WORKERS COMPENSATION
- CURRENT ISSUES (SESSION WC-3)
Barry Lipton, FCAS, MAAA
– NCCI
Nancy Treitel, FCAS, MAAA
– Liberty Mutual
Casualty Actuarial Society
2004 Seminar on Ratemaking
Philadelphia, Pennsylvania
March 11-12, 2004
WC Premium Growth Leads Most Other
Lines
Net Written Premium by Line
Line of Business
2002
2003p
Change
Personal Auto
$
139.6 B $
149.5 B
7.1%
Homeowners
$
40.0 B $
44.6 B
11.5%
Other Liability (Incl Prod Liab)
$
30.9 B $
38.4 B
24.1%
Workers Compensation
$
36.5 B $
41.4 B
13.3%
Commercial Multiple Peril
$
25.4 B $
27.9 B
9.7%
Commercial Auto
$
24.6 B $
26.1 B
6.3%
Fire & Allied Lines (Incl EQ)
$
15.4 B $
17.1 B
11.1%
All Other Lines
$
66.4 B $
72.5 B
9.2%
Total All Lines
$ 378.9 B $ 417.5 B
10.2%
Source: Best’s Aggregates & Averages, Review/Preview
(Includes state funds for: AZ, CA, ID, LA, MD, ME, MN, OR, RI, TX, and UT)
2
© 2004 National Council on Compensation Insurance, Inc.
Combined Ratios Improved in 2003
Net Combined Ratios
Line of Business
2001
2002
2003p
Personal Auto
108%
104%
99%
Homeowners
122%
109%
103%
Other Liability (Incl Prod Liab)
130%
137%
121%
Workers Compensation
121%
112%
110%
Commercial Multiple Peril
119%
105%
102%
Commercial Auto
116%
103%
94%
Fire & Allied Lines (Incl EQ)
127%
89%
85%
All Other
115%
105%
92%
Reinsurance Co's
163%
126%
N/A
116%
107%
101%
Total All Lines
Source: Best’s Aggregates & Averages, Review/Preview
(Includes state funds for: AZ, CA, ID, LA, MD, ME, MN, OR, RI, TX, and UT)
3
© 2004 National Council on Compensation Insurance, Inc.
Return on Equity for Total P&C Appears
In Line With Other Industries
Estimated 2003 After-Tax ROE for Public Companies
16%
14.5%
14.5%
14%
12%
9.8%
9.5%
10%
7.5%
7.0%
8%
6%
4%
2%
0%
Drug
Auto Mfg.
(Big 3)
Large
Banks
Retail
Life Ins.
P/C Ins.
(Proj.
ROS)
Source: Value-Line, latest estimates as of 1/2004. P/C projected 2003 ROS from Best’s Review/Preview.
4
© 2004 National Council on Compensation Insurance, Inc.
Workers Compensation Premium Volume
Continues to Grow
Workers Compensation Net Written Premium
$ Billions
$ Trillions
60
5.0
50
41.4
40
34.3
4.0
36.5
32.7
29.5
30
27.7
26.5
25.7
24.6
28.1
3.0
31.4
2.0
20
1.0
10
0
0.0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002 2003p
Calendar Year
WC Net Written Premium ($ B)
Private Nonfarm Wages and Salaries ($ T)
Source: Best’s Aggregates & Averages, Review/Preview; Economy.com
5
© 2004 National Council on Compensation Insurance, Inc.
Large Deductible Growth Continues
Calendar Year WC Premiums & Premium Equivalents
NCCI States
30
25.1
$ Billions
25
20.6
26.8
23.3
22.9
22.3
19.9 19.7
20
21.0
18.4 18.4
17.0
18.7
15
10
5
0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Estimated Large Deductible premium credit
Large Deductible Net premium
Net Earned Premium excluding Large Deductible policies
Source: NCCI Large Deductible study
6
© 2004 National Council on Compensation Insurance, Inc.
Calendar Year WC Loss Ratio Showing
Slight Improvement
Workers Compensation Net Loss Ratios
1.9 % Due to
September 11th.
