The New NCCI Hazard Groups
Greg Engl, PhD, FCAS, MAAA
National Council on Compensation Insurance
CASE Fall Meeting
September 13, 2006
Agenda
• History of previous work
• Methodology employed
• Impact of remapping
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
2
Current Hazard Groups
HG
Number of
Classes
I
40
1,262,958,374
0.9%
II
417
67,150,463,296
45.5%
III
303
75,288,994,325
51.1%
IV
100
3,623,213,832
2.5%
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
Standard
Premium
% of Total
Premium
3
Assigning Classes to HGs
• Prior NCCI Method
• California Approach
• ELF Based Method
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4
Prior NCCI Method
• Hazardousness
• “Excess loss potential”
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5
Hazardousness Variables
For each state, the following seven quantities
were measured by class and expressed as ratios
to the corresponding statewide value:
Claim Frequency
Indemnity Pure Premium
Indemnity Severity
Medical Pure Premium
Medical Severity
Total Pure Premium
Serious Severity (including Medical)
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6
California Methodology
• Group classes with similar loss
distributions together
• Need to precisely define ‘similar’
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7
Crossover
Excess Loss Factors
Loss
Limit
25,000
600,000
Hazard Group
O
P
0.643
0.660
0.098
0.082
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8
Crossover
California ELF Curves
0.12
J
K
0.10
L
Loss Elimination Ratio
M
0.08
N
O
0.06
P
Q
R
0.04
0.02
0.00
1
2
3
4
5
6
Per Accident Limit ($M)
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
7
8
9
10
9
Crossover
0.100
California ELF Curves
0.095
0.090
Loss Elimination Ratio
J
M
0.085
R
0.080
0.075
0.070
0.065
0.060
$1,200,000
$1,400,000
$1,600,000
$1,800,000
$2,000,000
$2,200,000
Per Accident Limit
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10
HG Remapping Rationale
• What are HGs used for?
• Determining ELFs
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11
Kentucky 9/1/04 Filing
Per Accident
Limitation
$25,000
$30,000
$35,000
$40,000
$50,000
$75,000
$100,000
$125,000
$150,000
$175,000
$200,000
$250,000
$300,000
$500,000
$1,000,000
$2,000,000
$5,000,000
Excess Loss Pure Premium Factors
(Applicable to New and Renewal Policies)
I
0.701
0.675
0.651
0.630
0.593
0.521
0.466
0.422
0.386
0.355
0.328
0.285
0.251
0.167
0.088
0.045
0.020
Hazard
II
0.727
0.703
0.682
0.662
0.628
0.561
0.509
0.466
0.430
0.399
0.373
0.329
0.294
0.205
0.117
0.064
0.032
Groups
III
0.813
0.794
0.777
0.761
0.732
0.674
0.628
0.589
0.555
0.525
0.498
0.452
0.413
0.308
0.188
0.108
0.053
IV
0.865
0.850*
0.837
0.824*
0.802*
0.754
0.714*
0.680
0.650
0.623
0.598
0.555
0.517
0.406
0.262
0.155
0.075
* Also applicable to Underground Coal Mine classifications.
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12
Kentucky ELPPFs
1.0
0.9
0.8
HG I
HG III
ELPPF
0.7
HG II
HG IV
0.6
0.5
0.4
0.3
0.2
0.1
0.0
0
1
2
3
4
5
Loss Limit (millions)
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13
Kentucky ELPPFs
1.0
0.9
0.8
HG I
HG III
ELPPF
0.7
HG II
HG IV
0.6
0.5
0.4
0.3
0.2
0.1
0.0
0
1
2
3
4
5
Loss Limit (millions)
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14
Kentucky ELPPFs
1.0
0.9
0.8
HG I
HG III
ELPPF
0.7
HG II
HG IV
0.6
0.5
0.4
0.3
0.2
0.1
0.0
0
200
400
600
800
1000
Loss Limit (thousands)
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15
Kentucky ELPPFs
1.0
0.9
0.8
HG I
HG III
ELPPF
0.7
HG II
HG IV
0.6
0.5
0.4
0.3
0.2
0.1
0.0
0
1
2
3
4
5
Loss Limit (millions)
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16
Kentucky ELPPFs
0.20
HG I
HG III
0.18
HG II
HG IV
0.16
ELPPF
0.14
0.12
0.10
0.08
0.06
0.04
0.02
0.00
1000
2000
3000
4000
5000
Loss Limit (thousands)
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17
HG Remapping Approach
• Makes sense to sort classes by
ELF vectors
• Class ELF vectors approximated by
HG ELF vectors
• ELF curves characterize loss
distribution
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18
Excess Ratio Calculations
R( A)   wi Ri ( A i )
Ri  excess ratio function for injury type i
wi  Li
L
i
Li  injury type i losses
i  mean injury type i loss
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19
HG Remapping
Basic Data
• For each class code, c , we have a
