FLORIDA September 13, 2016 Chris_Bailey@ncci.com 850-322-4047 Jay_Rosen@ncci.com 561-893-3062
Opening Remarks State of the Economy Florida and Countrywide Outlook and Observations Florida Law-Only Filing Claim Frequency and Severity Guest Speaker: Deputy Chief Judge David Langham Workers Compensation Legislation Judicial Issues Florida Workers Compensation State Advisory Forum Q & A Closing Remarks 2
Adverse Court Decisions Rate Uncertainty Modest Premium Growth Unfunded Liability 3
Nationwide Economic Outlook
National Economic Highlights and Their Impact on Workers Compensation National Economic Indicator Private employment is expected to continue to grow slowly Wage growth is poised to accelerate Medical inflation is trending up In December 2015, the Federal Reserve began raising the federal funds rate Potential Impact on the Workers Compensation Market Premium increases from higher payroll and higher expected claim frequency for new workers Upward pressure on payroll and premium as well as indemnity severity Increased pressure on medical costs per claim Higher interest rates mean better returns on invested funds 5
Forecast Is for Continued but Slowing Growth Near 2% in the Private Sector Annual Growth Rate Percent 3 US Private Employment Growth 2 1.8 2.2 2.0 2.2 2.4 2.0 1.8 1 0 2011 2012 2013 2014 2015 2016f 2017f f Forecast Private Nonfarm Employment Frequency of observation: annual; latest historical data point: 2015; forecast years: 2016 and 2017 Sources: US Bureau of Labor Statistics (BLS) and Moody s Analytics 6
Annual Growth Rate Percent 5 Wages Are Forecast to Accelerate Significantly by 2017 US Average Weekly Wage Growth 4 4.4 3 3.0 2.8 3.1 3.1 3.5 2 1 1.1 0 2011 2012 2013 2014 2015 2016f 2017f f Forecast Wages are for Total Private Industry Frequency of observation: annual; latest historical data point: 2015 (preliminary); forecast years: 2016 and 2017 Sources: US Bureau of Labor Statistics (BLS), Moody s Analytics, and NCCI 7
The US Unemployment Rate Continues to Decline, but Is Higher When Marginally Attached Workers Are Included Percent 20 US Headline Unemployment Rate and U-6 15 10 5 U-6 Unemployment Headline Unemployment 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 U-6 measures the number of the unemployed, the marginally attached, and the part-time for economic reasons Headline (official) Unemployment Rate and U-6 are seasonally adjusted Frequency of observation: monthly; latest available data point: June 2016 Sources: Moody s Analytics and US Bureau of Labor Statistics (BLS) 8
Percent 4 Medical Inflation Is Forecast to Accelerate This Year and Next US Medical Consumer Price Index Growth Rate 3 2 3.0 3.7 2.5 2.4 2.6 3.4 3.3 1 0 2011 2012 2013 2014 2015 2016f 2017f f Forecast Medical Care Consumer Price Index, Urban Consumers Frequency of observation: annual; latest historical data point: 2015; forecast years: 2016 and 2017 Sources: US Bureau of Labor Statistics and Moody s Analytics 9
Interest Rates Are Expected to Increase in 2017 10-Year Treasury Notes Percent 4 3 2 3.0 2.3 2.6 2.4 2.9 1 1.6 1.6 0 2011 2012 2013 2014 2015 2016 2017f f Forecast Frequency of observation: interest rate as of June; latest historical data point: June 2016 Sources: Federal Reserve Board and Moody s Analytics 10
How Does the Florida Economy Compare?