100
90
Percent
80
79
74
74
73
73
68
70
61
60
57
58
1995
1996
58
62
50
40
1993
1994
1997 1998 1999
Calendar Year
2000
2001
2002 2003p
Source: Best’s Aggregates & Averages, Review/Preview; 9-11 est. from NCCI
7
© 2004 National Council on Compensation Insurance, Inc.
WC Loss Ratios - Impact of Large
Deductible Policies
First
Dollar
Loss
Expense
Premium
Loss Ratio
Expense Ratio
Large
Deductible
$ 75
$ 25
$100
$ 15
$ 23
$ 38
75%
25%
40%
60%
8
WC LAE Ratios to Premium Appears to
Have Leveled Off
WC Ratio of Loss Adjustment Expense to Net Earned Premiums
20
16.2
14.5
Percent
15
12.5
13.1
12.8
1993
1994
1995
16.2
16.0
14.2
13.5
13.1
2001
2002 2003p
13.1
10
5
0
1996
1997
1998
1999
2000
Calendar Year
Source: Best’s Aggregates & Averages, Review/Preview
9
© 2004 National Council on Compensation Insurance, Inc.
WC LAE To Loss Ratios In Recent Years
Shows Slight Increase
WC Ratio of Loss Adjustment Expense to Losses
30
25.2
25
Percent
20
21.7
24.6
26.1
23.8
22.5
21.7
17.2
18.1
17.1
17.7
2001
2002 2003p
15
10
5
0
1993
1994
1995
1996
1997
1998
1999
2000
Calendar Year
Source: Best’s Aggregates & Averages, Review/Preview
10
© 2004 National Council on Compensation Insurance, Inc.
WC Expense Ratios Continue Slight
Decline
WC Ratio of Underwriting Expenses to NWP (Excl Divs)
30
24.9
25
Percent
20
19.3
21.0
25.6
26.3
27.5
25.8
25.0
22.7
22.5
21.7
15
10
5
0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002 2003p
Calendar Year
Source: Best’s Aggregates & Averages, Review/Preview
11
© 2004 National Council on Compensation Insurance, Inc.
WC Dividend Ratios Continue to Decline
WC Ratio of Policyholder Dividends to Net Earned Premium
7.5
7.0
6.9
6.6
6.7
6.0
5.4
5.0
5.4
Percent
5.0
3.5
2.6
2.5
2.3
0.0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002 2003p
Calendar Year
Source: Best’s Aggregates & Averages, Review/Preview
12
© 2004 National Council on Compensation Insurance, Inc.
Workers Compensation Calendar Year
Combined Ratio Declined in 2003
Workers Compensation Combined Ratios
1.9% Due to
September 11th
140
120
110
102
1994
100
102
104
1995
1996
1997
111
119
121
121
112
110
2002
2003p
100
80
60
40
20
0
1993
Loss
LAE
1998
1999
2000
Underwriting Expense
2001
Dividends
Source: Best’s Aggregates & Averages, Review/Preview
13
© 2004 National Council on Compensation Insurance, Inc.
Low WC Investment Returns Continued in
2003
WC Ratio of Investment Gain and Other
Income to Premium
25
20
22.4
21.9
17.7
17.1
18.6
21.0
18.6
15.1
15
12.8
11.8
11.9
10
5
0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002 2003p
Calendar Year
p Preliminary
Source for 1993–2002: A.M. Best Aggregates & Averages; 2003p: NCCI estimate based on data in Best’s Review/Preview
Investment gain includes investment income on insurance transactions and realized capital gains.
14
© 2004 National Council on Compensation Insurance, Inc.
WC Results in 2003 Improved Over 2002
WC Pretax Operating Gain/Loss Ratio
25
18.2
20
13.5
15
10
16.2
18.2
7.6
7.4
3.9
5
2.4
0.2
0
-0.4
-5
-10
-8.1
-15
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003p
Calendar Year
p Preliminary
Source for 1993–2002: A.M. Best Aggregates & Averages; 2003p: NCCI estimate based on data in Best’s Review/Preview
Investment gain includes investment income on insurance transactions and realized capital gains.