vector of ELFs:
xc  ( x
c
25 K
c
30 K
,x
c
5M
, , x
)
• Credibility weight with current HG
ELF vector
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20
Current Hazard Groups
Excess Ratio at $1M
0.250
0.200
0.150
0.100
0.050
0.000
0.200
0.300
0.400
0.500
0.600
0.700
Excess Ratio at $100K
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21
Current Hazard Groups
Excess Ratio at $1M
0.250
0.200
0.150
0.100
0.050
0.000
0.200
0.300
0.400
0.500
0.600
0.700
Excess Ratio at $100K
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22
New 4 Hazard Groups
Excess Ratio at $1M
0.250
0.200
0.150
0.100
0.050
0.000
0.200
0.300
0.400
0.500
0.600
0.700
Excess Ratio at $100K
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23
New 4 Hazard Groups
Excess Ratio at $1M
0.250
0.200
0.150
0.100
0.050
0.000
0.200
0.300
0.400
0.500
0.600
0.700
Excess Ratio at $100K
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24
4 Hazard Group Comparison
Number of Classes per Hazard Group
New Mapping
Current Mapping
100
40
123
212
HG 1
HG 2
303
417
HG 3
265
HG 4
260
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25
4 Hazard Group Comparison
Percent of Premium Per Hazard Group
New Mapping
Current Mapping
2.5% 0.9%
5.1%
17.9%
HG 1
45.5%
HG 2
39.2%
HG 3
51.1%
HG 4
37.8%
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26
Hierarchical Collapsing of New Mapping
A
B
1
C
D
2
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E
F
3
G
4
27
New Hazard Groups
Number of Classes per HG
123
Percent of Premium per HG
36
176
67
5.1% 4.3%
13.6%
19.3%
HG A
HG B
HG C
HG D
HG E
25.5%
198
193
67
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19.9%
HG F
HG G
12.3%
28
New Hazard Groups
Excess Ratio at $1M
0.250
0.200
0.150
0.100
0.050
0.000
0.200
0.300
0.400
0.500
0.600
0.700
Excess Ratio at $100K
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29
New Hazard Groups
0.250
Excess Ratio at $1M
0.200
0.150
0.100
0.050
0.000
0.200
0.300
0.400
0.500
0.600
0.700
Excess Ratio at $100K
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30
Percent of Premium Moved
Current Mapping to New 4 Hazard Groups
Percent of Premium
80%
70%
586
60%
50%
40%
219
30%
20%
10%
51
3
0%
No
Movement
Up 1 HG
Down 1 HG
Up 2 HGs
1
Down 2
HGs
Movement
* Number above bar represents the number of classes in each category.
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31
Movement of Classes
Current Mapping
Hazard Group
I
II
III
IV
Total
40
0.9%
417
45.5%
303
51.1%
100
2.5%
860
100%
1
36
0.8%
175
16.9%
1
0.1%
0
0.0%
212
17.9%
2
2
0.0%
220
26.9%
38
10.8%
0
0.0%
260
37.8%
3
2
0.0%
21
1.7%
236
37.3%
6
0.3%
265
39.2%
4
0
0.0%
1
0.0%
28
2.9%
94
2.2%
123
5.1%
Number of Classes
Percent of Premium
New Mapping
Hazard Group
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32
Number of Hazard Groups
Calinski and Harabasz
3600
CH Statistic
3200
2800
2400
2000
4
5
6
7
8
9
Number of Hazard Groups
Number of HGs
CH Statistic
4
2317
5
3310
6
3213
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7
3442
8
3297
9
3102
33
Number of Hazard Groups
Cubic Clustering Criterion
CCC Statistic
125
115
105
95
85
4
5
6
7
8
9
8
111
9
125
Number of Hazard Groups
Number of HGs
CCC Statistic
4
89
5
110
6
108
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7
112
34
Number of Hazard Groups
Calinski and Harabasz
Number of HGs
4
5
6
7
8
9
All Classes
2317
3310
3213
3442
3297
3102
50% Credibility Classes
793
759
705
1025
958
915
Full Credibility Classes
433
393
450
638
620
584
Cubic Clustering Criterion
Number of HGs
4
5
6
7
8
9
All Classes
89
110
108
112
111
125
50% Credibility Classes
51
50
48
59
57
56
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Full Credibility Classes
37
34
36
42
41
40
35
Three Key Ideas
• Map based on ELFs
• Compute ELFs by class
• Cluster Analysis
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36
HG Remapping
Objective
Break C = set of all class codes,
into Hazard Groups:
C   HGi
i
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37
HG Remapping
Basic Data
For each class code, c , we have a
vector of ELFs:
xc  ( x
c
25 K
c
30 K
,x
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
c
5M
, , x
)
38
Using Hazard Groups
•
1
xi 
HGi
x
cHGi
c
(HG mean)
• approx xc by xi for c  HGi
• Want xc as close as possible to xi
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39