Change in Private Employment Private Employment Growth Is Above Average Percent 5 May 2014 May 2015 May 2016 4 3 3.8 3.9 3.4 2 2.1 2.4 1.9 1 0 Florida United States Private Nonfarm Employment, seasonally adjusted Frequency of observation: monthly; latest available data point: May 2016; percentage change for the 12 months ending each May Source: US Bureau of Labor Statistics (BLS), www.bls.gov 12
Change in Private Employment Comparison of Private Employment Growth Across States 13 Private Nonfarm Employment, seasonally adjusted Frequency of observation: monthly; latest available data point: May 2016; percentage change for the 12 months ending May 2016 Source: US Bureau of Labor Statistics (BLS), www.bls.gov 13
Change in Employment by Industry Employment in Most Industries Has Increased in the Past 12 Months Industrial Sector 12-Month Percent Change, May 2016 Sector Size % Share 12-Month Change Construction Leisure and Hospitality Education and Health Services Professional and Business Services Financial Activities Manufacturing Other Services Trade, Transportation, and Utilities Government Natural Resources and Mining Information FL +6.9 455,000 5 +29,400 US +3.4 FL +4.4 1,171,800 14 +49,300 US +2.5 FL +3.9 1,240,200 15 +46,200 US +3.0 FL +3.7 1,260,300 15 +45,300 US +2.7 FL +3.5 551,600 7 +18,900 US +2.0 FL +3.2 351,800 4 +10,900 US 0.3 FL +2.4 337,900 4 +7,900 US +1.0 FL +2.0 1,710,500 21 +34,300 US +1.6 FL +1.4 1,094,100 13 +14,900 US +0.5 FL 1.7 5,800 0 100 US 15.4 FL 2.3 133,200 2 3,100 US 0.1 Percentage change for the latest 12 months as of May 2016 Current Employment Statistics Survey, seasonally adjusted; frequency of observation: monthly Source: US Bureau of Labor Statistics (BLS), www.bls.gov 14
Change in Average Weekly Wages Wage Growth Is Above the Rest of the Nation Percent 4 2013 2014 2015 3 2 2.7 3.4 3.1 3.1 1 1.1 1.1 0 Florida United States Wages are for Total Private Industry Frequency of observation: annual; latest available data point: 2015 (preliminary) Source: US Bureau of Labor Statistics (BLS), www.bls.gov 15
Headline Unemployment Rate The Unemployment Rate Is the Same as the National Average Percent May 2014 May 2015 May 2016 8 6 4 6.3 6.2 5.4 5.5 4.7 4.7 2 0 Florida United States Headline Unemployment Rate, seasonally adjusted Frequency of observation: monthly; latest available data point: May 2016 Source: US Bureau of Labor Statistics (BLS), www.bls.gov 16
Florida s Economic Highlights Florida s unemployment rate is equal to the US rate Employment growth is above the US rate: Construction posted the largest percentage increase with growth twice the national pace Leisure and Hospitality, Education and Health Services, and Professional and Business Services are other top-performing sectors, with each adding more than 45,000 jobs over the past year Natural Resources and Mining and Information have declined Florida wage growth is above the US average 17
State of the Industry
State of the Workers Compensation Market Combined ratios: Underwriting gains achieved on both calendar year and accident year bases Net written premium volume increased for the fifth consecutive year Lost-time claim frequency again decreased Lost-time claim severity changes were small increasing for indemnity and decreasing for medical 19
Countrywide Workers Compensation Net Written Premium Growth Continued Private Carriers and State Funds $ Billions 50 State Funds ($B) 47.8 45.5 44.2 40 Private Carriers ($B) 30 20 37.8 38.5 39.7 10 0 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15p Calendar Year p Preliminary Source: NAIC s Annual Statement data Includes state insurance fund data for the following states: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, and UT Each calendar year total for state funds includes all funds operating as a state fund in that year 20
Florida s Workers Compensation Premium Volume Direct Written Premium ($ Billions) 2.486 0.692 2.863 0.850 3.210 0.913 3.552 3.645 1.015 1.020 1.794 2.013 2.297 2.537 2.625 2011 2012 2013 2014 2015p Private Carriers Self-Insured p Preliminary Source for Private Carriers: NAIC s Annual Statement data, state page, line 16 Workers Compensation 21
Percent 125 120 Countrywide Workers Compensation Combined Ratio Underwriting Gain Achieved Private Carriers 115 110 4% lower 105 100 100 95 90 93 94 85 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15p Calendar Year p Preliminary Source: NAIC s Annual Statement data 22
Percent Countrywide Workers Compensation Combined Ratio Components Private Carriers 1 1 Dividends 24 25 Underwriting Expense Ratio 15 14 Loss Adjustment Expense (LAE) Ratio 55 59 60 54 Loss Ratio 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15p Calendar Year p Preliminary Source: NAIC s Annual Statement data 23
Countrywide Workers Compensation Net Combined Ratios Calendar Year vs. Accident Year as Reported Private Carriers 130 120 110 100 90 100 97 98 94 80 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015p Calendar Year Accident Year p Preliminary Source: NCCI s analysis based on NAIC s Annual Statement data; Accident Year information is reported as of 12/31/2015 Includes dividends to policyholders 24
