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![Page 1: CAMAR FALL 2012 MEETING Workers Compensation Update: A Little Information About a Lot of Topics Tim Wisecarver, Presenter October 10, 2012 1.](https://reader035.fdocuments.net/reader035/viewer/2022062802/56649e9e5503460f94ba0a55/html5/thumbnails/1.jpg)
CAMAR FALL 2012 MEETING
Workers Compensation Update: A Little Information About a Lot of Topics
Tim Wisecarver, Presenter
October 10, 2012
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![Page 2: CAMAR FALL 2012 MEETING Workers Compensation Update: A Little Information About a Lot of Topics Tim Wisecarver, Presenter October 10, 2012 1.](https://reader035.fdocuments.net/reader035/viewer/2022062802/56649e9e5503460f94ba0a55/html5/thumbnails/2.jpg)
CAMAR FALL 2012 MEETINGWorkers Compensation Update
• Program Outline– Evaluation of Pricing Programs
• A Simple Method• Illustrative Applications
– Large Loss Impacts on Rate Level Indications• General Considerations• Two Local Examples (Pennsylvania and Delaware)
– Large Deductible Business• Brief Overview• Data Reporting and Uses
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
• Program Outline (Continued)– Claim Frequency
• General History• Recent Experience
– Subclassification Design & Pricing• Concepts & Statutory Requirements• Practical Observations
– Employee Misclassification• Employee vs. Independent Contractor• Prevailing Approaches• A Modest Suggestion
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Evaluation of Pricing Programs
• A Simple Method– Partition Experience Data into “Participating” and
“Non-Participating” Groups– Calculate Loss Ratios on Consistent Basis (Reported,
Ultimate, Other) for the Two Groups Before Application of Pricing Program of Interest to Participating Risks
– Compute Adjustment to Participating Group’s Premium Necessary to Make the Two Group Loss Ratios Equal
– Compare Indication to Adjustments Actually Granted Under Program of Interest
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Evaluation of Pricing ProgramsPennsylvania Construction Classification Premium
Adjustment Program (PCCPAP) 1994 - 2008
Reported Loss Ratio, Participating Risks BeforePCCPAP Credits: . . . . . . . . . . . . . . . . . . . . . . . . . . 48.5
Reported Loss Ratio, Non-Participating Risks: . . 48.9
Indicated PCCPAP Adjustment: . . . . . . . . . . . . . . 0.76%
Average Actual PCCPAP Credit: . . . . . . . . . . . . . 12.24%
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Evaluation of Pricing ProgramsDelaware Construction Classification Premium
Adjustment Program (DCCPAP) 1994 - 2008
Reported Loss Ratio, Participating Risks BeforePCCPAP Credits: . . . . . . . . . . . . . . . . . . . . . . . . . . 42.9
Reported Loss Ratio, Non-Participating Risks: . . 40.7
Indicated DCCPAP Adjustment: . . . . . . . . . . . . . -5.45%
Average Actual DCCPAP Credit: . . . . . . . . . . . . . 14.67%
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Evaluation of Pricing ProgramsPennsylvania Certified Safety Committee Program
(PCSCP) 1994 - 2008
Reported Loss Ratio, Participating Risks BeforePCSCP Credits: . . . . . . . . . . . . . . . . . . . . . . . . . . . 46.3
Reported Loss Ratio, Non-Participating Risks: . . 51.5
Indicated PCSCP Adjustment: . . . . . . . . . . . . . . .10.14%
Average Actual PCSCP Credit: . . . . . . . . . . . . . . . 4.97%
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Evaluation of Pricing ProgramsDelaware Workplace Safety Program (DWSP) 1994 - 2008
Reported Loss Ratio, Participating Risks BeforeDWSP Credits: . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.8
Reported Loss Ratio, Non-Participating Risks: . . 33.1
Indicated DWSP Adjustment: . . . . . . . . . . . . . . . -5.17%
Average Actual DWSP Credit: . . . . . . . . . . . . . . .10.97%
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Evaluation of Pricing ProgramsPennsylvania Schedule Rating Plan (Credits)
(PSRP) 1996 - 2008
Reported Loss Ratio, Participating Risks BeforePSRP Credits: . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48.0
Reported Loss Ratio, Non-Participating Risks: . . 52.5