15
© 2004 National Council on Compensation Insurance, Inc.
WC Calendar Year Combined Ratios
Private Carriers Compared to
Private Carriers + A.M. Best State Funds
Combined Ratio
130
121
119
120
122 121
118
115
110
111
109 110
111
112
110
108
100
100
100
104
104
102
101 102
101
97
90
1993
1994
1995
1996
1997
1998
PC
1999
2000
2001
2002 2003p
PC+SF
p Preliminary (State Funds include: AZ, CA, ID, LA, MD, ME, MN, OR, RI, TX, and UT)
CY 1993-2002 & PC+SF 2003p: Best’s Aggregates & Averages, Review/Preview;
PC CY 2003p: NCCI estimate
16
Includes dividends to policyholders.
© 2004 National Council on Compensation Insurance, Inc.
Combined Ratio in AY 2002 Continued
to Improve
WC Calendar Year vs. Ultimate Accident Year
Countrywide - Private Carriers
Combined Ratio
140
137
133
129
130
119
120
110
115
109
95
97 97
101 100
118
111
107
108
106
101
100
125
122
104
101
101
90
1993
1994
1995
1996
1997
1998
Calendar Year
1999
2000
2001
2002 2003p
Accident Year
p Preliminary
CY 1993-2002: Best’s Aggregates & Averages; AY 1993-2002: NCCI; CY & AY 2003p: NCCI estimates
Accident year data is evaluated as of 12/31/2002 and developed to ultimate.
17
© 2004 National Council on Compensation Insurance, Inc.
Includes dividends to policyholders.
What Have Been The Key Factors
Impacting Workers Compensation Results?
• Carrier Reserves
• Carrier Pricing
• Loss Severity Trends (especially Medical)
• Frequency Trends
• Investments
18
© 2004 National Council on Compensation Insurance, Inc.
Workers Compensation Reserve
Strengthening Continues
Dollar Amount of Reserve Adjustments on Prior AYs
WC Countrywide—Net—Private Carriers
5
3.2
$Billions
3
3.2
2.2
1.8
0.6
1
2.0
0.4
-1
-0.4
-1.8
-3
-2.7
-2.0 -2.2
-1.4
-5
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Calendar Year
Loss and LAE reserves.
19
© 2004 National Council on Compensation Insurance, Inc.
Reserve Releases Have Partially Offset the
Upward Development on More Recent
Accident Years for WC
Accident Year Loss Ratios Including LAE
Reserve Releases
Loss and LAE Ratio
100%
95%
95%
91%
90%
90%
85% 82%
83%
80%
80%
78%
75%
70%
79%
77%
84%
81%
83%
83% 83%
75%
72%
67%
66%
68%
65%
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Accident Year
At First Report
Reported Loss and LAE reserves from Schedule P.
20
As of 12/02
© 2004 National Council on Compensation Insurance, Inc.
How Are Final WC Premiums
Determined?
ADVISORY ORGANIZATION
INSURANCE COMPANY
Advisory Loss Costs
Final Rate Determination:
Assigned Risk Rates
–
Expense Multiplier
Experience Rating Values
–
Loss Cost Deviations
Experience Mods
Rating Plans and
Classifications
Individual Risk Modifications:
–
Schedule Rating
–
Retrospective Rating
21
© 2004 National Council on Compensation Insurance, Inc.
Following Six Years of Decreases, the Average
Approved Bureau Rate/Loss Cost Changes Have
Been Increases for the Last Three Years
History of Average WC Bureau Rate/Loss Cost Level Changes
Cumulative 1990-1993
+36.2%
14
Cumulative 2000-2003
+17.0%
12.1
Cumulative 1994-1999
10.0
10
6.1
-27.7%
7.4
6.6
4.9
Percent
6
3.5
2.9
1.2
2
-2
-2.6
-3.2
-6
-6.4
-5.4
-6.0
Calendar Year
p Preliminary (states approved to date in 2004).
Countrywide approved changes in advisory rates, loss costs and assigned risk rates as
filed by the applicable rating organization. The countrywide change is a weighted
average of individual state changes based on state premium volumes and ignoring
effective dates.
