to dry cleaning, firms assigned to Classification 2586 engage in the dyeing of garments, yarn or thread. The machinery, equipment and processes involved in these operations are comparable to those associated with commercial laundries, which are assigned to Classification 2585; 4. Classification 2586 also includes firms engaged in hide or fur cleaning, processing or preserving. The WCIRB is aware of two companies that process hides in California. If Classification 2586 is eliminated, these operations shall be assigned by analogy to another classification most representative of the process and hazard on a case by case basis. 11

14 5. If the experience pertaining to dry cleaning (subset of Classification 2586) is reassigned to Classification 2589, (1) the Selected (Unlimited) Loss to Payroll Ratio for Classification 2589 would decrease by 0.26%, and (2) the Selected (Unlimited) Loss to Payroll Ratio for dry cleaners and Classification 2589 combined would be 47.16% less than that of Classification 2586; and 6. If the experience pertaining to dyeing of garments, yarn or thread (subset of Classification 2586) is reassigned to Classification 2585, (1) the Selected (Unlimited) Loss to Payroll Ratio for Classification 2585 would increase by 3.14%, and (2) the Selected (Unlimited) Loss to Payroll Ratio for dyeing and Classification 2585 combined would be 15.76% greater than that of Classification Recommendation In view of the above, the WCIRB recommends the following actions: 1. Eliminate Classifications 2586(1), 2586(2) and 2586(3); 2. Amend Classification 2589 to reflect its applicability to locations at which more than 50% of gross receipts is derived from the dry cleaning or laundering of garments, linens and other household items that are owned by the general public; 3. Establish Classification 2589(2) as an alternate wording to Classification 2589 for employers engaged in dry cleaning that is not otherwise classified; 4. Establish Classification 2585 (2) as an alternate wording to Classification 2585 for employers engaged in dyeing of garments; and 5. Assign employers engaged in hide or fur cleaning, processing or preserving by analogy to classifications most representative of the process and hazard. These amendments are recommended to be included in the WCIRB s January 1, 2014 Regulatory Filing. 12

15 Proposed Revisions to the California Workers Compensation Uniform Statistical Reporting Plan 1995 Recommendation Amend Classification 2589, Dry Cleaning or Laundry retail including repairing or pressing, and cash and carry departments on premises, to add a suffix and remove the reference to Classification 2586(1), Dry Cleaning or Dyeing, for consistency with changes made elsewhere in this Section, and provide that this classification applies to those locations at which more than 50% of gross receipts is derived from the dry cleaning or laundering of garments, linens and other household items that are owned by the general public. PROPOSED DRY CLEANING OR LAUNDRY retail including repairing or pressing, and cash and carry departments on premises This classification applies to those retail establishments engaged primarily (in excess oflocations at which more than 50% of gross receipts) in is derived from the dry cleaning or laundering of garments, linens and other household items forthat are owned by the general public. This classification also applies to coin-operated laundries that retain attendants to perform fluff and fold activities. Cash and carry facilities, situated away from the dry cleaning or laundry location, that solely engage in the receipt and distribution of items to be cleaned shall be classified as 8017(1), Stores retail N.O.C. This classification does not apply to diaper service companies or uniform and linen rental or service companies. Such firms shall be classified as 2585, Laundries N.O.C, or 2586(1), Dry Cleaning or Dyeing. 2589(1) * * * * * Recommendation Eliminate Classification 2586(1), Dry Cleaning or Dyeing N.O.C. including repairing or pressing, and cash and carry departments on plant premises, and reassign dry cleaning operations to proposed Classifications 2589(1), Dry Cleaning or Laundry retail including repairing or pressing, cash and carry departments on plant premises, and 2589(2), Dry Cleaning N.O.C. including repairing or pressing, cash and carry departments on plant premises; and assign dyeing operations to proposed Classification 2585(2), Dyeing including yarn or thread dyeing or finishing no yarn or thread manufacturing. PROPOSED DRY CLEANING OR DYEING N.O.C. including repairing or pressing, and cash and carry departments on plant premises Retail dry cleaning and laundering establishments engaged primarily (in excess of 50% of gross receipts) in the cleaning of garments, linens and other household items for the general public shall be classified as 2589, Dry Cleaning or Laundry retail. 2586(1) 13