HG Remapping Method
k-means
Splits classes into HGs to minimize
k

xc  xi
2
i 1 cHGi
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40
Optimal HGs
• % of total variance explained
• Analogous to an R-squared
• k-means maximizes this
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41
R-squared
k
R  1
2
x
c
i 1 cHGi
x
c
 xi
x
2
2
c
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42
Optimal HGs
• Want well separated,
homogeneous HGs
• Minimize within variance
• Maximize between variance
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43
Optimal HGs
• Between variance vs. within variance
• Have one variance for each variable
(ELFs at different attachment points)
• Need to consider variance-covariance
matrices
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44
Optimal HGs
Dispersion matrix of whole data
set is given by
T   xc  x  xc  x 
T
c
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45
Dispersion Matrix
ˆ11
ˆ

 21
T  (n  1) ˆ 31

ˆ 41
ˆ
 51
ˆ12
ˆ 22
ˆ 32
ˆ 42
ˆ 52
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ˆ13
ˆ 23
ˆ 33
ˆ 43
ˆ 53
ˆ14
ˆ 24
ˆ 34
ˆ 44
ˆ 54
ˆ15 

ˆ 25 
ˆ 35 

ˆ 45 
ˆ 55 
46
Optimal HGs
Dispersion matrix of HGi is given
by
Wi 
 x
cHGi
c
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 xi   xc  xi 
T
47
Optimal HGs
• If we let Bi  HGi  xi  x   xi  x 
T
• Then
 x
cHGi
c
 x  xc  x   Bi  Wi
T
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48
Optimal HGs
• Pooled within group dispersion matrix
k
W   Wi
i 1
• Weighted between group dispersion
matrix
k
B   Bi
i 1
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49
Optimal HGs
• Between variance vs. within variance
•T=B+W
• k-means minimizes trace W
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50
Credibility
• Compute class ELFs
• Assign a credibility to each
class
• Use current HG as complement
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51
History
• Hazard Groups were last remapped
•
•
in 1993
Prior to that, Hazard Groups were
remapped in 1981
Same credibility method used both
times
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52
Pseudo-Bühlmann
 n

z  min 
 1.5, 1
nk

where
n = number of claims
k n
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53
Pseudo-Bühlmann
• A class with the average number of
claims gets 75% credibility.
• Classes with twice the average
number of claims get full credibility.
• Based on n/n+k
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54
Pseudo-Bühlmann Credibility
100%
% Credibility
80%
60%
40%
20%
0%
0
87
174 261 348 435 522 609 696 783 870
Number of Class Codes (Ordered by Size)
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55
Pseudo-Bühlmann Credibility
Credibility Size
Range
Claims per
Year
Number of
Classes
% Premium
0%  Z < 10%
0-237
355
1.2%
10%  Z < 20%
238-511
89
1.3%
20%  Z < 30%
512-831
61
1.6%
30%  Z < 40%
832-1209
56
2.7%
40%  Z < 50%
1210-1662
46
2.5%
50%  Z < 60%
1663-2216
34
2.5%
60%  Z < 70%
2217-2909
46
4.8%
70%  Z < 80%
2910-3800
35
4.3%
80%  Z < 90%
3801-4987
29
4.0%
90%  Z < 100%
4988-6650
18
3.2%
 6651
101
71.8%
Z = 100%
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56
Number of Classes by Claim Count
833
Number of Classes in Interval
800
700
600
500
400
300
200
100
50
20 14
3
5
6
1
0
2
0
0
0
1
0
0
1
0
0
0
1
80
10
0
12
0
14
0
16
0
18
0
20
0
22
0
24
0
26
0
28
0
30
0
32
0
34
0
36
0
38
0
40
0
42
0
60
40
20
0
0
Number of Claims (thousands)
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57
Number of Classes by Claim Count
Number of Classes in Interval
450
400
350
300
250
200
150
100
50
20
19
18
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0
0
Number of Claims (thousands)
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58
Number of Classes in Interval
Number of Classes by Claim Count
200
150
100
50
10
0
15
0
20
0
25
0
30
0
35
0
40
0
45
0
50
0
55
0
60
0
65
0
70
0
75
0
80
0
85
0
90
0
95
0
10
00
50
0
0
Number of Claims
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59
Revenue Neutrality
• Overall average ELF’s unaffected,
therefore no overall premium effect.
• Individual risks may experience increases
or decreases.
• Individual risk equity improved.
• For deductibles of $5,000 or less, the
impact of the revised credit on the loss
cost premium of most risks will be less
than 5%.