Indicated PSRP Credit: . . . . . . . . . . . . . . . . . . . . . .8.59%
Average Actual PSRP Credit: . . . . . . . . . . . . . . . .21.63%
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Evaluation of Pricing ProgramsPennsylvania Schedule Rating Plan (Debits)
(PSRP) 1996 - 2008
Reported Loss Ratio, Participating Risks BeforePSRP Debits: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58.4
Reported Loss Ratio, Non-Participating Risks: . . 52.5
Indicated PSRP Debit: . . . . . . . . . . . . . . . . . . . . . 11.3%
Average Actual PSRP Debit: . . . . . . . . . . . . . . . . 18.0%
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Evaluation of Pricing ProgramsDelaware Schedule Rating Plan (Credits)
(DSRP) 1994 - 2008
Reported Loss Ratio, Participating Risks BeforeDSRP Credits: . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.2
Reported Loss Ratio, Non-Participating Risks: . . 34.2
Indicated DSRP Credit: . . . . . . . . . . . . . . . . . . . . . 5.74%
Average Actual DSRP Credit: . . . . . . . . . . . . . . . .24.31%
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Evaluation of Pricing ProgramsDelaware Schedule Rating Plan (Debits)
(DSRP) 1994 - 2008
Reported Loss Ratio, Participating Risks BeforeDSRP Debits: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43.2
Reported Loss Ratio, Non-Participating Risks: . . 34.2
Indicated DSRP Debit: . . . . . . . . . . . . . . . . . . . . . 26.55%
Average Actual DSRP Debit: . . . . . . . . . . . . . . . . 17.28%
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Large Loss Impacts on Rate Level Indications
• General Considerations– Size of Market– Prevalence and Magnitude of Upper-End Claims
• NCCI– Claim Limitations Selected @ 1% of Experience Period
Expected Losses
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Large Loss Impacts on Rate Level Indications
• Pennsylvania
– Market in Excess of $2 Billion Annual Premium
– 3-Year Experience Period Expected Losses ~$5 Billion
– Extreme Known Claims ~ $17 Million
– No Loss Limitations Applied for Overall Rate Level
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Large Loss Impacts on Rate Level Indications
• Delaware
– Market ~$125 Million Annual Premium
– 4-Year Experience Period Expected Losses ~$384 Million
– Extreme Known Claims Over $8 Million
– Sliding Scale of Loss Limitations Applied
– December 1, 2012 Loss Limit ~$2.2 Million
– Excess Loss Provision ~10% of Loss Costs
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Large Deductible Business
• “Large”- Retention per Claim or Accident of $100,000 or more
• Market Inception in Early 1990’s
• By 2000, Pennsylvania Market Share for Large Deductibles Was ~31% on a Gross Basis
• By 2009, Pennsylvania Market Share for Large Deductibles Was ~37% on a Gross Basis
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Large Deductible Business
• Pennsylvania Data Reporting and Uses
– Financial Data
» Premiums and Losses
» Gross and Net
» Net Data is Used in Reconciliations with Carriers’ Annual Statements
» Large Deductible Data is Excluded from Overall Loss Cost Indication Analysis
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Large Deductible Business
• Pennsylvania Data Reporting and Uses
– Unit Statistical Data
» Exposures, Premiums, Losses
» Losses on a First-Dollar Basis
» Used in Class Ratemaking, Size-of-Loss Analyses, Experience Rating
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Claim Frequency
• General History
– Countrywide Trends Have Been Favorable for Extended Periods of Time
– Pennsylvania Claim Frequencies* Declined Every Year Since Late 1980’s
– Often Substantially, or Even Entirely, Offsetting Increases in Claim Severities
* Indemnity Claims Per Unit of On-Level Expected Loss
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Claim Frequency
• Recent Experience
– In 2011 NCCI Reported (2010 Data) Increases in Claim Frequencies
– PY 2009 Delaware Showed an Increase of ~1.5% After Historical 8.6% Rate of Decline
– PY 2009 Pennsylvania Showed a 3.1% Decrease
– 2009-2010 California Showed 9.1% Increase
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Claim Frequency
• (More) Recent Experience
