New Orleans, LA, September 12, 2013

Workers’ Compensation:National TrendsPromoting Your CompanyImpact of Formula Change on Experience Mods

S. Guenther, ALCM, ARM, CIC, CRMSr. Vice President, Willis of Colorado

Work Comp Cost Drivers: Rates Source:NCCI Regula./Legis. Trends Workshop: May, 2013

State 2012 2013 Misc.

AK +2.7% -3.6%

AL -9.3% +4.8%

AR -4.1% -7.4%

AZ +5.2% +4.0%

CA +37% Refrms

CO +3.7% +5.2% 2014 +3.7%

CT +4.5% +7.1% Sandy Hk.

DC + .4%

DE 38.0% Reforms

FL +8.9% +6.1% Legis./Case Reserves = >5% prem.

GA +2.9% -2.4% Bene. Caps

HI +3.6% +5.2% Drug Caps

IA +4.4% +7.9% 2 inc. in ‘13

ID +2.9% +3.9%

IL +3.5% -3.8%

IN +2.6% +5.0%

KS - .5% +2.3%

KY -7.9% -7.5%

LA +6.0% +2.5%

State 2012 2013 Misc.

MD +1.4% +3.8% St. Fund Chg

ME -3.2% -1.8% +3.9% in ‘13

MO -3.0% +2.1% St. Fund Chg

MS +9.9% +4.1%

MT N/C -5.4% -22% in ‘11

NC N/C .5%

NE +4.9% + .3%

NH +6.7% + .6%

NM +7.4% +5.1%

NV +1.0% +2.6%

OK - 1.7% + .4% Can Opt Out

OR +1.9% +1.7%

RI +5.3% +8.0%

SC +3.0% +1.1%

SD - .3% - 3.2%

TN + .4% +2.3% -5.1% ‘12 law

TX - .3% -3.8% 30% Opt Out

UT -1.6% ’11 +1.5%

VA +10.5% - 5.7%

WV - 7.6% ‘11 -7.6%

Come up and see me if you want to see how your state stacks up for most or least expensive in the nation for workers’ comp. rates.

Cost Drivers: Avg. Wage Benefit vs Days to HealState Days w/

Wage Benefits

Days to Heal (MMI)

AK 67 203

AL 87 195

AR 73 175

AZ 78 146

CA 80 267

CO 80 177

CT 60 149

DC 110 163

DE 81 236

FL 56 97

GA 173 175

HI 53 215

IA 47 125

ID 47 136

IL 125 145

IN 70 132

KS 91 117

KY 106 159

LA 178 354

State Days w/ Wage Benefits

Days to Heal (MMI)

MA 107 303

MD 99 161

ME 90 318

MI 108 241

MO 73 81

MS 110 182

MT 72 177

NC 188 137

NE 59 120

NH 79 230

NJ 70 140

NM 86 218

NV 80 135

NY 116 138

OK 143 183

OR 46 134

PA 132 318

RI 72 162

State Days w/ Wage Benefits

Days to Heal (MMI)

SC 167 132

SD 61 99

TN 89 176

TX 71 213

UT 51 128

VA 108 178

VT 90 187

WI 38 102

Source:NCCI: TTD Duration Brief Aug, 2013 Based on 2009 Injuries at a 36 month analysis (2012)

Longest Duration by Age Group to Heal: 41-50 = 130 days

Shortest Duration by Age Group to Heal: 31 and under – 83 days

Work Comp Cost Drivers and National Trends

Increased Use of Pain Killers

Rx drugs make up 18% of total WC med. costs

Top Drugs Prescribed (Source:NCCI Regula./Legis. Trends Workshop: May, 2013)

Oxycontin/Oxycodone HCL (47% of narcotic costs), Lydoderm, Lyrica, Celebrex, Gabapentin, Cymbalta

