Lockton Companies |

AGC Risk Management Conference

Data Analytics and Workers’ Compensation

Presenters:

Kristen Weber - BE&K Building Group

Mark Moitoso – Lockton Companies

Paul Primavera – Lockton Companies

The State of the Workers Compensation Market

Lockton Companies |

NCCI’s 2018 State of the Line guide shows a seven-year trend of improving workers’ compensation underwriting results for private carriers.

The 2017 ratio of 89 is lower than prior low of 93 in 2006.

https://www.ncci.com/Articles/Documents/AIS2018-SOTL-Guide.pdf

Workers Compensation Performance - Combined Ratio

KC: 52225

3

80

85

90

95

100

105

110

115

120

125

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Com

bine

d ra

tio

Workers' compensation

Despite the market, the devil’s in the details.

Lockton Companies |

Smaller companies (with less than $1 billion of revenue) spend more per $1,000 of revenue on TCoR than larger companies.

Industrial companies* spend more on TCoR than the all-industry benchmark. Workers’ compensation costs (premiums and retained loss) represent about 27 percent of

TCoR for smaller industrials and 25 percent for larger industrials.

*The RIMS survey places construction in the industrials category, which also includes manufacturers and service providers in aerospace and defense, building products, engineering, machinery, airlines, marine transportation, and more.**Other includes management liability, cyber, fidelity, surety and crime, medical malpractice, kidnap, ransom and extortion premiums and financial and political risk.

Total cost of risk (TCoR) per $1,000 of revenue

KC: 52225

5

$5.01

$3.32

$1.80$1.22

$18.45

$14.91

$7.15

$4.68

$0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00

$18.00

$20.00

Industrials Average All Industry Average Industrials Average All Industry Average

< $1B in Revenue > $1B in Revenue

2017 TCoR per $1,000 of Revenue

Other**

Marine & Aviation

Professional Liability

Total Administrative Costs

Property

Workers' Compensation

Liability

Lockton Companies |

Supply/Demand Labor Imbalance

KC: 52225

Unemployment rates in construction industry are the lowest they have been since 2000.

6Source on this page is https://www.bls.gov/iag/tgs/iag23.htm.

10.6

19.020.6

16.4

13.9

11.3

8.97.3

6.3 6.0

0.0

5.0

10.0

15.0

20.0

25.0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Yearly Average

Lockton Companies |

Wages are Increasing

KC: 52225

7

Source on this page is https://www.bls.gov/iag/tgs/iag23.htm.

Qtr1

Qtr2

Qtr3

Qtr4

Qtr1

Qtr2

Qtr3

Qtr4

Qtr1

Qtr2

Qtr3

Qtr4

Qtr1

Qtr2

Qtr3

Qtr4

Qtr1

Qtr2

Qtr3

Qtr4

Qtr1

Qtr2

Qtr3

Qtr4

Qtr1

Qtr2

Qtr3

Qtr4

Qtr1

Qtr2

Qtr3

Qtr4

Qtr1

Qtr2

Qtr3

Qtr4

Qtr1

Qtr2

Qtr3

Qtr4

Qtr1

Qtr2

Qtr3

0

5

10

15

20

25

30

Estim

ate

valu

e

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Lockton Companies |

How would you describe your current situation in filling salaried and hourly craft positions? (No. 2 from source.)

If your firm is experiencing staffing challenges, how would you describe the impact on your projects? (Totals may add to more or less than 100 percent, as respondents could mark more than one answer.) (No. 12 from source.)

War for Talent

KC: 52225

8Source: https://www.agc.org/sites/default/files/Files/Communications/2018_Workforce_Survey_National.pdf)

Lockton Companies |

How you approach workers’ compensation claims can differentiate you as an employer: Safety strategies. Claims process. Denial approach. Litigation rate. Lag time. Closure process.

And with wages increasing, a good WC strategy can directly impact the bottom line: Less time away from work. Retention (lower training costs for new

hires). Timely return to work. Decreased litigation.

Workers’ compensation strategy can help

KC: 52225

9

Leveraging Data and Analytics

Lockton Companies |

Severity Frequency

Report lag

Traditional Analytics are Effective

s:\filepath

11

Lockton Companies |

Claim Denials 69 percent of construction denials pay out by 12 months, which is slightly

higher than the all-industry average of 67 percent. Initial denials increasing over the past 5 years.

What if we went further into the data?

KC: 52225

12

Lockton Companies |

Reasons for the construction denials are similar in nature to the all-industry benchmarks shown below.