16 * * * * * Recommendation Establish Classification 2589(2), Dry Cleaning N.O.C. including repairing or pressing, cash and carry departments on plant premises, to apply to employers engaged in dry cleaning that are not otherwise classified. PROPOSED DRY CLEANING N.O.C. including repairing or pressing, and cash and carry departments on plant premises Commercial laundry operations, including the rental and laundering of towels, linens, diapers and similar items shall be classified as 2585(1), Laundries N.O.C. 2589(2) * * * * * Recommendation Eliminate Classification 2586(2), Yarn or Thread Dyeing or Finishing no yarn or thread manufacturing, and reassign employers engaged in dyeing yarn or thread to proposed Classification 2585(2), Dyeing including yarn or thread dyeing or finishing no yarn or thread manufacturing. PROPOSED YARN OR THREAD DYEING OR FINISHING no yarn or thread manufacturing 2586(2) This classification shall not be used for division of payroll in connection with any other classification (other than the Standard Exceptions or General Exclusions) unless the operations described by Classification 2586(2) constitute a separate and distinct enterprise having no connection with the operations covered by any other applicable classification. * * * * * Recommendation Establish Classification 2585(2), Dyeing including yarn or thread dyeing or finishing no yarn or thread manufacturing, to apply to employers engaged in dyeing. PROPOSED DYEING including yarn or thread dyeing or finishing no yarn or thread manufacturing 2585(2) This classification shall not be used for division of payroll in connection with any other classification (other than the Standard Exceptions or General Exclusions) unless the operations described by Classification 2585(2) constitute a separate and distinct enterprise having no connection with the operations covered by any other applicable classification. Dyeing of textile fabrics, not finished garments, shall be classified as 2413, Textiles bleaching, dyeing, mercerizing, finishing new goods not cleaning and dyeing of garments. 14

17 * * * * * Recommendation Eliminate Classification 2586(3), Hide or Fur Cleaning, Processing or Preserving, and reassign employers engaged in hide or fur cleaning, processing or preserving to classifications most representative of the process and hazard. PROPOSED HIDE OR FUR CLEANING, PROCESSING OR PRESERVING 2586(3) * * * * * Recommendation Amend Classification 2585, Laundries N.O.C. all employees including cash and carry departments on plan premises, to add a suffix; provide that locations at which more than 50% of gross receipts are derived from the cleaning or laundering of garments, linens and other household items that are owned by the general public be classified as 2589(1), Dry Cleaning or Laundry retail; and provide that the dyeing of textile fabrics, not finished garments, be classified as 2413, Textiles bleaching, dyeing, mercerizing, finishing new goods not cleaning and dyeing of garments. PROPOSED LAUNDRIES N.O.C. all employees including cash and carry departments on plant premises Retail dry cleaning and laundering establishments engaged primarily (in excess oflocations at which more than 50% of gross receipts) are derived from in the cleaning or laundering of garments, linens and other household items forthat are owned by the general public shall be classified as 2589(1), Dry Cleaning or Laundry retail. Dyeing of textile fabrics, not finished garments, shall be classified as 2413, Textiles bleaching, dyeing, mercerizing, finishing new goods not cleaning and dyeing of garments. 2585(1) * * * * * 15