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60
Impact of New HGs on ELFs
• ELFs computed by HG
• New HGs alone change ELFs
• Extra year of trend
• Change in ELF Calculations
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61
ELF Calculation Changes
• Average with last year’s ELFs
–Loss limits adjusted for inflation
–Provides additional stability
• Additive differential trend adjustment
Recognizes that med loss trend higher
than indemnity
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62
Additive Adjustment to ELFs*
all states, all HGs
Loss limit
Adjustment
0-$125,000
.000
$150,000-$225,000
.001
$250,000-$700,000
.002
$800,000-$1,000,000
.003
$2,000,000-$5,000,000
.002
$6,000,000-$10,000,000
.001
Over $10,000,000
.000
*Included in B-1403.
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63
Movement of Classes
Current Mapping
Hazard Group
I
II
III
IV
Total
40
0.9%
417
45.5%
303
51.1%
100
2.5%
860
100%
1
36
0.8%
175
16.9%
1
0.1%
0
0.0%
212
17.9%
2
2
0.0%
220
26.9%
38
10.8%
0
0.0%
260
37.8%
3
2
0.0%
21
1.7%
236
37.3%
6
0.3%
265
39.2%
4
0
0.0%
1
0.0%
28
2.9%
94
2.2%
123
5.1%
Number of Classes
Percent of Premium
New Mapping
Hazard Group
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64
Movement of Classes
• General movement of classes to
lower HGs
• Classes with high ELFs moving to
lower HGs
• General increase in HGs ELFs
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65
Impact of Remapping on ELFs
Countrywide Excess Ratios
0.200
Excess Ratio at $ 1 million
0.180
0.160
HG I
0.140
HG II
0.120
HG III
0.100
HG IV
HG 1
0.080
HG 2
0.060
HG 3
0.040
HG 4
0.020
0.000
0.250
0.300
0.350
0.400
0.450
0.500
0.550
0.600
0.650
Excess Ratio at $100 K
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66
Impact of Remapping on ELFs
Countrywide Excess Ratios
0.09
Excess Ratio at $ 3 million
0.08
HG I
0.07
HG II
0.06
HG III
0.05
HG IV
0.04
HG 1
HG 2
0.03
HG 3
0.02
HG 4
0.01
0.00
0.000
0.050
0.100
0.150
0.200
0.250
0.300
Excess Ratio at $500 K
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67
Old and New Hazard Groups
Countrywide Excess Ratios
0.200
Excess Ratio at $ 1 million
0.180
0.160
HG I
HG II
0.140
HG III
HG IV
HG A
0.120
0.100
HG B
HG C
HG D
0.080
HG E
HG F
HG G
0.060
0.040
0.020
0.000
0.250
0.300
0.350
0.400
0.450
0.500
0.550
0.600
0.650
Excess Ratio at $100 K
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
68
New Hazard Groups
Countrywide Excess Ratios
0.200
Excess Ratio at $ 1 million
0.180
HG 1
HG 2
HG 3
0.160
0.140
HG 4
HG A
HG B
0.120
0.100
HG C
HG D
HG E
0.080
0.060
HG F
HG G
0.040
0.020
0.000
0.250
0.300
0.350
0.400
0.450
0.500
0.550
0.600
0.650
Excess Ratio at $100 K
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
69
Impact of Remapping on ELFs
Countrywide Excess Ratios
0.200
Excess Ratio at $ 1 million
0.180
0.160
HG I
0.140
HG II
0.120
HG III
0.100
HG IV
HG 1
0.080
HG 2
0.060
HG 3
0.040
HG 4
0.020
0.000
0.250
0.300
0.350
0.400
0.450
0.500
0.550
0.600
0.650
Excess Ratio at $100 K
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
70
Impact of Remapping in AL
Alabama Excess Ratios
Excess Ratio at $ 1 million
0.350
0.300
HG I
0.250
HG II
HG III
0.200
HG IV
HG 1
0.150
HG 2
0.100
HG 3
HG 4
0.050
0.000
0.250
0.300
0.350
0.400
0.450
0.500
0.550
0.600
0.650
0.700
0.750
Excess Ratio at $100 K
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
71
Impact of Remapping in IL
Illinois Excess Ratios
Excess Ratio at $ 1 million
0.350
0.300
HG I
0.250
HG II
HG III
0.200
HG IV
0.150
HG 1
HG 2
0.100
HG 3
HG 4
0.050
0.000
0.250
0.300
0.350
0.400
0.450
0.500
0.550
0.600
0.650
0.700
0.750
Excess Ratio at $100 K
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
72
Change in Excess Ratios
