California Workers Compensation. Where Do We Go Now?

Transcription

1 California Workers Compensation [1] Where Do We Go Now? Presented by: Dave Bellusci, FCAS, MAAA WCIRB of California 2010 CAS Spring Meeting San Diego, California May 23-26, 2010

2 Agenda 2002 through 2004 Reforms Current Market Outlook Looking Forward

3 2002 Through 2004 Reforms AB 749 Enacted in February year phase-in of benefit increases Primary treating physician presumption repealed AB 227 & SB 228 Enacted in September 2003 Medical fee schedules Medical utilization standards Vocational rehabilitation eliminated SB 899 Enacted in April year cap on temporary disability New permanent disability schedule Medical provider network system

4 Combined Impact of 2002 through 2004 Reforms WCIRB Prospective Estimate: -49% (-$10 bb.) Major Effect on Loss Development Size of Loss Distribution Also Affected WCIRB Retrospective Estimate: -66% (-$14 bb.) Bickmore & Associates 2006 Study Estimated annual savings: $8 billion to $15 billion Estimated savings on pre-1/1/04 claim reserves: $6 billion to $11 billion

5 California Vs National Median Rate Per $100 of Payroll $6.00 $6.42 $6.08 California National Median $5.23 $4.00 $3.34 $4.13 $2.26 $2.58 $2.37 $2.48 $2.72 $2.26 $2.70 $2.00 $0.00 1/1/00 1/1/02 7/1/03 1/1/04 1/1/06 1/1/08 1/1/09 Estimated Estimated Rate Effective Period National median rates based on State of Oregon studies.

6 Permanent Partial Disability Claims Per 100,000 Workers PD Claims per 100, 000 workers based on NCCI 2005 Annual Statistical Bulletin (Policy Year 2001) 1,200 1, California PY 2001 Florida PY 2001 New York PY 2001 Pennsylvania PY 2001 Texas PY 2001 Countrywide PY 2001 Countrywide PY 2005 California PY 2006

7 Medical Cost Growth California WC Claim Severity Vs. Group Health Premiums 25 % Change As of December 31, 2009 California WC Medical on Indemnity Claim Severity Group Health Average Premium Increases Year Group health cost information from California Employer Health Benefits Survey published by the California Healthcare Foundation, December 2009.

8 Agenda Impact of 2002 through 2004 Reforms Current Market Outlook Premiums & market shares Recent CDI pure premium rate decisions Loss experience Recent judicial decisions related to permanent disability Insurer results

9 Written Premium Net of Deductible Credits 20 $ Billions Calendar Year preliminary

10 Components of 16% Decline in 2009 Earned Premium Approximate Effect in Percentage Points Change in Average Rate Level Reduced Total Wages Shifts in California Industrial Mix Audit Premiums on 2007/08 Policies 2009 Average X-Mod

11 Market Concentration Ratios 100 % Top 5 Insurers Top 6th to 10th Insurers Top 11th to 20th Insurers Preliminary Calendar Year

12 State Fund Market Share (Net of Deductible Credits) % 100 Private Insurers State Fund Calendar Year Preliminary

13 Recent WCIRB Filed Pure Premium Rate Changes 30 % Change WCIRB Filed CDI Actuaries Recommended Commissioner Approved /1/08 1/1/09 7/1/09 1/1/10 Rate Effective Date

14 Average Insurer Rate per $100 of Payroll 8.00 $ Dollars /03-12/03 7/04-12/04 7/05-12/05 1/07-6/07 7/07-12/ Policy Year

15 Ratio of Insurer Rates to Pure Premium Rates Policy Year

16 Inadequacy/Redundancy in Pure Premium Rates % /1/06 7/1/06 1/1/07 7/1/07 1/1/08 Approved Pure Premium Rates Effective

17 Change in Claim Frequency California vs. NCCI States % Change in Indemnity Claim Frequency As of December 31, California NCCI States Accident Year NCCI estimates are based on May 6, 2010 State of the Line Presentation (2009 estimate is preliminary).