– In 2012 NCCI Reported (2011 Data) Return To Claim Frequency Declines
– PY 2010 Delaware Showed a Decrease of ~4.1%
– PY 2010 Pennsylvania Still Under Review
– 2010-2011 California Estimates a 0.3% Decrease
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Subclassification Design & Pricing
• Concepts & Statutory Requirements
– DCO (Rating Bureau) Establishes “Uniform Classification Plan”
– Carriers May Partition Uniform Classes for Marketing/Pricing Purposes
– Data Reporting/Collection Must Support Uniform Classification Plan
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Subclassification Design & Pricing
• Practical Observations
– Pennsylvania Authorization for Subclassifications Dates from 1993
– Meaningful Activity Took Place in Early Years After Authorization (Concurrent with Change to Competitive Rating)
– Creation of New Subclassifications Has Slowed Significantly
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Subclassification Design & Pricing
• Practical Observations
– Pennsylvania Subclassifications Almost Universally Carry LOWER Loss Costs and Rates Than Their “Parent” Uniform Classification
– In Concept, Business Remaining in the Uniform Classification Would Bear Higher Loss Costs Than the Subclassification and the Original Uniform Classification
– In Practice, Residuals of Uniform Classifications Formed by Creation of Subclassifications Carry the “Parent” Uniform Classification’s Rating Values
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Employee Misclassification
• Employee vs. Independent Contractor
– Various Estimates Have Placed Extent of Misclassification at Substantial Levels
» Massachusetts – 4.5% to 8.9% of workersa 5.4% to 11.4% in constructiona
a - The Social and Economic Costs of Employee Misclassification in Construction – Construction Policy Research Center, Labor and Worklife Program, Harvard Law School and Harvard School of Public Health – December 17, 2004
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Employee Misclassification
• Employee vs. Independent Contractor
– Various Estimates Have Placed Extent of Misclassification at Substantial Levels
» Maine – 11% of workers in constructionb b - The Social and Economic Costs of Employee Misclassification in the Maine Construction Industry – Construction Policy Research Center, Labor and Worklife Program, Harvard Law School and Harvard School of Public Health – April 25, 2005
» Pennsylvania – 9% of workersc
c - Pennsylvania Compensation Rating Bureau, April 28, 2008
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Employee Misclassification
• Prevailing Approaches
– Claim Adjudication
» Right of Direction and Control of Injured Individual(s)
– Premium Obligations
» Administrative or Statutory “Lists” of Criteria or Tests to be Met to Qualify as Independent Contractor (Default is Employee)
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Employee Misclassification
• Key Observations
– Some Test Criteria Are Not Simple to Apply or Interpret
– To Varying Degrees, Results of Popular Criteria for Independent Contractor Status Can Vary Over Time for the Same Individual, Even While Performing Services for the Same Entity
– Determinations of Benefit Eligibility and Premium Obligations are Necessarily Made at Different Times and Based on Different Levels of Detail Information
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
Employee Misclassification
• A Humble Suggestion
– (All) Persons Performing Services Falling Within the Scope of Normal Business Operations of the Entity Served Should Be Mandatorily Subject to Workers Compensation Coverage
– Individuals Purchasing Their Own WC Coverage Would Not Be Subject to Inclusion on the Policy of an Entity for Which They Were Performing Services
– Absent Evidence of WC Coverage Maintained by the Individual in Question, Persons Performing Services for Another Business Entity Would Be Subject to Inclusion on the Policy of Such Entity
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CAMAR FALL 2012 MEETINGWorkers Compensation Update
www.pcrb.com or www.dcrb.com
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