HG I to HG 1
Change Due to New Mapping
$100,000
$200,000
$300,000
$500,000
$1,000,000
$5,000,000
Minimum
(0.009)
AK
(0.004)
AK
(0.002)
AK
0.000
AK
0.001
NM
0.000
HI
Maximum
0.013
CT
0.014
CT
0.013
CT
0.013
NV
0.012
NV
0.007
NV
Average
Difference*
0.004
0.006
0.006
0.006
0.004
0.002
Percentage Change Due to New Mapping
$100,000
$200,000
$300,000
$500,000
$1,000,000
$5,000,000
Minimum
-2.5%
AK
-1.9%
AK
-1.2%
AK
0.2%
AK
1.9%
NM
3.7%
VA
Maximum
5.6%
MO
9.9%
MO
12.7%
MO
16.7%
MO
20.2%
MO
26.9%
CT
Average
Difference*
1.2%
3.1%
4.4%
6.3%
9.1%
14.0%
*Loss-weighted average over 29 states
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
73
Change in Excess Ratios
HG I to HG 1
Change Due to New Mapping
0.020
Change in Excess Ratio
0.015
0.010
0.005
0.000
(0.005)
(0.010)
$100,000
$200,000
$300,000
$500,000
$1,000,000
$5,000,000
Attachment Point
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
74
Change in Excess Ratios
HG I to HG 1
Change Due to New Mapping
Percentage Change in Excess Ratio
30%
24%
18%
12%
6%
0%
-6%
$100,000
$200,000
$300,000
$500,000
$1,000,000
$5,000,000
Attachment Point
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
75
Change in Excess Ratios
HG II to HG 2
Change Due to New Mapping
$100,000
$200,000
$300,000
$500,000
$1,000,000
$5,000,000
Minimum
AK
0.016
AK
0.013
IN
0.010
AK
0.006
AK
0.002
AK
(0.001)
Maximum
CT
0.031
CT
0.028
CT
0.024
MD
0.019
AL
0.012
NV
0.005
Average
Difference*
0.025
0.020
0.017
0.012
0.007
0.002
Percentage Change Due to New Mapping
$100,000
$200,000
$300,000
$500,000
$1,000,000
$5,000,000
Minimum
MT
3.9%
MT
4.8%
MT
5.2%
AK
5.3%
AK
3.0%
AK
-3.2%
Maximum
KS
12.2%
KS
14.7%
KS
14.9%
IL
17.1%
CT
19.1%
RI
22.1%
Average
Difference*
7.0%
8.8%
9.8%
10.7%
10.9%
9.4%
*Loss-weighted average over 29 states
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
76
Change in Excess Ratios
HG II to HG 2
Change Due to New Mapping
0.035
Change in Excess Ratio
0.030
0.025
0.020
0.015
0.010
0.005
0.000
(0.005)
$100,000
$200,000
$300,000
$500,000
$1,000,000
$5,000,000
Attachment Point
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
77
Change in Excess Ratios
HG II to HG 2
Change Due to New Mapping
Percentage Change in Excess Ratio
24%
18%
12%
6%
0%
-6%
$100,000
$200,000
$300,000
$500,000
$1,000,000
$5,000,000
Attachment Point
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
78
Change in Excess Ratios
HG III to HG 3
Change Due to New Mapping
$100,000
$200,000
$300,000
$500,000
$1,000,000
$5,000,000
Minimum
(0.000)
AK
(0.001)
AK
(0.002)
AK
(0.003)
AK
(0.004)
AK
(0.002)
AK
Maximum
0.013
RI
0.011
RI
0.009
RI
0.008
ME
0.005
ME
0.002
RI
Average
Difference*
0.005
0.005
0.004
0.003
0.002
0.001
Percentage Change Due to New Mapping
$100,000
$200,000
$300,000
$500,000
$1,000,000
$5,000,000
Minimum
-0.1%
AK
-0.4%
AK
-0.8%
AK
-1.7%
AK
-3.8%
AK
-8.3%
AK
Maximum
3.6%
RI
4.5%
RI
4.9%
RI
5.4%
RI
5.8%
RI
7.8%
RI
Average
Difference*
1.1%
1.4%
1.6%
1.8%
1.9%
1.6%
*Loss-weighted average over 29 states
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
79
Change in Excess Ratios
HG III to HG 3
Change Due to New Mapping
0.016
Change in Excess Ratio
0.014
0.012
0.010
0.008
0.006
0.004
0.002
0.000
(0.002)
(0.004)
(0.006)
$100,000
$200,000
$300,000
$500,000
$1,000,000
$5,000,000
Attachment Point
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
80
Change in Excess Ratios
HG III to HG 3
Change Due to New Mapping
Percentage Change in Excess Ratio
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
$100,000
$200,000
$300,000
$500,000
$1,000,000
$5,000,000
Attachment Point
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
81
Change in Excess Ratios
HG IV to HG 4
Change Due to New Mapping
$100,000