Florida Combined Ratios Workers Compensation Private Carriers + Self-Insured 124% 115% 106% 98% 96% 2010 2011 2012 2013 2014 Accident Year Sources: NCCI s financial data and NAIC s Annual Statement data 25
Florida Workers Compensation Joint Underwriters Association (WCJUA) Written Premium $ Millions 80 60 40 20 0 42.1 29.7 32.9 25.2 29 14.2 17.1 6.4 6.1 9.6 1.2 06 07 08 09 10 11 12 13 14 15 16* Calendar Year *Projected Source: Florida Workers Compensation Joint Underwriting Association, Inc. 26
Residual Market Share Calendar Year 2015 Percent 25 22.4 20 15 10 5 0 0.6 1.0 ID FL AL IL DC WV SC NC IA NM CT AZ, SD GA, MI OR NV VA KS AR NH VT DE NJ AK MA Data is evaluated as of 12/31/2015 27
Florida WCJUA Policy Count Thousands 6 5 4 3.9 3 2.6 2.3 2.4 2.5 2 1 1.7 0.9 0.8 0.9 1.3 1.8 0 06 07 08 09 10 11 12 13 14 15 16* Calendar Year *Projected Source: Florida Workers Compensation Joint Underwriting Association, Inc. 28
Residual Market Policy Count Policy Year 2015 Thousands 50 40 39.2 30 20 10 0 0.7 2.4 ID DC AL SD FL DE WV MS NM VT IA NV NH TN AZ AR AK KS IN OR SC CT VA GA NC IL NJ Data is evaluated as of 12/31/2015 29
Rate/Loss Cost Statistics
Florida s Historical Rate Changes Percent 25.0 Emma Murray-Related 19.6 15.0 12.9 5.0 2.5 0.0 2.7 No Filing 0.0 6.4 7.8 8.9 6.1 0.7-5.0-5.1-6.0-6.8-4.2-0.7-5.2-1.9-15.0-14.0-13.5-15.7-18.4-18.6-25.0-35.0 Cumulative 10/2003 1/2016: 60.3% *Pending Calendar Year 31
Countrywide Workers Compensation Approved Changes in Bureau Premium Level By Effective Year for NCCI States Percent 5 Cumulative Change of 20.1% (1999 2016p) 0-5 -4.5-3.4-10 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16p Calendar Year p Preliminary Bureau premium level changes reflect approved changes in advisory rates, loss costs, assigned risk rates, and rating values, relative to those previously approved in NCCI states only; IN and NC are filed in cooperation with state rating bureaus 32
NCCI Voluntary Market Filing Activity Number of State Loss Cost/Rate Filings by Filing Season 30 27 19 19 15 10 7 1 1 1 0 0 2013/2014 Season 2014/2015 Season 2015/2016 Season 2016/2017 Season Less Than 0% No Filing 0% and Greater 33
-14.8-14.7-12.9-12.8-12.8-10.2-9.9-9.9-9.0-8.4-8.2-7.9-7.5-6.6-6.2-5.5-5.5-5.5-5.0-4.7-4.7-4.3-3.9-3.7-3.7-3.4-2.7-2.5-2.4-1.3-1.2 0.1 0.2 1.3 2.5 2.5 2.6 2.8 Current NCCI Voluntary Market Loss Cost/Rate Level Changes Percent Excludes Law-Only Filings 15 10 5 0-5 -10-15 -20-25 OKWV IL AZ TN NC MD TX NH KS AL MS RI OR NM AK NV VA KY FL IA AR CT DC MO MT LA UT CO SD NE ME ID HI IN SC VT GA Approved Pending Reflects the most recent experience filing in each jurisdiction Due to the timing of the individual loss cost/rate filings, the figures shown may include changes from prior filing seasons 34
Florida Workers Compensation October 1, 2016 Law-Only Rate Filing Overview 35
Components of the Rate Indication Component Impact Castellanos (First-Year Impact) +15.0% Medical Fee Change (SB 1402) +1.8% Westphal +2.2% Overall: +19.6% $714M (19.6% x $3.645B) Figures are multiplicative, not additive 36
Proposed Implementation of the October 1, 2016 Rate Filing The combined impact of the filing components is +19.6% NCCI proposes that the increased rates will apply to new and renewal policies that are effective on or after October 1, 2016 Additionally, NCCI proposes that the increased rates will apply to all policies in effect on October 1, 2016, on a pro-rata basis through the remainder of the term of these policies 37
Florida History 2001 to 2002 2004 2007 2010 2003 to to to 2016 2006 2009 2016 FL 1st/2nd Highest Rates Economic Boom Economic Bust SB 1402 SB 50A Economic Recovery HB 1803 and SB 108 Post SB 50A Reform Period Emma Murray Castellanos 8 HB 903 38
Stakeholders Believe Change in Attorneys Fees Was the Linchpin of SB 50A During the first year post-reform, stakeholders implemented other aspects of SB 50A but attorney behavior did not change. As attorney behavior started to change in the post-reform period, there was a corresponding period of four years of double-digit declines representing, in large part, the impact that changing the attorney fee schedule had on total claim costs. For example, permanent total (PT) claims were reduced, in part, because of changes to the PT statutory definition (captured in the initial pricing of SB 50A). Changing the attorney fee schedule reduced litigation activities that typically led to PT claim status (captured in years subsequent to SB 50A). 39
Castellanos v. Next Door Company Overview and Facts On April 28, 2016, the Florida Supreme Court concluded that the claimant attorney fee schedule established in Section 440.34, F.S. a sliding scale based on benefits secured is unconstitutional Applicable standard is now a reasonable fee that is, in effect, hourly fees Using the statutory fee schedule, the claimant attorney fee was $164.54 after consideration of benefits secured in the amount of $822.70 Based on the requested $350 per hour fee, the total claimant attorney fee would be $37,520 40