22
20
04
p
20
03
20
02
20
01
20
00
19
99
19
98
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
97
-8.0
-10
19
89
-3.5
© 2004 National Council on Compensation Insurance, Inc.
Impact of Discounting on WC
Premium
NCCI States—Private Carriers
0
Percent
-5
-10
-15
-7.1
-7.5
-7.0
-6.0
-8.5
-10.4
-14.2
-14.6
-20
-17.7
-25
-19.2
-22.6 -23.2
-30
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Policy Year
Rate/Loss Cost Departure
Schedule Rating
Dividends
Based on data through 12/31/02 for the states where NCCI provides ratemaking services.
Dividend ratios are based on calendar year statistics.
23
© 2004 National Council on Compensation Insurance, Inc.
What are Some Key Components and
Factors for WC Premiums?
Loss Cost = f (customer, company,
and/or industry losses,
inflation, interest rate, medical
technology, economy, etc.)
+ Risk Charge
+ Expenses
+ Tax
Premium
24
The Rate of Change in Workers
Compensation Indemnity Claim Costs
Has Accelerated Since 1995
17
+7.3%
15
+10.5%
Annual Change 1991–1995: +0.3%
+8.3%
Annual Change 1996–2002: +7.5%
13
+7.3%
$14.2
$11.8
$11.0
$9.7
$9.6
$9.1
$9.4
7
$10.3
9
+5.9%
$12.8
+1.0% -3.1% -2.8%+4.9% +1.7%
$15.2
11
$16.1
+6.9%
$9.7
Average Indemnity Claim Cost
per Lost-Time Claim (000s)
+6.0%
5
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Accident Year
Based on data through 12/31/02, developed to ultimate.
Based on the states where NCCI provides ratemaking services.
Excludes the effects of deductible policies.
25
© 2004 National Council on Compensation Insurance, Inc.
WC Indemnity Severity Is Outpacing
Wage Inflation
12%
10.5%
10%
8.3%
8%
6.0%
4.1%
2%
7.3%
5.9%
6%
4%
7.3%
6.9%
2.8%
4.7%
4.2%
4.9%
4.2%
2.8%
2.2%
1.7%
0%
1995
1996
1997
1998
1999
2000
2001
2002
Year
Change in CPS wage
Change in Indemnity Cost Per Lost Time Claim
Source for Indemnity Severity: NCCI, based on data through 12/31/02.
Based on the states where NCCI provides ratemaking services, excludes the effects of deductible policies.
Source for CPS (Current Population Survey): Economy.com as of Feb 2004
26
© 2004 National Council on Compensation Insurance, Inc.
Workers Compensation Medical Claim
Cost Trends Continue to Accelerate
+11.0%
+12.0%
15
Annual Change 1991–1995: +4.0%
13
+9.0%
Annual Change 1996–2002: +9.0%
+8.7%
+7.7%
$10.3
$9.6
$12.0
+5.1%
$8.9
$8.5
$7.8
$8.0
7
+6.8% +1.3% -2.1%
+9.0%
$11.1
9
$13.1
+7.4%
$14.7
11
$16.3
+7.3%
$7.9
Average Medical Claim Cost
per Lost-Time Claim (000s)
17
5
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Accident Year
Based on data through 12/31/02, developed to ultimate.
Based on the states where NCCI provides ratemaking services.
Excludes the effects of deductible policies.
27
© 2004 National Council on Compensation Insurance, Inc.
WC Medical Severity Has Also Been
Growing Faster than the Medical CPI
14%
12.0%
12%
11.0%
Percent
10%
7.4%
8%
6%
9.0%
8.7%
7.7%
7.3%
5.1%
4.5%
3.5%
4%
2.8%
3.5%
3.2%
4.1%
4.6%
4.7%
2%
0%
1995
1996
1997
1998
1999
2000
2001
2002
Year
Change in Medical CPI
Change in Medical Cost Per Lost Time Claim
Source for Medical Severity: NCCI, based on data through 12/31/02, developed to ultimate.