$200,000
$300,000
$500,000
$1,000,000
$5,000,000
Minimum
(0.011)
AK
(0.013)
AK
(0.013)
RI
(0.012)
RI
(0.010)
RI
(0.005)
RI
Maximum
0.025
CO
0.033
CO
0.039
CO
0.043
CO
0.049
NV
0.040
NV
Average
Difference*
0.005
0.008
0.011
0.014
0.016
0.012
Percentage Change Due to New Mapping
$100,000
$200,000
$300,000
$500,000
$1,000,000
$5,000,000
Minimum
-2.2%
RI
-3.6%
RI
-4.4%
RI
-5.4%
RI
-6.7%
RI
-9.9%
RI
Maximum
4.6%
CO
8.2%
CO
11.8%
CO
17.8%
CO
28.2%
CO
43.2%
CO
Average
Difference*
0.9%
1.9%
3.0%
5.3%
10.2%
26.3%
*Loss-weighted average over 29 states
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
82
Change in Excess Ratios
HG IV to HG 4
Change Due to New Mapping
0.060
Change in Excess Ratio
0.050
0.040
0.030
0.020
0.010
0.000
(0.010)
(0.020)
$100,000
$200,000
$300,000
$500,000
$1,000,000
$5,000,000
Attachment Point
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
83
Change in Excess Ratios
HG IV to HG 4
Change Due to New Mapping
Percentage Change in Excess Ratio
50%
40%
30%
20%
10%
0%
-10%
-20%
$100,000
$200,000
$300,000
$500,000
$1,000,000
$5,000,000
Attachment Point
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
84
Change in HG Excess Ratios
• Biggest increases at higher limits
in HG I and IV
• Considerable variation by state
• Total change due to remapping,
trend, and calculation changes
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
85
Excess Ratio Calculations
R( A)   wi Ri ( A i )
Ri  excess ratio function for injury type i
wi  Li
L
i
Li  injury type i losses
i  mean injury type i loss
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
86
% Change in Average Cost per Case
Hazard Group
Injury
Type
1
2
3
4
Fatal
+48.6%
+14.0%
+2.2%
-5.3%
PT
+18.7%
+4.0%
+3.4%
+29.2%
PP
+2.1%
+9.1%
+2.8%
-6.0%
TT
-3.3%
+4.8%
+1.1%
-5.8%
Med Only
-6.8%
+2.9%
+1.4%
-9.5%
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
87
PT Average Cost per Case
Hazard Group 4
HG IV
HG 4
$413,376
$533,913
$ 214,619
$ 450,789
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
$ 573,275
88
% Change in Injury Type Weights
Hazard Group
Injury
Type
1
2
3
4
Fatal
+133.3%
+30.0%
+3.8%
-23.4%
PT
+12.1%
+8.2%
0.0%
+39.4%
PP
-1.6%
+2.7%
+0.7%
-1.5%
TT
-4.7%
-3.3%
-1.3%
-2.3%
Med Only
+15.2%
-13.2%
-5.2%
-29.2%
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
89
PT Weight
Hazard Group 4
HG IV
HG 4
10.4%
14.5%
4.1%
12.0%
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
15.7%
90
Impact of Remapping
vs.
Trend, and ELF Calculation
Changes
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
91
Change in Excess Ratios
HG I to HG 1
$250,000
Percentage Change in Excess Ratios
30%
25%
20%
15%
10%
5%
0%
-5%
NM SC MT OR VA ME LA AR HI MD AK NH NC OK NV MS SD VT IN TN RI NE CT CO IL KS MO
State
Total Change in B-1403
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
Change Due To Remapping
92
Change in Excess Ratios
HG II to HG 2
$250,000
Percentage Change in Excess Ratios
30%
25%
20%
15%
10%
5%
0%
MT SC OR AR NV NM ME VA MD NC SD AK NH VT OK LA HI TN MS NE CO RI CT IN
IL KS MO
State
Total Change in B-1403
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
Change Due To Remapping
93
Change in Excess Ratios
HG III to HG 3
$250,000
Percentage Change in Excess Ratios
12%
10%
8%
6%
4%
2%
0%
-2%
SC MT OR OK NM AR SD NV MD ME LA HI NH AK VA NE CO VT NC MS CT IN
IL
TN RI MO KS
State
Total Change in B-1403
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
Change Due To Remapping
94
Change in Excess Ratios
HG IV to HG 4
$250,000
Percentage Change in Excess Ratios
20%
15%
10%
5%
0%
-5%
-10%
RI SD OK AK HI NH LA ME MD NE VA VT NM SC CT MT OR NC MS IL MO KS NV AR TN IN CO
State
Total Change in B-1403
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