18 Item CR Report on Commercial Dry Cleaning or Dyeing and Retail Dry Cleaning or Laundry 2586(1), Dry Cleaning or Dyeing N.O.C. including repairing or pressing, and cash and carry departments on plant premises 2586(2), Yarn or Thread Dyeing or Finishing no yarn or thread manufacturing 2586(3), Hide or Fur Cleaning, Processing or Preserving 2589, Dry Cleaning or Laundry retail including repairing or pressing, and cash and carry departments on premises 2585, Laundries N.O.C. all employees including cash and carry departments on plant premises The Classification and Rating Committee reviewed a draft WCIRB report on the procedure of combining, for ratemaking purposes, the experience of Classification 2586(1), Dry Cleaning or Dyeing N.O.C. including repairing or pressing, and cash and carry departments on plant premises, and Classification 2589, Dry Cleaning or Laundry retail including repairing or pressing, and cash and carry departments on premises. In attendance were two representatives of the California Cleaners Association (CCA), a trade group that represents dry cleaners in California. The Committee was informed that Classifications 2586(1) and 2589 were combined for ratemaking purposes in 1997 following a study of the classification procedure for retail dry cleaning establishments that also perform laundering activities. To determine whether the current ratemaking procedure should be continued, WCIRB staff reviewed the operations and the classification experience (payroll and losses) pertaining to each classification. The review determined that Classifications 2586(1) and 2589 are clearly defined and apply to separate groups of employers and each classification develops sufficient payroll and losses to produce advisory pure premium rates; however the statistical credibility of Classification 2586(1), while adequate for ratemaking purposes, is less than 100%. In view of the fact that Classification 2586(1) does not develop sufficient data to achieve full statistical credibility, the operations and classification experience of Classification 2586(1) (commercial dry cleaners) were compared to those of Classification 2585, Laundries N.O.C. (commercial laundries) to determine if these classifications should be combined for ratemaking purposes. The comparison revealed a similarity in operations of firms assigned to Classifications 2586(1) and 2585; however, the classification experience for each classification was not similar. That is, if Classifications 2586(1) and 2585 were combined, the advisory pure premium rate for Classification 2586(1) would increase significantly. Accordingly, the WCIRB recommended that Classifications 2586(1) and 2585 not be combined for ratemaking purposes and that separate advisory pure premium rates be developed for Classifications 2586(1) and 2589 effective January 1, Staff noted that Classification 2586(1) would be reviewed periodically and appropriate action would be taken if the statistical credibility of the classification fell below acceptable standards. The representatives of the CCA expressed their support of the WCIRB s recommendations; however, the CCA asked that the footnote to Classification 2586(1), Dry Cleaning or Dyeing, which defines retail dry cleaning and laundering establishments, be amended to remove the qualifying term walk-in since dry cleaning and laundering services are often provided to the general public who do not enter the dry cleaning and laundering premises. An example was cited of firms that employ route drivers who pick up and deliver articles that are cleaned for the general public. The Committee was informed that, if it agreed with the amendment proposed by the CCA, the same change should be made to classifications 2589 and 2585 for consistency. 16

19 After reviewing the WCIRB s report and considering the CCA s request, the Committee voted unanimously to approve the recommendation that Classifications 2586(1) and 2589 be permitted to develop their own advisory pure premium rates effective January 1, 2013, and that the proposed revisions (deletion of walk-in ) to Classifications 2586(1), 2589 and 2585 be included in the WCIRB s January 1, 2013 Pure Premium Rate Filing. 17

20 Item CR Report on Commercial Dry Cleaning or Dyeing and Retail Dry Cleaning or Laundry 2586(1), Dry Cleaning or Dyeing N.O.C. including repairing or pressing, and cash and carry departments on plant premises 2586(2), Yarn or Thread Dyeing or Finishing no yarn or thread manufacturing 2586(3), Hide or Fur Cleaning, Processing or Preserving 2589, Dry Cleaning or Laundry retail including repairing or pressing, and cash and carry departments on premises 2585, Laundries N.O.C. all employees including cash and carry departments on plant premises Executive Summary Objective The WCIRB reviewed the procedure of combining, for ratemaking purposes, the experience of Classification 2586(1), Dry Cleaning or Dyeing N.O.C. including repairing or pressing, and cash and carry departments on plant premises, and Classification 2589, Dry Cleaning or Laundry retail including repairing or pressing, and cash and carry departments on premises. Findings Based on its review, the WCIRB has determined that: 1. The operations contemplated by Classification 2586 are separate, distinct and easily identifiable from those contemplated by Classification 2589; 2. Classification 2589 develops sufficient data to produce a fully credible advisory pure premium rate; 3. Classification 2586 develops sufficient data to produce an advisory pure premium rate; however, the classification relativity data is not fully credible; 4. Based on experience at the 2012 policy year level, Classification 2586 has a Selected (Limited) Loss to Payroll Ratio that is 33.1% greater, and an Indicated (Unlimited) Loss to Payroll Ratio that is 44.7% greater, than the current Selected (Unlimited) Loss to Payroll Ratio for Classifications 2586 and 2589 combined; 5. Based on experience at the 2012 policy year level, Classification 2589 has a Selected (Unlimited) Loss to Payroll Ratio that is 18.8% less than the current Selected (Unlimited) Loss to Payroll Ratio for Classifications 2586 and 2589 combined; 6. In view of the fact that Classification 2586 lacks full statistical credibility, the operations and statistical data for Classifications 2586, Dry Cleaning or Dyeing N.O.C., were compared with those of Classification 2585, Laundries N.O.C., to determine if these classifications should be combined for ratemaking purposes. The review found that: a. The operations performed by employers assigned to Classifications 2586 and 2585 are similar; b. The summaries of Unit Statistical Reports (USR) and inspection reports reveal that commercial laundry operations (Classification 2585) and commercial dry cleaning (Classification 2586) are not usually performed by the same employer; and c. The Selected (Unlimited) Loss to Payroll Ratio for Classifications 2585 and 2586 combined is 77.1% greater than the current Loss to Payroll Ratio for Classification 2586, and 18

