2013 National SIIA Conference. Areas I will touch on today

Transcription

1 2013 National SIIA Conference W5: National Regulatory and Workers Compensation Market Update Presented by Tom Hebson Safety National Casualty Corporation October 23, 2013 Areas I will touch on today 1. Overall Market comments and how these issues potentially impact the self insured marketplace 2. Highlight recent legislation (IL-SB2339, MO-SB1, CA-SB863, OK-SB1062) 3. Prime Tanning case 4. Federal Regulations TRIA, ACA Impact of SCHIP and MSA 5. Medical Inflation on Larger Claims and some of the issues driving the increases Safety National Casualty Corporation 1

2 Market overview Workers Compensation Results in 2012 were better than 2011 (109 vs 115) Rate increases in the WC line averaged 9% in 2012 on top of the 8% average in First half of 2013 has shown about a 9.6% increase in rates The residual market has grown from 5% to 7% this past year with indications of continued growth in Combined ratio in the residual market was approximately 112%. Availability of Excess WC options has remained stable this past year although there may be some issues as carriers struggle with low investment yields and the long tail nature of this business niche Major concerns with continued Medical Costs and related expectations has also created a tighter approach to retentions both on a specific and aggregate basis. Aging workforce impact Investment return Yields on typical investments ( i.e. U.S. Treasury Yield on 9/30/2010 was 1.27 for 5 years and 2.53 for 10 years. As of 10/4/2013, these yields were 1.41 and 2.66 respectively) not much progress and earlier this year these returns were less than1.00 and 2.00 respectively. Industry information CA SB863 major provisions Major Provisions specific to SB 863 are: 1) Increases permanent disability (PD) benefits by about $740 million per year, with a two year phase-in, and removes future earning capacity for PD calculations; 2) Eliminates cost-driver sleep disorder, sexual dysfunction, and psychological add-ons; 3) Changes the medical fee schedule to Medicare-based RBRVS from the current official medical fee schedule; 4) Establishes fee schedules for ambulatory surgical centers, copy services and translators; 5) Eliminates double billing for implantable surgical hardware; 6) Removes medical decisions from workers compensation administrative judges; 7) Provides for an independent medical review (IMR) process similar to that used in managed health care; 8) Streamlines medical provider network (MPN) process to encourage usage and from moving outside of MPNs, and simplifies the MPN approval process; and, 9) Imposes limitations on use of liens, and establishes lien filing fees. 10) Establishes revised security requirements for SIG s and non eligible ISI s. (not eligible for the SISF program). WCIRB 2

3 IL SB2339 Requires Joint Self Insurance Pools to provide an annual audit performed by an independent CPA. Requires the pool to submit an annual actuarial reserve study opinion by an actuary that is either an associate or fellow in the Casualty Actuarial Society.* Both of these reports must be submitted within 150 days from the end of the pools fiscal year. * The pool may submit an actuarial opinion from the provider of the Joint pool s Aggregate coverage, reinsurance or other similar excess insurance coverage. Safety National Casualty Corporation OK SB1062 the OK Option Creates Administrative dispute resolution system vs. WC civil court (one of last 3 states with this system). Revamps the indemnity benefit system to make it more predictable and easier to administer without the need for attorney involvement. Develops a new Opt-out option for employers (aka-non subscriber) that has minimum benefit level requirements and includes exclusive remedy rule. OK Industry Information 3

4 MO SB1 Second Injury Fund focused PPD Payments Eliminated from the SIF PTD Payments not addressed as they relate to SIF New Fund to be created for specific occupational diseases (9) and guarantee payments of approximately $150,000 per claim for other than Mesothelioma, and up to $500,000 for the latter. There is an opt out provision for employers for Mesothelioma. SIF employer surcharge doubles from 3% to 6%. Allows establishment of separate EL Trusts as EL is not included in the definition of coverage lines for Self Insured Trusts. MMMA and Industry TRIA Set to expire December 31, 2014 Very active interaction with key political advocates. Potentially impacts WC greatest due to the mandatory nature of acceptance. Last renewal went down to the wire. General misunderstanding of program as an entitlement, not a backstop. Many current congressional members were not in place during the last renewal and educating them is taking time given all of the other issues percolating in Washington D.C. Lack of renewal could start impacting renewal appetite if congress signals any pullback from the renewal of TRIA. SIIA and PCI 4