Based on the states where NCCI provides ratemaking services, excludes the effects of deductible policies.
Source for Medical CPI: Economy.com as of Feb 2004
28
© 2004 National Council on Compensation Insurance, Inc.
WC Medical Losses Eclipsed Half of
Total WC Losses
2002
NCCI States—Private Carriers
Medical: 50.3%
Indemnity:
32
Average Claim Cost
per Lost-Time Claim (000s)
35
30
1991
30
Medical: 44.7%
25
Indemnity: 55.3%
20
49.7%
18
17
27
25
17
18
19
20
21
23
15
10
5
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Indemnity
Accident Year
Medical
Based on data through 12/31/02, developed to ultimate.
Based on the states where NCCI provides ratemaking services.
Excludes the effects of deductible policies.
29
© 2004 National Council on Compensation Insurance, Inc.
NCCI Prescription Drug Study
•
In 2001, workers compensation insurers paid
roughly 75% more than group health for the
same drugs
•
Prescription drug share of medical costs in
workers compensation grew from 7% in
Accident Year 1997 to approximately 10% in
Accident Year 2001
•
Utilization has a greater impact than price on
workers compensation drug costs
•
Savings opportunities from using generic
equivalents are present for less than 10% of
total drug costs
•
Painkillers represent 55% of workers
compensation drug costs
30
© 2004 National Council on Compensation Insurance, Inc.
The Impact of Inflation is More
Sensitive on Excess Policies
Year 1
Year 2
Change
Gross Loss
$360,000
$385,200
7%
Deductible
$250,000
$250,000
-
Excess Loss
$110,000
$135,200
23%
31
With Medical Technology,
How Big Can a WC Claim Become?
•
•
•
•
•
Consider a 25-year old quadriplegic
Indemnity benefits of $23,500 a year
24-hour attendant care costs of $135,000 a year
Other medical costs of $72,500 a year
These costs continue until death
Medical Inflation Rate
Age at
Death
5%
7%
9%
45
$7
$8
$8
60
$16
$20
$27
75
$33
$49
$82
90
$64
$118
$266
$ amounts are in millions.
Attendant care assumed to increase at 3% per year
32
The Frequency of Lost-Time Claims Has
Continued to Fall Through 2002
Workers Compensation
2%
0.5%
Change in Frequency
per 100 Workers
0.3%
Cumulative Change of –39.7%
(1990-2002)
0%
-2%
-2.3%
-4%
-4.2% -4.4%
-4.5%
-3.9%
-3.7%
-4.4%
-6%
-6.5%
-6.8%
-8%
-10%
-9.2%
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Accident Year
Based on data through 12/31/02, developed to ultimate.
Based on the states where NCCI provides ratemaking services.
Excludes the effects of deductible policies.
33
© 2004 National Council on Compensation Insurance, Inc.
Workers Compensation Frequency
Trends
Workers Compensation Frequency is
Composed of Two Key Components:
• Long-term improving trend due to working
conditions
• Short-term cyclical behavior that correlates with
the economy
34
© 2004 National Council on Compensation Insurance, Inc.
Rate of Work-Related Injuries Decreases
Over Time Due to Improved Working
Conditions
25
20
15
10
Injuries and Illness per 100 Full-time Workers Private Industry
Trend Line
5
Injuries and Illness per 100 Full-time Workers Manufacturing
Trend Line
2001
1998
1995
1992
1989
1986
1983
1980
1977
1974
1971
1968
1965
1962
1959
1956
1953
1950
1947
1944
1941
1938
1935
1932
1929
1926
0
Source: Bureau of Labor Statistics and Federal Reserve Bank of Dallas
35
© 2004 National Council on Compensation Insurance, Inc.