Change Due To Remapping
95
Change in Excess Ratios
HG I to HG 1
$1,000,000
Percentage Change in Excess Ratios
80%
70%
60%
50%
40%
30%
20%
10%
0%
AR NM VA SC MT HI ME MS OR SD NV MD NC TN LA NH RI
IN VT AK KS CO NE OK IL CT MO
State
Total Change in B-1403
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
Change Due To Remapping
96
Change in Excess Ratios
HG II to HG 2
$1,000,000
Percentage Change in Excess Ratios
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
MT AR OR SC NV NM SD VA
HI
TN MS AK NC ME NE VT LA CO RI MD OK NH
IN
KS CT
IL MO
State
Total Change in B-1403
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
Change Due To Remapping
97
Change in Excess Ratios
HG III to HG 3
$1,000,000
Percentage Change in Excess Ratios
20%
15%
10%
5%
0%
-5%
MT AR OR SC SD NM NV OK AK NE
HI
LA VA CO ME TN MD MS NH VT
IN
RI NC KS MO CT
IL
State
Total Change in B-1403
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
Change Due To Remapping
98
Change in Excess Ratios
HG IV to HG 4
$1,000,000
Percentage Change in Excess Ratios
50%
40%
30%
20%
10%
0%
-10%
RI SD NH ME AK
HI OK VA MD NE LA CT SC NM VT MT NC MS OR
IL MO NV AR KS TN
IN CO
State
Total Change in B-1403
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
Change Due To Remapping
99
Key Transitions
Current Mapping
Hazard Group
I
II
III
IV
Total
40
0.9%
417
45.5%
303
51.1%
100
2.5%
860
100%
26
0.4%
10
3.9%
0
0.0%
0
0.0%
36
4.3%
B
10
0.4%
165
13.0%
1
0.1%
0
0.0%
176
13.6%
C
1
0.0%
178
21.7%
14
3.7%
0
0.0%
193
25.5%
D
1
0.0%
42
5.2%
24
7.1%
0
0.0%
67
12.3%
E
2
0.0%
17
1.5%
178
18.4%
1
0.0%
198
19.9%
F
0
0.0%
4
0.2%
58
18.9%
5
0.3%
67
19.3%
G
0
0.0%
1
0.0%
28
2.9%
94
2.2%
123
5.1%
Number of Classes
Percent of Premium
New Mapping
Hazard Group
A
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
100
Largest Class Codes Transitioning From
II to B
Class
Code
Description
Premium Size (8810
= 1000)
8017
Store: Retail NOC
451*
8018
Store: Wholesale NOC
271
8868
College: Professional
Employees and Clerical
223
9052
Hotel: All Other Employees and
Salespersons, Drivers
219
9101
College or School: All Other
Employees
162
*Indicates premium 45.1% of 8810 premium.
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
101
Largest Class Codes Transitioning From
II to C
Class
Code
Description
Premium Size (8810 =
1000)
8810
Clerical Office Employees NOC
1000
8829
Convalescent or Nursing Home—
All Employees
293
8033
Store: Meat, Grocery and Provision
(Combined)—Retail—NOC
248
8833
Hospital: Professional Employees
214
9014
Buildings—Operation by
Contractors
189
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
102
Change in HG II Excess Ratios
Change Due to New Mapping
Hazard Group II - B
$100,000
$200,000
$300,000
$500,000
$1,000,000
$5,000,000
Minimum
(0.039)
MT
(0.041)
MT
(0.040)
MT
(0.035)
MT
(0.027)
MT
(0.013)
NV
Maximum
(0.010)
(0.008)
(0.006)
(0.004)
(0.002)
(0.001)
HI
HI
HI
HI
HI
HI
Average
Difference*
(0.021)
(0.020)
(0.018)
(0.015)
(0.010)
(0.004)
CT
CT
CT
CT
NV
NV
Average
Difference*
0.014
0.011
0.009
0.007
0.004
0.001
Hazard Group II - C
$100,000
$200,000
$300,000
$500,000
$1,000,000
$5,000,000
Minimum
0.007
OR
0.005
AK
0.003
AK
0.001
AK
(0.001)
AK
(0.001)
AK
Maximum
0.021
0.018
0.015
0.012
0.008
0.003
*Loss-weighted average over 29 states
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
103
Change in HG II Excess Ratios
Change Due to New Mapping
0.040
Change in Excess Ratio
0.030
0.020
0.010
0.000
-0.010
-0.020
-0.030
-0.040
-0.050
HG B
HG C
$100K
HG 2
HG B
HG C
$500K
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
HG 2
HG B
HG C
$1M
HG 2
HG B
HG C
$5M
HG 2
104
Change in HG II Excess Ratios
Percentage Change Due to New Mapping