Similarities/Differences Between Emma Murray and Castellanos Estimates In each case, NCCI looked at similar pre-reform and post-reform time periods; however, NCCI was able to look at much more mature evaluations of data for Castellanos The Emma Murray analysis is more focused on Detailed Claim Information data The Castellanos analysis adds a review of financial data in Florida and other states to better isolate changes unrelated to reform (economy, hurricanes, etc.) 18.6% (Emma Murray) vs. 15.0% (Castellanos) is relatively close Note that the system and stakeholder behavior has continued to evolve over time, so there are different complicating factors in 2016 than there were in 2008 (e.g., Miles, new trends in drugs [repackaged, compound, etc.], and Westphal) 41
Not Considered in the October 1, 2016 Filing Impacts related to Miles v. City of Edgewater Police Department ( Miles ), declaring unconstitutional certain restrictions on claimant-paid attorney fees Other first- or subsequent-year impacts related to Castellanos or Westphal that NCCI is unable to quantify Unfunded liability 42
Unfunded Liability Statewide unfunded liability related to Emma Murray, Castellanos, and Westphal could exceed $1B Court decisions have retroactive impact on claims occurring prior to October 1, 2016, that remain open or are reopened Cost will be borne by insurance companies, individual self-insured employers, and employers with deductible policies If the filing effective date of October 1, 2016, is delayed, each month of delay would likely increase the unfunded liability in the tens of millions of dollars 43
NCCI Is Proposing No Annual Experience Filing For January 1, 2017 Data collected by NCCI would need to be supplemented to reflect the post-castellanos/ Westphal environment NCCI would need to review additional data and information from external sources as part of its ratemaking analysis NCCI does not expect that such data will become available in 2016 44
Actuarial Analysis Castellanos An examination of system costs pre- and post-sb 50A was completed Two independent data sources underlie the actuarial analysis: Financial Call data Detailed Claim Information data 45
Change in Florida s Average Pure Loss Cost (Values for Policy Year 2000 Are Indexed to 1.0) 1.2 1.0 0.8 6% decline per year (2000 2003) 0.6 SB 50A 12% decline per year (2003 2006) 0.4 2000 2001 2002 2003 2004 2005 2006 Policy Year 46
1.2 Relative Changes in Average Pure Loss Costs Florida vs. Southeastern States Region* (Values for Policy Year 2000 Are Indexed to 1.0) 1.0 0.8 0.6 Florida s pure loss cost declined approximately 25% MORE than that for the Southeastern States Region pre- to post-sb 50A 0.4 Florida Southeastern States Region 2000 2001 2002 2003 2004 2005 2006 Policy Year *Southeastern states are AL, GA, LA, MS, NC, SC, and TN 47
1.2 Relative Changes in Average Pure Loss Costs Florida vs. Gulf States Region* (Values for Policy Year 2000 Are Indexed to 1.0) 1.0 0.8 0.6 Florida s pure loss cost declined approximately 13% MORE than that for the Gulf States Region pre- to post-sb 50A 0.4 Florida Gulf States Region 2000 2001 2002 2003 2004 2005 2006 Policy Year *Gulf states are AL, LA, and MS 48
Actuarial Analysis Castellanos Financial Data Returning to a pre-sb 50A attorney fee environment and reversing these observed declines would increase Florida s workers compensation rates by the following percentages: Pre- to Post-SB 50A Southeastern States* Comparison Rate Impact Gulf States^ Comparison Rate Impact 00/ 02 to 05/ 06 +37.5% +16.7% 01/ 02 to 05/ 06 +33.4% +13.8% *Southeastern states are AL, GA, LA, MS, NC, SC, and TN ^Gulf states are AL, LA, and MS 49
Actuarial Analysis Castellanos Detailed Claim Information Data Florida s average benefit costs for claims with attorneys declined more than 25% pre- to post-sb 50A Returning to a pre-sb 50A attorney fee environment and reversing these observed declines would increase Florida s workers compensation rates by the following percentages: Pre- to Post-SB 50A Rate Impact (Excluding Expected Impact on Lost-Time Claim Frequency) 00/ 02 to 05/ 06 +16.1% 01/ 02 to 05/ 06 +15.0% 50
Actuarial Analysis Castellanos Detailed Claim Information Data In order to limit the impact that individual large claims may have on the results, a supplemental analysis was performed. The largest one percent of claims based on total incurred losses were uniformly excluded. Returning to a pre-sb 50A attorney fee environment and reversing these observed declines would increase Florida s workers compensation rates by the following percentages: Pre- to Post-SB 50A Rate Impact (Excluding Expected Impact on Lost-Time Claim Frequency) 00/ 02 to 05/ 06 +18.1% 01/ 02 to 05/ 06 +16.7% 51
Update to the Florida Workers Compensation Health Care Provider Reimbursement Manual (Ratified by Senate Bill 1402, Effective July 1, 2016) Type of Service Impact Physician +2.5% Hospital Outpatient +0.1% Impact on Medical Costs +2.6% Overall Impact on Florida Workers Compensation System Costs +1.8% 52