Workplace Injury Incidence Rates—
Decreases During Recessions and
Increases in Recovery
Countrywide—Six Recessions Since 1960
25
Incidence Rates
Per 100 FTE Workers
20
15
10
5
Recessions
Injuries and illnesses per 100 full-time workers in manufacturing
2002
1998
1999
2000
2001
1995
1996
1997
1992
1993
1994
1988
1989
1990
1991
1985
1986
1987
1982
1983
1984
1979
1980
1981
1975
1976
1977
1978
1972
1973
1974
1969
1970
1971
1965
1966
1967
1968
1962
1963
1964
0
1960
1961
Injuries and illnesses per 100 full-time workers in private industry
Source: Bureau of Labor Statistics and National Bureau of Economic Research
36
© 2004 National Council on Compensation Insurance, Inc.
Frequency by Loss Range
Without Inflation Adjustment
(Lost Time Claims)
Percent Change Between Policies Expiring in 1997 and 2001
0.20
-40%
-19%
-3%
+15%
Claim Frequency Per $1M
of Wage Adjusted Payroll
0.18
0.16
0.14
0.12
0.10
0.08
0.06
0.04
0.02
0.00
$0 - $2,000
$2,001 - $10,000 $10,001 - $50,000
Policies expiring in 1997 *
Source: NCCI
* Actual policy expiration between 9/30/1996 and 8/31/1997
** Actual policy expiration between 9/30/2000 and 8/31/2001
37
$50,001 +
Policies expiring in 2001 **
© 2004 National Council on Compensation Insurance, Inc.
Frequency by Loss Range
With Inflation Adjustment
(Lost Time Claims)
Percent Change Between Policies Expiring in 1997 and 2001
0.20
-35%
-18%
-8%
-8%
Claim Frequency Per $1M
of Wage Adjusted Payroll
0.18
0.16
0.14
0.12
0.10
0.08
0.06
0.04
0.02
0.00
$0 - $2,000
$2,001 - $10,000 $10,001 - $50,000
Policies expiring in 1997 *
$50,001 +
Policies expiring in 2001 **
Source: NCCI
* Actual policy expiration between 9/30/1996 and 8/31/1997
** Actual policy expiration between 9/30/2000 and 8/31/2001 38
Loss ranges have been adjusted for indemnity (4%) and medical (3%) inflation.
© 2004 National Council on Compensation Insurance, Inc.
The Annual Change in Lost-Time
Claim Costs per Worker Continued to
Increase in 2002
Workers Compensation
10%
Change in Costs
per Worker
8%
7.8%
7.1%
6.0%
6%
4.9%
4%
4.4%
3.1%
2.1%
1.8%
2%
0%
-2%
-4%
-3.4%
1994
1995
1996
1997
1998
1999
2000
2001
2002
Accident Year
Based on data through 12/31/02, developed to ultimate.
Based on the states where NCCI provides ratemaking services.
Excludes the effects of deductible policies.
39
© 2004 National Council on Compensation Insurance, Inc.
What Are Today’s Key Issues in
Workers Compensation?
• WC Medical Inflation
• Growth in Residual Markets
• Expiration of Terrorism Risk Insurance Act
(TRIA) 12/31/2005
• Insurer and Reinsurer Downgrades,
Insolvencies, and Consolidations
• Legislative Issues
40
WC Residual Market Premium
Increased
$ Billions
as of September 30, 2003
6
5
4
3
2
1
0
4.0
4.4
4.8
4.1
3.5
3.1
2.6 2.8
2.1
$1. 4B
$1.1B
2.0
$626M
1.2
1.0
0.6
0.3 0.3 0.4
85 86 87 88* 89* 90* 91* 92* 93 94 95 96 97 98 99 00 01 02**03**
Policy Year
* Excludes Maine Residual Market Pool.
** Incomplete PY Projected to Ultimate
41
© 2004 National Council on Compensation Insurance, Inc.
WC Residual Market Combined Ratios
as of September 30, 2003
200
180
177
165 169 166
Percent
160
159
142
140
127
120
114 117 118 115 116 113
111
103
100
97 94 98
102
80
85
86
87
88* 89* 90* 91* 92*
93
94
95
96
97
98
99
00
01 02** 03**
Policy Year
* Excludes Maine Residual Market Pool.
** Incomplete PY Projected to Ultimate
42
© 2004 National Council on Compensation Insurance, Inc.
