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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
CCoonnddiittiioonnss LLeeaaddiinngg ttoo RReeffoorrmmss
• 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
2
May
-02
Sep-0
2
Jan-0
3
Ave
rag
e R
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
LLiimmiittaattiioonnss ooff SSttuuddyy
• 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
-
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
Av
era
ge
Pu
re P
rem
ium
Ra
te
Filed Rates (adjusted for mix) Projected ex Reforms
•Claims Costs: Dollars
PPrroossppeeccttiivvee IImmppaacctt ooff RReeffoorrmmss
PPrroossppeeccttiivvee IImmppaacctt ooff RReeffoorrmmss
•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
Av
era
ge
Pu
re P
rem
ium
Ra
te
Filed Rates (adjusted for mix) Projected ex Reforms
PPrroossppeeccttiivvee IImmppaacctt ooff RReeffoorrmmss
•Claims Costs by Major Component
PPrroossppeeccttiivvee IImmppaacctt ooff RReeffoorrmmss
•Insurance Company RatesExhibit IV.1. California Workers' Compensation - Indicated Average Rates
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
Jan-9
5
Jul-9
5
Jan-9
6
Jul-9
6
Jan-9
7
Jul-9
7
Jan-9
8
Jul-9
8
Jan-9
9
Jul-9
9
Jan-0
0
Jul-0
0
Jan-0
1
Jul-0
1
Jan-0
2
Jul-0
2
Jan-0
3
Jul-0
3
Jan-0
4
Jul-0
4
Jan-0
5
Jul-0
5
Jan-0
6
Ave
rag
e R
ate
WCIRB Estimated Pure Premium Manual Premium Rate Charged Premium Rate
Exhibit IV.1. California Workers' Compensation - Indicated Average Rates
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
Jan-9
5
Jul-9
5
Jan-9
6
Jul-9
6
Jan-9
7
Jul-9
7
Jan-9
8
Jul-9
8
Jan-9
9
Jul-9
9
Jan-0
0
Jul-0
0
Jan-0
1
Jul-0
1
Jan-0
2
Jul-0
2
Jan-0
3
Jul-0
3
Jan-0
4
Jul-0
4
Jan-0
5
Jul-0
5
Jan-0
6
Ave
rag
e R
ate
WCIRB Estimated Pure Premium Manual Premium Rate Charged Premium Rate
PPrroossppeeccttiivvee IImmppaacctt ooff RReeffoorrmmss
•Insurance Industry Return to Profit
PPrroossppeeccttiivvee IImmppaacctt ooff RReeffoorrmmss
•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.
CCaalliiffoorrnniiaa vvss.. OOtthheerr SSttaatteess
•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” ???
SSttuuddyy AAvvaaiillaabbiilliittyy
• The Study can be downloaded on the internet from:
• BRSrisk.com
• dir.ca.gov/DWC
• Or by requesting a CD from BRS or DWC