Actuarial Analysis Westphal The impact on Florida workers compensation costs due to an increase in the maximum temporary total disability (TTD) duration from 104 to 260 weeks was estimated Separate analyses were completed for: TTD claim durations having no permanent disability benefit payments The healing period portion of permanent impairment benefits (PIBs) Medical benefits 53
Actuarial Analysis Westphal Indemnity Benefits TTD Injuries Healing Period Portion of PIB Injuries Total Florida average claim duration 56.3 days 94.7 days Estimated increase in avg. claim duration 3.5 days 12.4 days Impact on indemnity benefit-type costs +6.2% +13.1% Impact on indemnity benefits +3.0% +3.0% +6.0% Impact on overall benefits +1.8% 54
Actuarial Analysis Westphal Medical Benefits Generally, before a claimant reaches maximum medical improvement (MMI), the goal for much of the medical care provided is to treat the underlying cause of the injury and improve the claimant s condition to MMI Hospital stays, surgeries, anesthesia, etc., are relatively more prevalent pre- versus post-mmi Generally, once MMI is reached, the bulk of the medical care a claimant receives is focused on alleviating symptoms and not necessarily treating the underlying cause Evaluation and management costs, prescription drugs, etc., are relatively more prevalent post-mmi With a delayed determination of MMI, medical costs would be expected to increase 55
Actuarial Analysis Westphal Assuming there would be no medical cost impact on TTD claims without permanent disability benefit payments, the estimated increase in medical benefits due to the Westphal decision is 0.5%, or +0.4% on overall costs. The estimated impact of the Westphal decision on overall Florida system costs is +2.2%. This is the sum of the above-described separate indemnity (+1.8%) and medical (+0.4%) component impacts. The Castellanos and Miles decisions could result in a further lengthening of claim durations and higher medical costs than currently contemplated in the Westphal pricing. Any additional increase in claim costs would be reflected in a future Florida rate filing. 56
Claim Frequency and Severity
Percent Countrywide Workers Compensation Lost-Time Claim Frequency Change in Lost-Time Claims per $1M Pure Premium Private Carriers and State Funds 10 5 0-5 -3.2-1.7-3 -10 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15p Accident Year 2010 and 2011 adjusted primarily for significant changes in audit activity p Preliminary based on data valued as of 12/31/2015 Source: NCCI s Financial Call data, developed to ultimate and adjusted to current wage and voluntary loss cost level, excludes high-deductible policies; 1994 2014: based on data through 12/31/2014 Includes all states where NCCI provides ratemaking services; WV is excluded through 2014, but included in 2015 59
Florida Workers Compensation Lost-Time Claim Frequency Lost-Time Claims Percent Change 5% 2% 0% -2% -8% -4% -8% -7% -7% -9% -6% -3% -6% -5% 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Policy Year Based on data through 12/31/2014, developed to ultimate 60
Medical Benefits Constitute the Majority of Total Benefit Costs in Florida Florida Indemnity 31% Medical 69% Region Indemnity 46% Medical 54% Countrywide Indemnity 41% Medical 59% 0% 20% 40% 60% 80% 100% Regional states are AL, GA, NC, SC, and TN Based on NCCI s financial data 61
Severity ($ Thousands) Countrywide Workers Compensation Average Indemnity Cost per Lost-Time Claim Private Carriers and State Funds NCCI States 25 +1.5% +1% 20 15 $23.2 $23.5 10 5 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p 15p Accident Year p Preliminary based on data valued as of 12/31/2015 Source: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies; 1994 2013: based on data through 12/31/2014 Includes all states where NCCI provides ratemaking services; WV is included in 2014 and subsequent 62
Severity ($ Thousands) Countrywide Workers Compensation Average Indemnity Cost per Lost-Time Claim Private Carriers and State Funds NCCI States 25 Cumulative Change in Excess of Wage Growth (1995 2015p): +23% 20 15 10 5 Cumulative Change (1995 2015p): +138% 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p 15p Accident Year p Preliminary based on data valued as of 12/31/2015 Sources: Severity: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies; 1994 2013: based on data through 12/31/2014 US Average Weekly Wage: 1994 2007 and 2012 2014, Quarterly Census of Employment and Wages; 2008 2011, NCCI; 2015p, NCCI and Moody s Economy.com Includes all states where NCCI provides ratemaking services; WV is included in 2014 and subsequent 63
Florida s Average Indemnity Severity Severity ($ Thousands) 25 20 15 19.5 13.1 15.0 10 5 0 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Policy Year Adjusted to Current Wage Level Actual Based on NCCI s financial data through 12/31/14 for lost-time claims at current benefit level and developed to ultimate 64
Florida s Average Indemnity Claim Severity Lost-Time Claim Severity in $ Thousands +5.6% +3.8% -0.2% -1.3% +1.8% +12.9% -4.4% +2.6% +2.6% +1.1% -3.0% -4.0% +0.2% -2.8% $15.0 $14.8 $14.4 $14.9 $14.5 $15.2 $14.4 $12.7 $13.1 $13.1 $13.6 $13.4 $13.5 $13.6 $13.1 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Policy Year Based on data through 12/31/2014, on-leveled and developed to ultimate 65