WC Residual Market
Underwriting Results Show Slight
Deterioration
as of September 30, 2003
500
100 116
21
0
-13
-125
-45
-47
-64
-96
00
01 02** 03**
-169 -190
$ Millions
-500
-542
-1,000
-936
-1,176
-1,500
-1,369
-1,674
-1,802
-1,883
-2,072
-2,000
-2,500
85
86
87 88* 89* 90* 91* 92* 93
94
95
96
97
98
99
Policy Year
* Excludes Maine Residual Market Pool.
** Incomplete PY Projected to Ultimate
43
© 2004 National Council on Compensation Insurance, Inc.
Unique Challenges of Workers
Compensation and Terrorism
Coverage
• Coverage mandated by law, exclusions are not possible
• Benefits are defined by law, limits aren’t possible
• Risks that aren’t written voluntarily will be backed by the
entire market through the involuntary pool
• Terrorism Risk Insurance Act (TRIA) expires 12/31/2005
– Government backstop goes away, unless Congress
renews
– Any policy effective after 1/1/2005 has exposure
– NCCI developing filing strategy
44
Impacts of Insolvencies and Market
Concentration
• Market Concentration-has accelerated since
1992
• Only three of the top 10 groups of 20 years
ago remain in the top 10 today
• Insolvencies continue to be an issue
– Impact remaining insurers
– Create cash flow problems for states due to caps on
annual recoupment from insurers
– Impact allocation of Pool results to carriers –
resulted in redistributions of over $84M to the
residual market pool members in 2003
– Create data problems for advisory organizations
45
Legislative Update
Issues and Trends
2003 Session Overview
• Most active session since the mid-1990s
• Over 1000 bills introduced, more than 150
enacted
• Many proposals for benefit increases, but few
enacted
• State budget issues abound
• Many new governors, legislators and
regulators
46
Legislative Update
Issues and Trends
2003 Key Themes
• Medical cost controls
• Expanded presumption of compensability for
safety workers and emergency responders
• Clarification of coverage for adverse reactions
to smallpox vaccine
• Medical Privacy
• Indemnity benefit increases
• Attorney fees
47
Legislative Update
2003 Key Enacted Legislation
• California
− Significant reforms signed into law 9/30/03 aimed at controlling
medical costs. Included fee schedule changes, medical utilization
controls, and repeal of voc rehab. WCRIB estimated impact on
2004 Pure Premium Rate Level -13.3% to -15.7%
• Florida
− SB 50A: numerous benefit changes resulting in –14.0% impact
effective 10/01/03
− Medical fee schedule changes went into effect 01/01/04
• Maryland
− Attorney fees, hospital fees, MD Supreme Court decision (Harris)
with combined impact of +6.0%
48
Legislative Update
2003 Key Enacted Legislation (cont’d)
• Montana
− Indemnity benefits, Montana court case (Stavenjord) with combined
impact of +6.2% effective 7/1/03
• Nevada
− Adoption of the 5th edition of the AMA Guides, introduction of COLA
for PT claims, combined impact of +3.4%
• New Mexico
− Indemnity benefits, attorney fees and medical fee schedule
changes with combined impact of +6.1% effective 7/1/03
• Oregon
− Complete overhaul of PPD system to become effective in 2005
49
Legislative Update
Issues and Trends
2004 Emerging Themes
•
•
•
•
•
•
•
Employer vs Employee Choice of Physician
Erosion of Exclusive Remedy
Medical Fee Schedules
Attorney Fees
Indemnity Benefit Increases
Second Injury Funds
Containing Medical Costs
50
Workers Compensation
Key Issues for the Future
• How will the industry deal with terrorism exposure? And will the
government renew TRIA?
• Will severity trends continue to accelerate or start to moderate?
• Will written premiums continue to increase?
• What impact will changes in the economy have, especially on
frequency?
• What impact will reserve deficiencies have on results?
• Will potential threats to rollback reforms or expand benefits
succeed?
• Where are investment returns headed?
51
© 2004 National Council on Compensation Insurance, Inc.
WORKERS COMPENSATION
- CURRENT ISSUES (SESSION WC-3)
Q&A