5 The Affordable Care Act (ACA) Uncertainty Ahead? Issues related with adequate medical treatments and experts being available over the next years. Growing utilization of the medical system with new entrants and an aging workforce. Movement away from a rural operations to urban operations. Workforce shifts (FT to PT) or reductions in overall payrolls. Shift of financial resources from Risk Management to ACA expenditures or, if opting out, associated fines/taxes. ICD-10 adding 120,000 new codes to treatment explanations. Industry Other Trends Alternative Collateral Program (ACP) for Self Insured s States want more security for SI s and one approach has been to develop the ACP. Both CA and NC currently have this in place and it is a financially underwritten premium vs LOC, or other collateral, program. Both WA and MN have been approached to consider this potential option. Industry 5

6 Other Trends Education and planning The regulatory industry has seen its workforce reduced in the past years with tight budget controls. Average age of high level regulators =51- over 75% estimated to be older than 45. Approximately 15% are over 60. Succession planning integrated with educational forum is a priority with many regulators. IAIABC Presumption Laws 32 States currently have some type of presumptive law on the books. Aging workforce and underfunded pensions could impact pricing, availability and overall terms of coverage in the future. IAIABC data 6

7 Prime Tanning Bankruptcy case where the SI Security was being attacked by the credit holders. Case was ultimately settled where the SI Security was not released to the debt holders. This was a potential hit on SI if the Security had been allowed to be utilized for debt repayment. NCCI and BLS data utilized Our Aging workforce => 65 years old 2006 Study from NCCI focused on the age band of Events since then have sparked new research into the claims for persons that are 65 or older. Persons 65 or older comprise about 4% of the total Private Industry workforce. This is an increase of about 50% from the late 1980 s In 2011, over 60% of the workforce was 35 or older Claims for 65 and older are slightly less than the employment ratio. Highest Claims to employment ratios are 20-24; 35-44: and, Recent Economic trends have spurred the growth in employment of many workers 65 and older NCCI and BLS data utilized 7

8 65 Years and Older Claims Overview* For workers 65 and older, most of their loss is medical vs. indemnity (usually lower AWW = <$500) and their Frequency is less than the averages. Some notable claim observations are: Falls/Slips/Trips are the greatest cause of injury Medical Severity is higher (this includes the age band as well). Average is above $11,000 per claim. Leading industries for claims are Leisure, Hospitality, Food Preparation and Service occupations (including sales and related operations) Next Major causes of loss are Strains, struck by and Motor Vehicle Accidents (65 and older is actually above the average in this cause of loss) Workers Age 65 and older have a higher share of injuries involving fractures, concussions and other bodily trauma. Median days away from work has in the past exceeded 17 days, the highest among all age groups * NCCI and BLS data utilized Medical Inflation Impact on large claims The impact of medical inflation on large and catastrophic claims may impact future deductibles and retentions. If a current large claim is valued at $750,000 and 60% of the claim is medical cost, then approximately $450,000 cost is associated with medical. If that same claim happens 2 years from now, and there is 8% medical inflation per year, then the approximate claim value of that claim is close to $825,000 and the medical portion would be approximately $525,000. The unknown future impact of ACA on long tail injuries and treatment may affect medical trends - In reality, at some point the insurance carrier either has to raise their overall premium to cover this inflation, raise retentions or deductibles or both. This is an issue that more and more is being reviewed in the workers compensation line of business marketplace. - SEE Exhibit 1 that outlines the trend from 2000 YE 2010! Industry Data 8

9 NCCI and BLS data utilized AIG 10-K (Filed 2/23/2012) This class of business has an extremely long tail and is one of the most challenging classes of business to reserve for because it is highly sensitive to small changes in assumptions in the rate of medical inflation or the longevity of injured workers, for example which can have a significant effect on the ultimate reserve estimate. Furthermore claims estimates for this line are highly sensitive to: the assumed future rate of inflation and other economic conditions in the United States; changes in the legal, regulatory, judicial and social environment; the expected impact of recently enacted health care reform on workers' compensation costs; underlying policy pricing, terms and conditions; claims settlement trends that can materially alter the mix and ultimate cost of claims; changes in claims reporting practices of insured s and third-party administrators; the cost of new and additional treatment specialties, such as "pain management"; changes in injured worker longevity; and territorial experience differences (across states and within regions in a state). AIG 10K 9

10 Major Medical Cost Drivers Medical Inflation in the Workers Compensation line of business has become a number one concern based on the long tail nature of this business. Conversationally, major issues include: Use of Opioids and other Pharmaceutical delivery such as compounding or repackaging Comorbidities including: Diabetes related health issues Obesity (on its own and in conjunction with Diabetes) New Medical Technology Government Regulation (SCHIP, MSA, ACA) Medical Profession overload Industry, NCCI and BLS data utilized Questions? Thank you! Tom Hebson Safety National Casualty Corporation NCCI and Safety National Casualty Corporation 10