Opana HCL/ER, Meloxicam, Tramadol HCL,

Two are anti-inflammatories

One is for depression

All the rest are for PAIN

Opiate-derivatives/developed for cancer patients

Controls: blood tests, pill-counting,

Docs Rx less-addictive meds

Work Comp Cost Drivers and National Trends

Physician Repackaging of Prescription Medicines

Purchase in volume

Repackaging allows for set own price on meds

Outside the Average Wholesale Price

States have enacted legislation to regulate

States have banned the practice, completely

States have limited costs of drugs through state workers’ comp. fee schedules

NCCI: National Council on Compensation Insurance

One of Several Rating Bureaus

Independent Bureaus: CA, DE, HI*, IN*, MI, MN*, NC*, NJ, NY*, PA, TX*

* State shares data with NCCI

Monopolistic States: “NOWW” ND, OH, WA, WY

NCCI: State Administrator for Work. Comp. in 37 States/Jurisdictions

Gather statistical data

Detailed claims data

Detailed payroll data

>700 insurance carriers report to NCCI

The Experience Modification Factor

Introduced in the 1970’s

All Employers Paid Same Premium Rate for WC

Some employers had > injuries than others

Needed a Remedy to Reduce Socialization of Costs

Employers with Injuries < Avg= Credit Modifier

< 1.00 – produces a premium credit

Employers with Injuries > Avg= Debit Modifier

> 1.00- produces a premium debit

Designed to Properly Assess/Apply WC PremiumsWas never intended to reflect safety

The Experience Modification Factor - Formulas

NCCI’s Formula Changes to the Mod Factor

The Out of Balance Theory

NAIC

The Importance of 1.00 Avg. State Mod

Experience Rating Adjustment Plan (1997)

22 States for 16 Years

Removes 70% of $ for all med-only clms.

These $ eliminated from mod calculation

Split Point Formula Change

Initiated in 2013

Adopted Different Dates in Each State

Impact to Interstate Businesses

The Experience Modification FactorWhat is the Split Point?

Every Injury/Claim USED in the Mod Factor Has Two Components

Primary Portion (Prior to 2013: was $5k)

Excess Portion (Prior to 2013: all $ > $5k)

Primary Losses Weighted Heaviest in Mod Calculation

Go right to the “bottom line” of the mod factor

Smaller, “frequency” losses

Theory: Frequent losses = severe losses

Five claims at $5k > impact to mod factor than

one claim at $25k.

The Experience Modification FactorWhat is the Split Point?

Excess Losses – Have weights/ballasts placed against it in mod factor calculation

Dollars are lowered in the mod calculation

Excess loss portion receives less weighting

“Cushions the impact” of larger, more severe

or catastrophic losses on the experience mod factor

This is the “Split Point” – Amt. of Primary vs Excess Loss Dollars Used in the Mod Calculation

For 20 Years $5,000 Was the Split Point

The Experience Modification FactorWhy Did the Split Point Change?

NCCI:

►The Cost of Workers’ Compensation Claims Have Tripled in the Past 20 Years

► Mods Will Be More Responsive to Loss

► Mod factors Will Be More Credible

► Employers Will Have More Incentive to Operate Safely

But Will They Report Their Injuries?

Fines and Penalties for Failure to Report

Beware of Paying Your Own Claims

Be sure your state permits it

The Experience Modification FactorHow Did the Split Point Change?

In 2013:

Split Point Will Be Changed as Each State Completes its Annual Filing with NCCI

Example: Your Policy Renewed on Jan. 1, 2013

Oregon: Jan. 1, 2013 $10k of Each Claim

Colorado: Jan. 1, 2013 $10k of Each Claim

Idaho: Jan. 1, 2013 $10k of Each Claim

Nevada: Mar. 1, 2013 $5k of Each Claim

Louisiana: May. 1, 2013 $5k of Each Claim

The Experience Modification Factor

How is the Split Point Being Adopted?

