National Council of Self-Insurers Annual Conference Key Biscayne, FL June 4, 2012.
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Transcript of National Council of Self-Insurers Annual Conference Key Biscayne, FL June 4, 2012.
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National Council of Self-Insurers
Annual ConferenceKey Biscayne, FL
June 4, 2012
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Agenda
• Welcome and thank you• Current WC Market Conditions• What factors are driving these
results?• What is the impact on self-insured's?• What can/should should be done• How can we help
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State of the WC Market- “Conflicted”(NCCI –State of Line report May 10, 2012)
• Lost time frequency improved in 2011 – down another 1% after a 3% decline in 2010
• Average indemnity costs per claim increased by 2.0% in 2011 after 2.8% decrease in 2010
• Average medical costs per lost time claim increased by 4.0% in 2011 after a 1.3% increase in 2010
• Investment yields remain low but improving
• Reserve deficient position at $11 billion• Residual market pools increased to 5% of market
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WC Industry Combined Ratio
120.4
112.5 108.5 104.9101.6
96.0102.8 103.3
112.4
116.3 119.0118.0 117.0
0
20
40
60
80
100
120
140
Combined Ratio % (per Conning Research & Consulting)
Current WC Market Conditions
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• Current level of underwriting losses are not sustainable
• Industry reserve deficiency exceeding $11 billion – up $1 billion in one year
• Major carriers reevaluating their WC exposure– Chartis, Liberty & ACE have reduced
writings• Primary and Reinsurance rates are
increasing
Current WC Market Conditions
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What factors are driving these results?
• Economic Reasons• Societal Forces• Government Involvement
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Economic Reasons• Investment returns at historic lows
– Investment income has historically offset underwriting losses
– Carriers must carry more reserves because GAAP discount rate is lower
• WC “cost of capital” is higher than other lines of insurance. Carriers must set aside more surplus for longer tail lines.
What factors are driving these results?
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Societal Forces• Frequency decreases bottomed out in 1991
and are beginning to rise (first increase in 13 years)
• Inexperienced workers in recovering sectors (manufacturing, construction, etc.)
• Frequency decreases have balanced medical cost increases for two decades
• Frequency of severity has decreased over time• Severity continues to increase• Aging workforce
What factors are driving these results?
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Aging Workforce
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Societal Forces (continued)• Obesity epidemic
– Increases chance for injury – Increases the length of recovery and the
chance of PTD• Increased life expectancy• Narcotic pain medications
– Now account for 25% of WC prescription drugs– 2 Billion in waste (Express Scripts 2011 report)– Causing addiction and longer disability
What factors are driving these results?
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Impact of Rx on Medical Cost
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
1990 2000 2011
Rx Costs
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Government Involvement• Federal regulations increasing costs and
complexity– OSHA, EEOC, ADA, Dodd-Frank/FIO
• What will the impact of the Affordable Care Act be on WC?– PCI study of MA shows positive results?
• Medicare set asides - SCHIP Extension Act– Present practices are adding to claims
costs
What factors are driving these results?
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What is the impact on Self-Insured's?
• Cost of risk– Affected by all the same factors
• Cost of risk transfer– Increasing reinsurance costs &
retentions
• Impact of frequency and severity– Greater impact in recovering industries
• Medical cost inflation• Impact of Rx and Opioids
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Medical Share of Total Benefitsby Accident Year
© Copyright 2009 National Council on Compensation Insurance, Inc. All rights reserved.
1988
Indemnity54%
Medical46%
Indemnity47%
Medical53%
1998 Indemnity42%
Medical58%
2008Indemnity
40%Medical60%
2011
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Impact on Self-Insured's
Source: NCCI DCI Data
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Percent of Ultimate Losses Reported by Years of Development
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1 2 3 4 5 6 7 8 9 10
Years of Development
% o
f U
ltim
ate
Lo
ss
SNCC Ground UpSNCC ExcessIndustry Primary
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What can/should be done?
• Predictive modeling– Era of “Big Data”?
• Control of medical and Rx costs• Return to the basics
– Pre & Post Loss programs and controls
• Engage outside resources
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Predictive Modeling
• Use to indentify problem claims early– Are all factors considered?
• Soft tissue injuries• Early Rx for Opioids• Personal characteristics of employee
– Smoking, Obesity
• Work with TPA/Claim manager to develop your plan
• Impact on Rx
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Control of Medical and Rx Costs
• Work with TPA/Claims Manager on– Medical Cost Containment Strategy
• Does your plan encompass all areas of cost• Demand transparency and accountability
• What is your Rx strategy?– Do you have a PBM protocol in place– Generic vs. name brand– Control of dosage size (100 mg/day)– Urine testing to determine proper usage– Use of Peer Physician review
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What can/should be done?
• Stay committed to your risk management mission– Use your unique culture to attack these
problems?• Continue safety & loss prevention activities
– Incorporate wellness into our programs if possible
• Take advantage of broker/carrier services– Are they partners in your risk management
efforts?• Get/stay involved in industry and legislative
initiatives– SMART Act for SHCIP– State efforts for WC reform & Rx controls.
• Ex: Prime Tanning Case – Maine • Brown vs. Cassens Transportation - Michigan
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What is Safety National doing ?
• Working with customers to– Identify key severity “hot spots”
• Development of specialized services for self-insured's – Best Doctors – MAP Client Services
• Work Comp Kit - specialized risk control services• S:ERVE - specialized driver training program
• Taken a leadership role in industry activities – Medicare Advocacy Recovery Coalition (MARC)– Raise awareness of the impact of narcotics, aging and
obesity on WC– Facilitate WC industry discussions through LinkedIn and
the media
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Who is Safety National?
• Founded in 1942• Now part of Tokio Marine Holdings
– One of the ten largest insurance companies in the world
• Licensed and admitted in all 50 states, the District of Columbia, Puerto Rico, and Canada
• Longest continual provider of Excess Work Comp coverage in the US
• Market leader in Excess Work Comp – 30% domestic market share
• Named one of the “Best Places to Work” by Business Insurance magazine
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Questions?