THE EFFECTS OF MAJOR REFORMS ON WORKERS’ COMPENSATION RATES IN CALIFORNIA DWC Educational...

THE EFFECTS THE EFFECTS OF OF

MAJOR REFORMSMAJOR REFORMSONON

WORKERS’ COMPENSATION RATESWORKERS’ COMPENSATION RATESIN CALIFORNIAIN CALIFORNIA

DWC Educational Conference

March 2 and March 7th, 2006

Gregory Trout, MPABickmore Risk Services

Los Angeles & Oakland, California

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• Open Rating: 1995

• Claims Cost Increases

• Premium Increases

• Insolvencies

Conditions Leading to ReformsConditions Leading to ReformsCalifornia Workers' Compensation - Indicated Average Rates

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Jan-9

5

May

-95

Sep-9

5

Jan-9

6

May

-96

Sep-9

6

Jan-9

7

May

-97

Sep-9

7

Jan-9

8

May

-98

Sep-9

8

Jan-9

9

May

-99

Sep-9

9

Jan-0

0

May

-00

Sep-0

0

Jan-0

1

May

-01

Sep-0

1

Jan-0

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May

-02

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2

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3

Ave

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ate

WCIRB Estimated Pure Premium Charged Premium Rate

BRS Study of ReformsBRS Study of Reforms

• Authorized by SB 899 • Initiated by DWC • No Cost to Taxpayers (insurance industry

assessment) • Scope: Impact of Reforms on Claims Costs

– Charged Premiums

– Insurance Company Surplus

– Marketplace/Competition

– WCIRB/CDI Estimates

Scope of StudyScope of Study

Reforms Focused on:• AB 749 (2002) • AB227/SB228

(2003)• SB 899 (2004)

I. Background Leading to Workers’ Compensation Reforms

II. Scope and Approach

III. Claims Savings Generated by Reforms

IV. Effect of Reforms on Insurance Rates

V. Effects of the Reforms on Insurance Industry Surplus and Solvency

VI. Insurance Markets and Competition

VII. Adequacy and Accuracy of Workers’ Compensation Insurance Bureau and California Department of Insurance Rates

VIII. Evaluation of Reforms in Other States

IX. Evaluation of Regulatory Structure

X. Areas of Further Research

BRS Study of ReformsBRS Study of Reforms

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• Fairness of Benefit Levels and Medical Fees

• Quality of and Access to Medical Care

• Effects on Self-Insurers

• Long Term Effects of Reforms

Retrospective Impact of Retrospective Impact of ReformsReforms

•Overall Savings

Exhibit V.1. Impact of Reforms on Insurance Industry Reserves (2003 & Prior): ($Billions)

Reform Savings Active Insurers

Savings All Insurers

Medical Fees $2.3-$2.6 $2.8-$3.1

Evidence-Based Medicine $2.9-$4.0 $3.4-$4.7

Permanent Disability $0.2-$2.8 $0.2-$2.9

Total $5.4-$9.4 $6.4-$10.7

•Historical Evaluations

Evaluation YearSource: WCIRB Quarterly Report at September 30, 2005

$1.6$2.3

$3.6

$4.4

$5.9

$7.8

$9.8

$11.4

$12.9

$0.5

$11.2

$6.3

$-

$2

$4

$6

$8

$10

$12

$14

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Exhibit V.3. Estimated Ultimate Losses Less Reported Losses at Successive December 31 Evaluations

(After Reflecting the Estimated Impact of AB 227, SB 228, & SB 899 on Unpaid Losses)

In Billions

As of 9/30/2005

Retrospective Impact of Retrospective Impact of ReformsReforms

Prospective Impact of ReformsProspective Impact of Reforms•Claims Costs

Exhibit III.3. Projected Average CDI Pure Premium Rates Absent Reforms

2.522.81 2.64 2.57 2.57

3.043.35

3.694.06

4.494.81

4.10 3.81 3.73

3.062.59

5.39 5.66 5.936.22

6.52

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1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

1/95 1/96 1/97 1/98 1/99 1/00 1/01 1/02 7/02 1/03 7/03 1/04 7/04 1/05 7/05 1/06

Effective Date

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Filed Rates (adjusted for mix) Projected ex Reforms

•Claims Costs: Dollars

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•Claims Costs: Percent

Exhibit III.3. Projected Average CDI Pure Premium Rates Absent Reforms

2.522.81 2.64 2.57 2.57

3.043.35

3.694.06

4.494.81

4.10 3.81 3.73

3.062.59

5.39 5.66 5.936.22

6.52

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

1/95 1/96 1/97 1/98 1/99 1/00 1/01 1/02 7/02 1/03 7/03 1/04 7/04 1/05 7/05 1/06

Effective Date

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Filed Rates (adjusted for mix) Projected ex Reforms

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•Claims Costs by Major Component

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•Insurance Company RatesExhibit IV.1. California Workers' Compensation - Indicated Average Rates

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Jan-9

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Jul-9

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Jul-9

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WCIRB Estimated Pure Premium Manual Premium Rate Charged Premium Rate

Exhibit IV.1. California Workers' Compensation - Indicated Average Rates

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Jul-9

5

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Jul-9

6

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Jul-9

7

Jan-9

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Jul-9

8

Jan-9

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Jul-9

9

Jan-0

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Jul-0

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WCIRB Estimated Pure Premium Manual Premium Rate Charged Premium Rate

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•Insurance Industry Return to Profit

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•Insurance Company Market ShareExhibit VI.6. SCIF Market Share, 1998 – 2004

(Percent of Written Premium)

41%

33%

51%53% 51%53%

50%

43%

28%

58%

47%

36%

22%22%

0%

10%

20%

30%

40%

50%

60%

70%

1998 1999 2000 2001 2002 2003 2004 2005

Year

Market Share

Unadjusted Adjusted

Note: Unadjusted percentages are as reported to CDI. Adjusted reflect adjustments by BRS to amount reported by SCIF due to difference in recognition of written premium.

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•Loss Rate ComparisonExhibit IV.9. Pure Premium Relationship to California – Percentage Higher or Lower

Approved Pure Premiums at January 1, 2006 Excluding Loss Adjustment Expense

Higher than California Lower than California-

More than 25% Higher

Less than 25% Higher

Less than 25% Lower

More than 25% Lower

Florida Alaska Minnesota Arizona

Montana Texas Colorado

Hawaii

Massachusetts

Michigan

Nevada

New York

Oregon

Wisconsin

Note: Approved Pure Premiums in California have declined by more than 40% since July 2003.

Uncertainties RemainUncertainties Remain

• Future and Retroactive Cost Savings will be impacted by:

• Changes due to Legal Decisions

• Legislative Changes

• Regulatory Changes

• Changes to System through Voter Initiatives

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• SCIF’s Role• CIGA Funding• Review of Regulatory Oversight• Cost Savings of Reforms to Public

and Private Self-Insurers• Need for claims data from Self-Insurers• MPN’s• Annual Monitoring of the Effects of

Reforms and Subsequent Changes

NNeexxtt YYeeaarr’’ss DDWWCC SSeessssiioonn

Will it be: 1. “The Effects of Proposition 142, 143,

and 144 on the Workers’ Compensation System in California”

2. “The Effects of the Revised P.D. Schedule Adopted July 1, 2006 & other changes to Previous Reforms”, or

3. “The Savings Continues From the Reforms of 2002-2004” ???

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• The Study can be downloaded on the internet from:

• BRSrisk.com

• dir.ca.gov/DWC

• Or by requesting a CD from BRS or DWC