Issues in California Workers Compensation Michele Bernal, FCAS VP & Actuary, American Re 6/15/00.
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Transcript of Issues in California Workers Compensation Michele Bernal, FCAS VP & Actuary, American Re 6/15/00.
Issues in California Workers Comp
• Overview of the Primary Market
• Trends in Primary Loss Costs
• Development of Primary Losses
• Legislative Initiatives
• Reinsurance Pricing
Issues in California Workers Comp
• Overview of the Primary Market
• Trends in Primary Loss Costs
• Development of Primary Losses
• Legislative Initiatives
• Reinsurance Pricing
Accident Year Combined Loss and Expense Ratios
as of 12/31/99
68%
26%
78%
27%
82%
28%
66%
32%
53%
31%
58%
34%
81%
35%
90%
38%
95%
38%
101%
41%
100%
41%
0%
20%
40%
60%
80%
100%
120%
140%
160%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Accident YearLosses Expenses
*
* 1999 Expenses estimated
Source: WCIRB Final Summary of Year-End 1999 Experience
94%105% 110%
98%
84%92%
116%128% 133%
142% 141%
Watch Carrier Projections• WCIRB Estimates a $4.3 billion deficiency
in carried reserves at 12/99 (1999 earned premium was $6.9 billion)
• Carriers are reporting a 72% loss ratio for AY99, compared with the WCIRB’s projection of 100%
• For AY98, carriers initially reported 75% at 12/98, increasing to 91% at 12/99, but still short of the WCIRB’s estimate of 101%
California Primary PricingRelative to 1991 Charged Rates
0.5
0.6
0.7
0.8
0.9
1
1.1
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000Policy Year
Pure Premium Rate Charged 20% Increase? 30% Increase?
Source: WCIRB Final Summary of Year-End 1999 Experience
1/1/95 Open Rating
California Primary PricingRelative to Advisory Pure Premium
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000Policy Year
Charged Rates 20% Increase? 30% Increase?
Source: WCIRB Final Summary of Year-End 1999 Experience
1/1/95 Open Rating
Issues in California Workers Comp
• Overview of the Primary Market
• Trends in Primary Loss Costs
• Development of Primary Losses
• Legislative Initiatives
• Reinsurance Pricing
Trend in California Loss Costs
-40%
-20%
0%
20%
40%
60%
80%
100%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Accident Year
Total Loss Cost Frequency Severity
Source: WCIRB Final Summary of Year-End 1999 Experience
Trend in Loss Costs
-10%
0%
10%
20%
30%
40%
50%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Accident Year
California NCCI States
Sources: WCIRB Final Summary of Year-End 1999 Experience NCCI Annual Issues Symposium
Trend in Indemnity Claim Frequency
-40%
-30%
-20%
-10%
0%
10%
20%
30%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Accident Year
California NCCI States
Sources: WCIRB Final Summary of Year-End 1999 Experience NCCI Annual Issues Symposium
Trend in Per Indemnity Claim Average Medical
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Accident Year
California NCCI States
Sources: WCIRB Final Summary of Year-End 1999 Experience NCCI Annual Issues Symposium
Cost Drivers - Medical
• 9/18/96 Minniear’s Decision– Treating Physician Presumption of Correctness
• 1/1/98 Change in ALAE Definition– Medical Cost Containment now coded with
Medical Losses
• 1/1/99 Medical Fee Schedule
Trend in Per Indemnity Claim Average Indemnity
0%
20%
40%
60%
80%
100%
120%
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Accident Year
California NCCI States
Sources: WCIRB Final Summary of Year-End 1999 Experience NCCI Annual Issues Symposium
Cost Drivers - Indemnity
• Benefit Changes resulting from 1989 & 1994 reforms– +15% expected impact overall
• 4/1/97 Change in PD Rating Schedule– Presumably for new claims only– Presumably revenue neutral
• Minniears?