Average Indemnity Claim Severity in the Region Lost-Time Claim Severity in $ Thousands $36.2 $33.4 $34.0 $22.5 $15.0 $17.0 FL AL GA NC SC TN Values for all states except Florida are based on limited data Based on NCCI s financial data for lost-time claims 66
Florida s Indemnity Loss Distribution by Injury Type Florida 48% 40% 12% Region 37% 56% 7% Countrywide 31% 59% 10% 0% 20% 40% 60% 80% 100% Temporary Total Permanent Partial Permanent Total and Fatal Regional states are AL, GA, NC, SC, and TN Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist 67
Severity ($ Thousands) 35 Countrywide Workers Compensation Average Medical Cost per Lost-Time Claim Private Carriers and State Funds NCCI States 30 +3.0% -1% 25 20 15 $28.8 $28.5 10 5 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p 15p Accident Year p Preliminary based on data valued as of 12/31/2015 Source: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies; 1994 2013: based on data through 12/31/2014 Includes all states where NCCI provides ratemaking services; WV is included in 2014 and subsequent 68
Severity ($ Thousands) Countrywide Workers Compensation Average Medical Cost per Lost-Time Claim Private Carriers and State Funds NCCI States 35 30 Cumulative Change in Excess of Medical Care Inflation (1995 2015p): +55% 25 20 15 10 5 Cumulative Change (1995 2015p): +214% 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14p 15p Accident Year p Preliminary based on data valued as of 12/31/2015 Sources: Severity: NCCI s Financial Call data, developed to ultimate, excludes high-deductible policies; 1994 2013: based on data through 12/31/2014 US Medical Consumer Price Index: US Bureau of Labor Statistics Includes all states where NCCI provides ratemaking services; WV is included in 2014 and subsequent 69
Florida s Average Medical Severity Severity ($ Thousands) 40 32 30.1 32.9 24 20.2 16 8 0 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Policy Year Adjusted to Current Wage Level Actual Based on NCCI s financial data through 12/31/14 for lost-time claims at current benefit level and developed to ultimate 70
Florida s Average Medical Claim Severity Lost-Time Claim Severity in $ Thousands +7.2% -0.3% +3.7% -2.5% +5.3% +5.3% +4.8% +3.7% -0.7% +4.9% +1.1% +4.4% +2.2% +11.4% $32.9 $32.2 $30.8 $30.5 $29.1 $29.3 $28.2 $25.3 $26.0 $25.0 $25.1 $23.4 $22.3 $21.1 $20.2 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Policy Year Based on data through 12/31/2014, on-leveled and developed to ultimate 71
Average Medical Claim Severity in the Region Lost-Time Claim Severity in $ Thousands $46.6 $32.9 $34.1 $30.8 $31.5 $34.0 FL AL GA NC SC TN Values for all states except Florida are based on limited data Based on NCCI s financial data for lost-time claims 72
Florida s Medical Loss Distribution by Injury Type Florida 41% 34% 12% 14% Region 28% 50% 12% 10% Countrywide 29% 50% 9% 13% 0% 20% 40% 60% 80% 100% Temporary Total Permanent Partial Permanent Total and Fatal Medical Only Regional states are AL, GA, NC, SC, and TN Based on NCCI s Statistical Plan data for jurisdiction/claim type combinations for which three or more cases exist 73
Guest Speaker Deputy Chief Judge David Langham Florida Office of Judges of Compensation Claims and Division of Administrative Hearings
Workers Compensation Legislation What Happened, What Didn t Happen, and What s Coming
NCCI s Role in the Legislative Process Before and During the Legislative Session: Provides examples of how an issue is treated in other states Analyzes the cost impact of various options being considered and updates the impact analysis if a bill is amended After the Legislature Has Adjourned: Prepares circulars on substantive changes Makes filings if needed Files rate/loss costs to address changes when the cost impact is significant Files rule/program changes, if needed Monitors the effects of law changes after they are enacted 76
2016 Legislative Sessions CA OR WA NV ID AZ UT MT WY CO NM ND SD NE KS OK MN WI IA IL MO AR MI IN OH KY TN ME VT NH NY MA CT PA NJ DE WV VA MD DC NC SC RI MS AL GA AK TX LA HI FL States With 2015/2016 Carryover States With 2016/2017 Biennium States With No Carryover States With No Regular Session in 2016 77
Number of Requests to NCCI for Pricing of Law/Regulation Changes in the Last Five Years 172 120 136 147 107 2012 2013 2014 2015 2016* *2016 data as of 7/21/2016 78
Top Five Workers Compensation-Related Legislation Topics in 2016 First Responder Presumption Employer/Employee Definition Medical Cost Management Independent Contractors and Misclassification Exclusive Remedy 79
First Responder Initiatives Broadening the definition of a first responder: Emergency workers Law enforcement Volunteer emergency workers Firefighters Broadening the scope of covered diseases presumed compensable for first responders Clarifying terms of a rebuttal against presumption of compensability 80