Denied claims are litigated 11.8 percent of the time. When denied and also litigated, 93 percent convert to a paid claim by 12 months.

Reasons given for denying claims

KC: 52225

13

10 most common initial reasons given for denying claim(Rates shown valued at 12 months)

Reason given for denial

Percent of denials that

convert

Percent of denials that

litigate

Conversion rate for denied and litigated

claims1 No medical evidence of injury 69.2% 24.6% 95.6%2 No injury per statutory definition 71.6% 17.7% 89.0%3 Reservation of rights 87.5% 3.6% 100.0%4 Pre-existing condition 68.9% 12.5% 93.0%5 Idiopathic condition 65.5% 11.5% 91.4%6 Intoxication or drug related violation 76.9% 19.7% 100.0%7 Stress non-work related 63.5% 12.3% 100.0%8 Failure to report accident timely 66.9% 29.6% 86.2%9 Doesn't meet statutory definition of employee 65.5% 29.0% 61.1%

10 Misrepresentation 90.3% 33.3% 93.8%Average denial conversion rate at 12 mos 67.0% 11.8% 93.1%

Lockton Companies |

Accident descriptions

KC: 52225

14

All industries Construction

Lockton Companies |

All industry benchmark denied claim is 55 percent higher than non-denied.

Construction denied claim is 122 percent higher than construction non-denied.

Construction claims are more costly than the all-industry benchmark

KC: 52225

15

$10,103

$15,694 $14,897

$30,944

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

All industry:Non-denied

claim

All industry:Denied claim

Construction:Non-denied

claim

Construction:Denied claim

Average net incurred

12 month average Increase from 12 to 60 months

Lockton Companies |

Across all payment buckets for construction, denied claims were more costly than non-denied.

Construction averages by bucket are uniformly higher than for theall-industry average.

Construction Cost Buckets

KC: 52225

16

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

Non-denied Denied Non-denied Denied Non-denied Denied

Indemnity Medical Expense

Construction: Average net incurred

12 month average Change from 12 to 60 months

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

$16,000

Non-denied Denied Non-denied Denied Non-denied Denied

Indemnity Medical Expense

All industry: Average net incurred

12 month average Change from 12 to 60 months

Lockton Companies |

Litigation rates on denied lost-time claims are 2.5 times higher than on non-denied lost-time claims

KC: 52225

17

27.5%

70.6%

21.8%

55.0%

All industry: Non-denied

All industry: Denied Construction: Non-denied

Construction:Denied

Average litigation rates on lost-time claims

12 month average Change from 12 to 60 months

This multiple is similar to the all-industry average of 2.6 times.

Lockton Companies |

Slip/trip/fall is the top cause for total net incurred loss. Hypothesis that construction has more “falls from height” than other industries, that would

drive costs higher. If that holds true, can you improve your worksites to mitigate risk?

Digging Deeper into the Data

KC: 52225

18

29.6%

23.0%

19.8%

8.3%

6.9%5.2% 5.1%

1.9% 0.2%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

$0

$5,000

$10,000

$15,000

$20,000

$25,000

Avg

Net

Incu

rred

Average net incurred by cause description(lost-time claims at 12 mos)

All Industries Construction % Net Total Incurred, Construction

Lockton Companies |

Look into other causes to identify targeted safety opportunities. Vehicle losses: 7 percent of total incurred, but highest avg claim cost. Exposure: 5 percent of total incurred, and third highest avg claim cost.

Digging Deeper into the Data

KC: 52225

19

29.6%

23.0%

19.8%

8.3%

6.9%5.2% 5.1%

1.9% 0.2%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

$0

$5,000

$10,000

$15,000

$20,000

$25,000

Avg

Net

Incu

rred

Average net incurred by cause description(lost-time claims at 12 mos)

All Industries Construction % Net Total Incurred, Construction

Lockton Companies |

Average net incurred for construction segment versus all industries. Material differences in key part of body severity

Part of Body

KC: 52225

20

Lockton Companies |

Predictive modeling tools. Further explain the value of identifying root causes and consistent injured worker communication.

Targeted perception surveys (related to the workers’ compensation process).

Detailed analysis of each unique “disputed” claim, creating an informed decision-making process.

Creating successful claim resolution plans.

Tools and approaches that can help

KC: 52225

21

RISK MANAGEMENT • EMPLOYEE BENEFITS • RETIREMENT SERVICES

Our Mission | To be the worldwide value and service leader in insurance brokerage, risk management, employee benefits and retirement services

Our Goal | To be the best place to do business and to work© 2019 Lockton, Inc. All rights reserved.

LOCKTON.COM