HEADWINDS FOR CALIFORNIA WORKERS COMPENSATION: TAKING THE HELM

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1 HEADWINDS FOR CALIFORNIA WORKERS COMPENSATION: TAKING THE HELM February 2012 Colleen Britz Managing Director Tom Cammann Managing Director Jay Wesley Managing Director Los Angeles, CA

2 Headwinds for California Workers Compensation: Taking the Helm Today s agenda What s driving California workers compensation cost increases? How do you best position your company for renewal negotiations? Optional program structures: Do they make sense for your company? What are the must do strategies to reduce the number and cost of claims? 1

3 California Workers Compensation Insurers Results 184% 22% 21% 167% 20% 143% Other expenses Loss adjustment expenses Losses 21% 18% 128% 128% 100% 141% 126% 18% 107% 112% 16% 14% 82% 79% 15% 12% 52% 57% 55% 14% 14% 9% 10% 34% 31% 69% 16% 12% 41% 90% 18% 15% 57% 110% 20% 18% 72% 22% 22% 23% 24% 83% 82% Source: WCIRB as of June 30, 2011 accident year data 2

4 California Workers Compensation Indemnity Claims Cost Trends ($000s) Medical Indemnity Excludes medical-only claims Source: WCIRB as of June 30,

5 California Workers Compensation Rate Trends (per $100 payroll) $2.31 $2.96 $0.65 $ Industry average charged rate 2010 Theoretical break even industry average charged rate 1/1/2011 3/31/2011 Industry average charged rate Source: WCIRB June 30, 2011 Summary of Insurer Experience and January 1, 2012 Pure Premium Rate Filing 4

6 How Do You Best Position Your Company For Renewal Negotiations? Plan ahead Conduct off cycle meetings with underwriters and underwriting managers Engage with your insurer or prospective insurers! They should know: - your risks as well as you do - your operations - your loss trends, safety programs, risk management practices - your financial goals, strengths, and soft spots In some cases, insurance company senior leadership should be engaged. Anticipate that carriers will require more detailed underwriting information. Understand market cycle in real time hard markets are fluid! The market may be moving faster (or slower) than originally thought 5

7 How Do You Best Position Your Company For Renewal Negotiations? (Continued) Know your losses Solid loss projections by line of coverage, are critical negotiating tools. Understand the program alternatives and what the trade-offs are. Understand the cash flow implications of various program types Understand the potential impact of Collateral and manage the process accordingly. Understand how to manage your losses from a pre-loss and post-loss perspective 6

8 Optional Program Structures: Do They Make Sense For Your Company? 7

9 Optional Program Structures: Do They Make Sense For Your Company? (Continued) Retrospectively rated programs Deductible programs Low deductible Pre-funded deductible Paid deductible Group purchase / Association programs Captive programs Rent-a-captive Group captive Single parent captive Qualified Self-Insurance Self-insurance groups 8

10 Optional Program Structures: Do They Make Sense For Your Company? (Continued) Questions you need to ask: How much risk and volatility can you comfortably assume? Are you comfortable committing capital (cash or LOC) to support your future payment obligations? Are you willing to insure other companies risk? 9

11 What Are The Must Do Strategies To Reduce The Number And Cost Of Claims? Pre-Loss Strategies Hire and train the right employees Monitor & address both frequency & severity Risks identified & prioritized Understandable metrics communicated frequently Clear lines of accountability 10

12 What Are The Must Do Strategies To Reduce The Number And Cost Of Claims? Post-Loss Strategies Prompt reporting (Zero lag) Return-to-Work program Early intervention / Medical direction Post-loss communication Timely, thorough investigations 11

13 Contact Us Colleen Britz, Managing Director, Casualty Risk Control Tom Cammann, Managing Director, Casualty Practice Jay Wesley, Managing Director, Casualty Risk Control

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