Employer/Employee Definitions The employment status of volunteers Coverage election for executive officers and others Coverage for owner-operators of vehicles Excluded employments The employment status of personal care attendants and the agencies that employ them The employee status of leased and temporary workers 81
Medical Cost Management Matters Medical cost-related topics include: Requiring the development of a medical fee schedule Clarifying the applicability of a medical fee schedule Addressing utilization review practices Different types of medical fee schedules include: Physicians Hospital inpatient/outpatient Ambulatory surgical centers Prescription drugs (and drug formularies) 82
Drug Formularies States that recently instituted drug formularies: California AB 1124, effective July 1, 2017 Recent proposals that died: Nebraska LB 1005 Louisiana HB 725 Recent adoption by rulemaking/other state action: Arizona, effective October 1, 2016 Tennessee, effective August 28, 2016 Nevada guidelines (2015) Study to explore feasibility of implementation: North Carolina looking at implementation no earlier than July 1, 2018 83
Independent Contractors and Misclassification Creating or clarifying criteria for independent contractors Prohibiting the misclassification of employees as independent contractors Prescribing penalties for misclassification Establishing that drivers for Transportation Network Companies are independent contractors Defining Qualified Marketplace Contractor as an independent contractor 84
Is WC the Exclusive Remedy? Exclusive Remedy When injury stems from an abusive work environment In situations involving willful intent Under certain opt-out provisions In borrowed-employee arrangements 85
Opt-Out Measures Introduced but No Action South Carolina Employee Injury Benefit Plan Alternative (HB 4197) Tennessee Employee Injury Benefit Alternative (HB 997/SB 721) 86
Measures Calling for System Studies Two states enacted measures in 2016 calling for state workers compensation system studies: Hawaii HB 2715 calls for a closed claim study (Act 188) Utah SB 216 requires a study of hospital costs (Chapter 242) Kentucky HCR 185 creates a task force to study the state s workers compensation system and develop recommendations to enhance the system (became law without signature) Other states introduced measures calling for system studies that failed to pass: Vermont HB 803 would have created a committee to study portable employment benefits Connecticut HB 5506 would have required a study of the liability of employers for hospital services 87
2016 Law-Only Filings Alaska (Approved) 3.7% impact of medical fee schedule changes Florida (Pending) +19.6% combined impact of state Supreme Court rulings in the cases of Castellanos and Westphal combined with recently enacted medical reimbursement changes (SB 1402) Oklahoma (Approved) +3.4% impact of state Supreme Court ruling in Maxwell Tennessee (Approved) 2.7% impact of Rule 0800-02-25 (Drug Formulary and Medical Treatment Guidelines) 88
Key Takeaways Legislative activity for 2016 is about average for an election year No significant workers compensation measures have progressed Opt-out proposals in South Carolina and Tennessee have stalled The financial impact of legislation, regulations, and judicial decisions priced in 2016 on states WC systems ranged from 3.7% to +19.6% New terminology has emerged regarding the gig economy and independent contractors: Qualified Marketplace Contractor 89
Issues to Watch for in 2016 and Beyond Gig Economy Attorney Fees Exclusive Remedy Drug Formularies Opt-Out 90
Judicial Issues
Key Judicial Decisions in 2016 Castellanos v. Next Door Company The Florida Supreme court declared that the mandatory attorney fee schedule in workers compensation cases is a violation of due process and is therefore unconstitutional. Westphal v. City of St. Petersburg The Florida Supreme Court concluded that the 104 week limitation on temporary total disability benefits results in a statutory gap in benefits and is therefore unconstitutional. The decision restores the 260 week limitation that preceded the 1994 amendments to the statutes. Maxwell v. Sprint, PCS The Oklahoma Supreme Court declared as unconstitutional a provision of the state's workers compensation act that defers disability benefits for injured employees who return to work. Rodriguez v. Brand West Dairy The New Mexico Supreme Court declared that the exclusion of farm and ranch workers from workers compensation coverage is unconstitutional. 92
Key Judicial Decisions in 2016 Injured Workers Association of Utah v. State of Utah The Utah Supreme Court held that the statute granting the Labor Commission the full power to regulate and fix attorney fees in workers compensation cases, along with the mandated claimant attorney fee schedule, is unconstitutional. Vasquez v. Dillard s, Inc. The Oklahoma Workers Compensation Commission declared Opt-Out unconstitutional. Appeal to the Oklahoma Supreme Court is pending. Nebraska and Oklahoma v. Colorado The US Supreme Court refused to hear this suit regarding Colorado s legalization of marijuana. 93
Q & A
Closing Remarks Thank You!
