improving ohio’s experience rating and strengthening the ohio group-rating program
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Improving Ohio’s Experience Rating and Strengthening the Ohio Group-Rating Program. June 26, 2008 Project Plan Proposal BWC Board of Directors, Actuarial Committee John Pedrick, BWC Chief Actuarial Officer, FCAS, MAAA. 1. Comprehensive, Customer-Focused Reform Stable Costs - PowerPoint PPT PresentationTRANSCRIPT
Restoring Operational Excellence
Improving Ohio’s Experience Rating and Strengthening the Ohio Group-Rating Program
1
June 26, 2008
Project Plan Proposal
BWC Board of Directors, Actuarial Committee
John Pedrick, BWC Chief Actuarial Officer, FCAS, MAAA
Restoring Operational Excellence
Comprehensive, Customer-Focused Reformo Stable Costs o Better Serviceso Accurate Rates o Safe Workplaces
Reforms Include:o Transition to a New Claims Reserving Systemo Improvements to Experience Rating Plan o Strengthening Ohio’s Group Rating Program
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Restoring Operational Excellence
Board Resolution to Reduce Credibility, Develop Long-Term Plan by June 2008
o Reduced credibility from 90% to 85% on Nov. 21, 2007o Consider adopting split experience rating plano Develop rules to improve continuity and governance
Overview
BWC Project Plan Proposalo Improves rating accuracy & equityo Reduces premium volatilityo Improves service options for employerso Makes Ohio more competitive with neighboring states
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Restoring Operational ExcellenceOverview
Key Recommendations
#1. Implement split experience rating by 2011 with transitional credibility reductions
#2. Moderate premium volatility by capping increases
#3. Create performance-based safety incentive, discount options
#4. Further analysis on continuity and group rules
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Restoring Operational ExcellenceOverview
Recommendations will Fundamentally Improve Ohio’s Overall Premium Rating Method
o Improves rating accuracy by using both frequency and severity
o Provides stability by distinguishing random accidents from consistently unsafe workplaces
o Establishes equity among employer groups by aligning premiums with costs for individual employers
o Sets performance targets and utilizes ongoing testing, analysis
o Loss ratio is a key performance measure
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Restoring Operational Excellence
Recommendation #1
Loss Ratio PerformanceSplit plan improves equity among employer segments
Policy Year 2003 Policy Year 2004 Policy Year 2005
Employers by
Premium Size
Current
Plan
Split
Plan
Current
Plan
Split
Plan
Current
Plan
Split
Plan
Greater than
$4,500,000148.5% 86.9% 156.2% 84.0% 126.8% 76.4%
$1,000,001 to
$4,500,000124.2% 83.3% 95.1% 68.2% 103.4% 73.1%
$250,001 to
$1,000,00062.1% 76.0% 49.8% 62.1% 60.3% 71.9%
$50,001 to
$250,00061.8% 79.3% 53.7% 70.6% 54.6% 70.3%
Less than or equal
to $50,00069.1% 86.9% 59.1% 75.3% 56.7% 68.5%
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Current plan loss ratios use actual payroll and claims from each policy year using 85% table to develop EM’s and base rates. These ratios do not reflect claim costs charged to the surplus fund (e.g. handicapped claims), which are the included rates.
Oliver Wyman (2008). Development of a Split Plan for Experience Rating Private Employers. Exhibit N-2
Restoring Operational Excellence
Recommendation #1
Policy Year 2003 Policy Year 2004 Policy Year 2005
Employers by
Premium Size
Current
Plan
Split
Plan
Current
Plan
Split
Plan
Current
Plan
Split
Plan
Greater than
$4,500,000
1.66 1.03 2.07 1.16 1.71 1.06
$1,000,001 to
$4,500,000
1.39 0.99 1.26 0.94 1.40 1.01
$250,001 to
$1,000,000
0.70 0.90 0.66 0.86 0.81 1.00
$50,001 to
$250,000
0.69 0.94 0.71 0.98 0.74 0.98
Less than or
equal to $50,000
0.78 1.03 0.78 1.04 0.77 0.95
Loss Ratio Relativities Split plan improves equity among employer segments
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Oliver Wyman (2008). Development of a Split Plan for Experience Rating Private Employers; Exhibit N-2
Restoring Operational Excellence
Recommendation #1
Transitional Credibility Reductions Improve Equity
Improvement in the relationship of group loss ratios to non group shows that the past credibility changes have progressed in the right direction to improving equity, however there is still a large gap remaining between these policy segments.