Hazard Group II - B
$100,000
$200,000
$300,000
$500,000
$1,000,000
$5,000,000
Minimum
-10.3%
OR
-14.1%
OR
-16.8%
OR
-20.6%
OR
-25.9%
AK
-29.1%
AK
Maximum
-3.0%
MD
-4.4%
MD
-5.0%
HI
-5.6%
HI
-5.4%
HI
-5.7%
HI
Average
Difference*
-6.0%
-8.6%
-10.3%
-12.8%
-15.7%
-19.0%
Hazard Group II - C
$100,000
$200,000
$300,000
$500,000
$1,000,000
$5,000,000
Minimum
1.6%
MT
1.7%
MT
1.7%
MT
1.1%
AK
-0.9%
AK
-5.4%
AK
Maximum
6.7%
KS
8.1%
KS
8.4%
KS
10.2%
CT
12.5%
CT
13.1%
RI
Average
Difference*
3.9%
4.8%
5.3%
5.9%
6.1%
5.4%
*Loss-weighted average over 29 states
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
105
Change in HG II Excess Ratios
Change Due to New Mapping
Percentage Change in Excess Ratio
30%
20%
10%
0%
-10%
-20%
-30%
-40%
HG B
HG C
$100K
HG 2
HG B
HG C
$500K
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
HG 2
HG B
HG C
$1M
HG 2
HG B
HG C
$5M
HG 2
106
Change in HG III Excess Ratios
Change Due to New Mapping
Hazard Group III - E
$100,000
$200,000
$300,000
$500,000
$1,000,000
$5,000,000
Minimum
(0.038)
OR
(0.040)
MT
(0.039)
MT
(0.036)
MT
(0.027)
MT
(0.011)
OR
Maximum
(0.016)
(0.013)
(0.010)
(0.007)
(0.004)
(0.001)
RI
RI
RI
RI
RI
OK
Average
Difference*
(0.025)
(0.024)
(0.022)
(0.018)
(0.012)
(0.004)
CO
CT
CT
AL
AL
NV
Average
Difference*
0.038
0.036
0.032
0.026
0.017
0.005
Hazard Group III - F
$100,000
$200,000
$300,000
$500,000
$1,000,000
$5,000,000
Minimum
0.031
MT
0.028
IN
0.023
IN
0.017
IN
0.009
OK
0.001
AK
Maximum
0.046
0.043
0.041
0.035
0.028
0.013
*Loss-weighted average over 29 states
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
107
Change in HG III Excess Ratios
Change Due to New Mapping
0.040
Change in Excess Ratio
0.030
0.020
0.010
0.000
-0.010
-0.020
-0.030
-0.040
-0.050
HG E
HG F
$100K
HG 3
HG E
HG F
$500K
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
HG 3
HG E
HG F
$1M
HG 3
HG E
HG F
$5M
HG 3
108
Change in HG III Excess Ratios
Percentage Change Due to New Mapping
Hazard Group III - E
$100,000
$200,000
$300,000
$500,000
$1,000,000
$5,000,000
Minimum
-8.6%
IN
-10.1%
IN
-12.1%
AK
-15.1%
AK
-18.6%
AK
-22.8%
AK
Maximum
-3.1%
MD
-4.2%
MD
-5.0%
MD
-5.4%
RI
-5.1%
RI
-5.3%
RI
Average
Difference*
-5.3%
-7.1%
-8.2%
-9.6%
-11.0%
-12.2%
Hazard Group III - F
$100,000
$200,000
$300,000
$500,000
$1,000,000
$5,000,000
Minimum
5.2%
MT
6.9%
MT
8.1%
MT
9.4%
MT
10.0%
AK
4.6%
AK
Maximum
13.4%
IN
16.3%
KS
17.8%
IN
19.1%
IL
22.4%
CT
21.4%
CT
Average
Difference*
8.0%
10.6%
12.2%
14.2%
15.8%
15.9%
*Loss-weighted average over 29 states
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
109
Change in HG III Excess Ratios
Change Due to New Mapping
Percentage Change in Excess Ratio
30%
20%
10%
0%
-10%
-20%
-30%
-40%
HG E
HG F
$100K
HG 3
HG E
HG F
$500K
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
HG 3
HG E
HG F
$1M
HG 3
HG E
HG F
$5M
HG 3
110
Largest Class Codes Transitioning From
III to E
Class
Code
Description
Premium Size (8810 =
1000)
8742
Salespersons, Collectors or
Messengers—Outside
453
5190
Electrical Wiring—Within Buildings
and Drivers
399
5183
Plumbing NOC and Drivers
366
7228
Trucking—Local Hauling Only—All
Employees and Drivers
325
5221
Concrete or Cement Work—Floors,
Driveways, Yards or Sidewalks—
and Drivers
250
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
111
Largest Class Codes Transitioning From
III to F
Class
Code
Description
Premium Size (8810
= 1000)
5645
Carpentry—Detached One or
Two Family Dwellings
500
7229
Trucking—Long-Distance
Hauling—All Employees and
Drivers
416
5403
Carpentry NOC
289
5022
Masonry NOC
285
3724
Machinery or Equipment
Erection or Repair NOC and
Drivers
272
© Copyright 2006 National Council on Compensation Insurance, Inc. All rights reserved.
112