18 Estimated Change in Indemnity Claim Frequency 15 % Change As of December 31, 2009 Frequency change per dollars of on-level premium Frequency change per worker Accident Year

19 Ca. Employment Growth Based on UCLA Data % Construction Manufacturing Education & Health All Sectors Combined Year

20 Estimated Indemnity Loss per Indemnity Claim $35,000 As of December 31, 2009 $20,000 $21,687 $20,867 $18,944 $17,380 $14,729 $22,749 $21,630 $19,699 $15,679 $13,329 $17,271 $15,504 $18,375 $18,729 $5, % Change Accident Year

21 Estimated Medical Loss Per Indemnity Claim $ Dollars As of December 31, ,083 37,285 35,000 33,558 29,637 24,300 27,216 27,613 26,111 24,414 25,468 21,847 20,000 18,910 13,031 15,690 5, % Change Accident Year

22 Ogilvie & Almaraz/Guzman WCAB Decisions Pre-Reform California PD Costs Among Highest Reforms Reduced PD Costs by Two-thirds Multiple Challenges to PD Reforms Ogilvie Decision Future Earnings Capacity (FEC) adjustment rebuttable if can show by wage study that injured worker s wage loss outside range reflected in applicable FEC factor Almaraz/Guzman Decision AMA Guides impairment is rebuttable if a more accurate measure of impairment can be determined from other sections of the AMA Guides

23 Ogilvie & Almaraz/Guzman Initial WCIRB Cost Evaluation +5.8% Overall Estimated Cost Impact +2.0% impact from increased ratings on currently ratable PD claims +0.8% from increased proportion of lost-time claims involving PD +1.7% from increased claim frequency +0.8% from increased frictional costs Actual Cost Impact Could be Significantly Higher

24 Ogilvie & Almaraz/Guzman WCIRB Cost Evaluation Update Each Component of Estimate Re-assessed Re-calculation based on updated cost distributions Review of post-wcab decision indicators Impacts of Decisions Already Partially Reflected in Permanent Disability Costs Loss development projections adjusted

25 Ogilvie & Almaraz/Guzman Impact on Settlements % increase in settlement costs on post March 1, 2009 settlements by age at settlement All 0-1 Year 1-2 Years 2-3 Years 3-4 Years 4-5 Years Age at Settlement in Years

26 Average Disability Evaluation Unit (DEU) PD Rating % 35 All DEU Ratings DEU Ratings with Almaraz/Guzman Adjustment /1/08 to 3/1/09 3/1/09-10/31/09 11/1/09-12/31/09

27 Proportion of Indemnity Claims Involving Permanent Disability 60 % Accident Year Preliminary Source: WCIRB unit statistical data.

28 . California Accident Year Combined Loss and Expense Ratios % As of December 31, Other Expenses LAE Losses Accident Year Preliminary

29 California Return on Net Worth 20 % Fortune Magazine - All Industry Total All Lines All States California Workers' Compensation Calendar Year Source: NAIC Report on Profitability by Line by State in Year Arithmetic Average Return California Workers Compensation 3.5% All Property Casualty Lines & States 5.4% Fortune Magazine All Industry 12.0%

30 Estimated Ultimate Losses Less Reported Losses $ Billions As of December 31, Evaluation Year-ends

31 Agenda 2002 through 2004 Reforms Current Market Outlook Looking Forward

32 Looking Forward Pricing & Premiums Many insurers have filed for rate increases Average final rates have thus far remained flat Slowly rebounding economy 2010 premiums not likely to increase sharply Claim Costs Long-term frequency declines may moderate Level of severities changes uncertain Full impact of WCAB decisions still unknown

33 Looking Forward Insurance Market 2009 results deteriorating Inadequate pure premium rates State Fund market share declining Legislation/Regulation No major legislation likely in 2010 Potential medical fee schedule changes New administration in 2011