Issues in California Workers Comp
• Overview of the Primary Market
• Trends in Primary Loss Costs
• Development of Primary Losses
• Legislative Initiatives
• Reinsurance Pricing
1.00
1.20
1.40
1.60
1.80
2.00
1988 1990 1992 1994 1996 1998
24/12 36/24
Development Year
Loss Development FactorsIncurred Indemnity
Age in Months
Source: WCIRB Actuarial Committee Agenda - 5/31/00
1.50
2.00
2.50
3.00
3.50
4.00
1988 1990 1992 1994 1996 1998
24/12 36/24
Development Year
Loss Development FactorsPaid Indemnity
Age in Months
Source: WCIRB Actuarial Committee Agenda - 5/31/00
1.00
1.10
1.20
1.30
1.40
1.50
1988 1990 1992 1994 1996 1998
24/12 36/24
Development Year
Loss Development FactorsIncurred Medical
Age in Months
Source: WCIRB Actuarial Committee Agenda - 5/31/00
1.00
1.20
1.40
1.60
1.80
2.00
2.20
2.40
2.60
1988 1990 1992 1994 1996 1998
24/12 36/24
Development Year
Loss Development FactorsPaid Medical
Age in Months
Source: WCIRB Actuarial Committee Agenda - 5/31/00
Possible Development Drivers
• Schaffer Ambulance (AB1913 & SB1217)– Possible reduction in case reserves in response
to class action suits alleging over-reserving, claiming high X-mods & low dividends as damages
• Optimism regarding Medical Management
• PD Rating Creep
• Claim Inflation
Loss Development Selections
• WCIRB uses latest year paid through 60 months of development, then converts to incurred development
• Development Varies Significantly by Industry Group– Increasing for all industry groups– Development for Professional & Clerical Services
classes substantially higher than for Construction classes
Issues in California Workers Comp
• Overview of the Primary Market
• Trends in Primary Loss Costs
• Development of Primary Losses
• Legislative Initiatives
• Reinsurance Pricing
Legislative Initiatives
• Benefit Increase (SB 996)
• Privacy (AB 435)
• Reinsurance Notification (SB 1959)
Legislative Initiatives
• Benefit Increase (SB 996)– Not likely to pass– $2.6 billion (25% of pure premiums)– Repeal presumption of correctness of treating
physician– Gov. Davis vetoed previous $2.5 billion bill
indicating he would sign if change was less than $1 billion
Legislative Initiatives
• Privacy (AB435 - effective 10/99)– Limits amount and type of medical information
insurers and TPA’s may share with injured workers’employers
– Initially intended to prevent HIV information from getting to employers, since WC is specifically excluded from the Confidentiality of Medical Information Act
– Legislative efforts in the works to allow employers access to limited information
Legislative Initiatives• Reinsurance Notification (SB 1959)
– Passed Senate; now in Assembly Insurance Committee
– Would require that Reinsurers notify the CDI of their intent to reinsure a workers comp program in the state.
– Current law requires a bond of the PV of estimated future payments at 6% per annum
– Discount rate would change to lower of 6%, or reinsurance company’s IRIS test #5 investment yield
– If reinsurer fails to post bond, ceding company may not claim reinsurance for reserve credit
Issues in California Workers Comp
• Overview of the Primary Market
• Trends in Primary Loss Costs
• Development of Primary Losses
• Legislative Initiatives
• Reinsurance Pricing
Reinsurance Pricing
• 2001 Draft Loss Elimination Ratios– Update of 1997 Tables– Still in Draft Form– Reviewing correlation of Medical & Indemnity
on Large Claims– Still working on Loss & ALAE LER’s– Will be filed with 1/1/01 pure premiums
• New Table M and Table L in 2002
2001 LER’s
• Significant Changes since 1997– Stochastic claim development– Increased claim development– Increased inflation– Update data to Policy Year 1993 & 1994
WCIRB Draft 2001 LER’s
$1M $500k
1997 Non-Stochastic .016 .025
1997 Stochastic .065 .099
2001 Non-Stochastic .022 .041
2001 Stochastic .070 .106
Loss Limit
Source: WCIRB Actuarial Committee Agenda 5/31/00
WCIRB Draft 2001 LER’sAdditional Thoughts
• Now more consistent with LER’s in other states
• Data is based on Policy Year 1993 and 1994, which were almost the best years in California workers comp
• Additional inflation could impact tables quickly
• Increased life expectancies
California WC ReinsuranceFinal Thoughts
• Monitor primary pricing– Pure premium changes aren’t enough– Make sure you obtain schedule credit info
• Make independent projections of ultimate losses
• Watch out for Inflation• Watch incurred loss development
– Use paid development when possible
• Don’t rely exclusively on 1997 LER’s