Past Credibility Estimated Group loss ratios compared to Non-group
100 percent 2.24 X’s higher
95 percent 1.94 X’s higher
93 percent 1.77 X’s higher
90 percent 1.67 X’s higher
85 percent 1.52 X’s higher
Recommended Estimated Group loss ratios compared to Non-group
77 percent 1.34 X’s higher
65 percent 1.11 X’s higherOliver Wyman (2008). Experience Rating Plan Options and Considerations; page 20
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Restoring Operational Excellence
Recommendation #1
Transitional Credibility ReductionsImpact at maximum discount level
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Restoring Operational Excellence
Recommendation #2
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Moderate Premium Volatility by Capping or Limiting Premium Increases
Restoring Operational Excellence
Recommendation #2
Group Employers
by Premium Size
Total
number of
risks
Total
number of
risks
capped
Avg.
Premium
with 85%
table
Avg.
Premium
with 77%
table
Avg.
Premium
with 77%
after
capping
% impact
after
capping
$0 - $500 30,368 21,433 $241 $301 $282 17.0%
$501 - $999 15,086 11,697 $721 $920 $852 18.2%
$1,000 – $2,499 18,774 13,152 $1,613 $2,018 $1,886 16.9%
$2,500 – $4,999 10,974 6,195 $3,552 $4,296 $4,081 14.9%
$5,000 – $9,999 7,642 3,105 $7,077 $8,216 $7,941 12.2%
$10,000 + 12,151 2,128 $45,307 $47,374 $47,001 3.7%
Total 94,995 57,710 $7,285 $7,858 $7,720
Oliver Wyman (2008). Premium Capping Impacts of the Transition to a New Experience Plan; Exhibit I-2009G
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Moderate Premium Volatility by Capping or Limiting Premium Increases
Restoring Operational Excellence
Recommendation #2
Overall Impact to Employer Community as a result of 85% to 77% reduction with capping
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Oliver Wyman (2008) Premium Capping
Impacts of the Transition to a New
Experience Plan; Exhibit G, p. 2.
Restoring Operational Excellence
# of Employers
120,000
100,000
80,000
60,000
40,000
20,000
Premium Decreases by %
Recommendation #2
[+1% to 10%][-19% to -10%] 0% [+11% to 20%][-9% to 0%]
Premium Increases by %
1097,703 11,579
124,957
11,740
71,567
1,042
Group
Non Group
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3,211
Oliver Wyman (2008) Premium Capping
Impacts of the Transition to a New
Experience Plan; Exhibit G, p. 2.
Increases/decreases over 20% not include in
this illustration.
Overall Impact to Employer Community as a result of 85% to 77% reduction with capping
Restoring Operational Excellence
Recommendation #3
Create New Performance-based Safety Incentive and Discount Options for Employers
o Provide menu of discount, incentive options for employers to better manage risks and premium costs
o Provides claims management service opportunities to entire employer market
o Allows employers to share risk and more effectively reduce costs
Deductible
Program
Group Retro
Safety Dividend
Shared Savings
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Restoring Operational Excellence
Recommendation #4
Further Analysis of Continuity Strategies and Group Rating Rules
o Continue workgroup with stakeholders o Develop recommendations and report to Board
Proposed Schedule of Reporting Deliverables
o Dec. 31, 2008: Group Continuity & Group Homogeneityo Mar. 31, 2009: Develop consumer guide & Improve re-ratingo June 30, 2009: Improve enforcement of sponsor requirementso Sept. 30, 2009: Strengthen group employer requirementso Dec. 31, 2009: Establish complaint resolution process
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Restoring Operational Excellence
Outcomes & Conclusion
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Restoring Operational Excellence
17
Improving Ohio’s Experience Rating and Strengthening the Ohio Group-Rating Program
o Outreach o Next Stepso Questions?
June 26, 2008
Project Plan Proposal
BWC Board of Directors, Actuarial Committee
John Pedrick, BWC Chief Actuarial Officer, FCAS, MAAA