Glossary
Glossary Assigned Risk Adjustment Program (ARAP) An assigned risk market program that surcharges residual market risks based on the magnitude of their experience rating modification. Calendar Year (CY) Experience of earned premium and loss transactions occurring within the calendar year beginning January 1, irrespective of the contractual dates of the policies to which the transactions relate and the dates of the accidents. Calendar-Accident Year (AY) The accumulation of loss data on all accidents with the date of occurrence falling within a given calendar year. The premium figure is the same as that used in calendar year experience. Claim Frequency The number of claims per unit of exposure; for example, the number of claims per million dollars of premium or per 100 workers. 97
Glossary Claim Severity The average cost of a claim. Severity is calculated by dividing total losses by the total number of claims. Combined Ratio The sum of the (1) loss ratio, (2) expense ratio, and (3) dividend ratio for a given time period. Detailed Claim Information (DCI) An NCCI Call that collects detailed information on an individual workers compensation lost-time claim basis, such as type of injury, whether or not an attorney was involved, timing of the claim s report to the carrier, etc. Direct Written Premium (DWP) The gross premium income adjusted for additional or return premiums, but excluding any reinsurance premiums. 98
Glossary Indemnity Benefits Payments by an insurance company to cover an injured worker s time lost from work. These benefits are also referred to as wage replacement benefits. Loss Ratio The ratio of losses to premium for a given time period. Lost-Time (LT) Claims Claims resulting in indemnity benefits (and usually medical benefits) being paid to or on behalf of the injured worker for time lost from work. Medical-Only Claims Claims resulting in only medical benefits being paid on behalf of an injured worker. Net Written Premium (NWP) The gross premium income adjusted for additional or return premiums and including any additions for reinsurance assumed and any deductions for reinsurance ceded. 99
Glossary Permanent Partial (PP) A disability that is permanent but does not involve a total inability to work. The specific definition and associated workers compensation benefits are defined by statute and vary by jurisdiction. Policy Year (PY) The year of the effective date of the policy. Policy year financial results summarize experience for all policies with effective dates in a given calendar year period. Schedule Rating A debit and credit plan that recognizes variations in the hazard-causing features of an individual risk. Take-Out Credit Program An assigned risk program that encourages carriers to write current residual market risks in the competitive voluntary marketplace. Temporary Total (TT) A disability that totally disables a worker for a temporary period of time. 100
Appendix
NCCI s Workers Compensation Resources Financial Aggregate Calls Used for aggregate ratemaking Statistical Plan for Workers Compensation and Employers Liability Insurance (Statistical Plan) Used for class ratemaking Detailed Claim Information In-depth sample of lost-time claims Policy Data Policy declaration page information 102
Financial Aggregate Calls Collected Annually Policy and calendar-accident year basis Statewide and assigned risk data Premiums, Losses, and Claim Counts Evaluated as of December 31 Purpose Basis for overall aggregate rate indication Research 103
Policy Year Financial Aggregate Data Policy Expiration Date Policy Year 2013 Policy Year 2014 Policy Year 2017 1/1/2013 1/1/2014 12/31/2014 1/1/2017 12/31/2017 Policy Effective Date 104
Calendar-Accident Year Financial Aggregate Data Policy Expiration Date Calendar- Accident Year 2014 Calendar- Accident Year 2015 Calendar- Accident Year 2018 1/1/2014 1/1/2015 12/31/2015 1/1/2018 12/31/2018 Policy Effective Date 105
Statistical Plan for Workers Compensation and Employers Liability Insurance (Statistical Plan) Data Experience by Policy Detail Exposure, premium, and experience rating modifications Individual claims by injury type Purposes Classification relativities Experience Rating Plan Research 106
Valuation of Statistical Plan Data 1st Report Valuation 2nd Report Valuation 3rd Report Valuation 4th Report Valuation 5th Report Valuation Policy Effective 18 Months 30 Months 42 Months 54 Months 66 Months 107