21 7. The footnotes to Classifications 2586(1), 2589 and 2585 include the qualifying term walk-in that is not needed and could be subject to misinterpretation. Recommendation The WCIRB does not recommend that Classifications 2586 and 2585 be combined for ratemaking purposes for the following reasons: (1) such action would have a substantial impact on firms (commercial dry cleaners) currently assigned to Classification 2586; (2) although Classification 2586 does not develop enough data to produce a fully credible (100% indemnity and medical) advisory pure premium rate, sufficient data exists to produce an advisory pure premium rate that is not considered to be low credibility by WCIRB actuarial standards; and (3) recent year to year ( ) payrolls and losses for commercial dry cleaners are increasing. In view of the lack of full statistical credibility, the WCIRB will periodically review the ratemaking data developed by commercial dry cleaners and recommend appropriate action if the statistical credibility of Classification 2586 falls below acceptable levels. The WCIRB recommends that separate advisory pure premium rates be developed for Classifications 2586(1) and 2589 effective January 1, 2013, and that Classifications 2586(1), 2589 and 2585 be amended to delete the conditional term walk-in. 19

22 Report on Commercial Dry Cleaning or Dyeing and Retail Dry Cleaning or Laundry 2586(1), Dry Cleaning or Dyeing N.O.C. including repairing or pressing, and cash and carry departments on plant premises 2586(2), Yarn or Thread Dyeing or Finishing no yarn or thread manufacturing 2586(3), Hide or Fur Cleaning, Processing or Preserving 2589, Dry Cleaning or Laundry retail including repairing or pressing, and cash and carry departments on premises 2585, Laundries N.O.C. all employees including cash and carry departments on plant premises Introduction The WCIRB has reviewed the procedure of combining, for ratemaking purposes, the experience of Classification 2586(1), Dry Cleaning or Dyeing N.O.C., and Classification 2589, Dry Cleaning or Laundry retail. Typically, classifications are combined for ratemaking purposes for the following reasons: 1. Similarity in Operations Classifications are combined for ratemaking purposes when the proper classification may be difficult to determine due to a significant similarity in operations, for example, a clear line of delineation does not exist between the two classifications. 2. Low Statistical Credibility The experience of two or more classifications is combined for ratemaking purposes when one or more of the classifications lack statistical credibility. Although the classifications may be clearly defined, due to insufficient statistical credibility, the classifications are combined based on similarity in industry type and operations. 3. Temporary Variance in Experience There is a temporary dissimilarity in the relative experience of two related classifications that results in a relationship between the relativities for the classifications that is not expected to continue into the future. Classification History Following is the history of Classifications 2586 and 2589: 1915: Classification 2583, Cleaning and Dyeing, was established to contemplate cleaning or dyeing of garments and linens for customers on a fee basis. 1949: Classification 2583 was eliminated and Classification 2586(1), Cleaning and Dyeing including repairing or cash and carry departments on plant premises, was established. 1970: Classification 2416, Yarn or Thread Dyeing, was eliminated and Classification 2586(2), Yarn or Thread Dyeing, was established as a cross reference to Classification 2586(1). 1997: The Classification and Rating Committee (Committee) reviewed a study of the classification procedure for retail dry cleaning establishments that also perform traditional laundering activities. This resulted in the establishment of Classification 2589, Dry Cleaning or Laundry retail including repairing or pressing, and cash and carry departments on plant premises, and Classification 2586 was amended to include the term dry cleaning. The removal of the retail businesses from Classification 2586 due to the establishment of Classification 2589 resulted in low statistical credibility for Classification 2586; therefore, Classifications 2586 and 2589 were combined for ratemaking purposes. This ratemaking procedure has not been reviewed since