2013: Split Point Doubled from the First $5k of Each Claim to the First $10k of Each Claim

2014: NCCI Proposing a Split Point of $13,500 2015: NCCI Projects a Split Point of $15k+ Index 2016: Split Point Will be Indexed, Annually by NCCI

CA: Indep. Rating Bureau 2011 - $5k to $7k Only

MO: Change Will Begin in 2014 - $5k to $7k

The EMR Split Point Formula Change Impact

NCCI is Offsetting the Impact with ELR & D Factors

If They Did Not, Estimates Show the Average Mod Factor Increasing by +11 Points

NCCI Estimates:

.1% of Employers= Change of >15% to EMR 11.9% of Employers= Change of 5% to 15% to EMR76% of Employers= +/- 5% to EMR

11.3% of Employers = + 5% to +15% Change to EMR .7% of Employers = Increase of > 15% to EMR

Source: NCCI Annual Symposium exhibit page 59

What Creates a Debit Mod? Increased Injuries/Severity

Culture? Aging Workforce?

Comorbidities?

Poor Management of Claims

Wrap Up Projects

Contingent Mods

Shift Payroll to Cheaper Classes

Mod Factors With Errors

Shifting Policy Period Eff. Dates > 90 Days

Reduction of Payrolls/Shifting Payrolls to Jt. Ventures

Buying a Company with a Debit Mod

Other Ways to Influence an EMRSmall Deductible Plans

Fourteen (14) States Have “Net Reporting”

All dollars under the deductible are removed from the mod factor calculation

Net Reporting States (* States with $10k Ded. Max.)

Alabama Kansas*

Colorado* Kentucky*

Florida Maine

Georgia Missouri

Hawaii New Mexico*

Idaho Oklahoma

Iowa OregonSource: NCCI Basic Manual, 2012

Claims Management and the Mod ImpactEmbrace Injuries and Communicate

Learn from, talk about, train from your injuries

Fraud and Strategic Surveillance/Holidays

Subrogation- Veh. NAF Acc=4 Employees Injured

Engage Carrier and Agent Partners

Choose Quality Medical Provider (Where an Option)

Invoke Statutes and Penalties

Know State Laws/Culture Before You Bid

Crucial Periods for Claim Reviews

8 mos. pre-renl. (stats to NCCI @ 6 mos)3 mos. pre-renl

Credit EMR Through Return-to-WorkKeeps $ Out of the Experience Mod

Pay employee wages once – taxable

Wages in mod – impacts prems. for 3 yrs!

Keeps Employee Productive

Makes a contribution

Avoids muscle atrophy

Could lower their permanency rating

Social interaction helps avoid depression

Light Duty is NOT for everyone!

Positive Drug Tests or Threats to Co-Workers

Temporary Progressive Be Committed

The Most Common Errors in the Experience Modsheet

Not the Employee of the Policyholder

Not Net of Deductibles (in net reporting states)

Claims Reported in the Wrong State

Dollars Never Removed With 3rd Party Recovery

Data is for Wrong Employer

Data blended for unrelated employers

Payrolls are Estimated

Payrolls/Policy Years Missing Completely (contingent)

Payrolls in Wrong Class Code

Work with Agent/Carrier to Correct Stats

NCCI will revise within days

customer_service@ncci.com

Debit Mod Factors – A Poor Gauge of SafetyState Rate Changes

Ann. Change in ELR & D Factors

Mod Formula Changes

Split Point Change

Avg. mod is +11 pts. unless ELR/D adjust.

Experience Rating Adjustment Plan

Removes 70% of all $ for med-only clms.

Out of Balance Theory – State Administrators

Employee Injured by Third Party’s Negligence

Maximum Caps on Severe Claims

Data Has High Error Ratio / Contingent Mods

Debit Mod Factors – A Poor Gauge of SafetyEMR’s (Experience Mod Rates/Factors) Used in

Bidding Process

Energy and construction industries

Disqualified for >1.00, >.90, >80 mods

Discourage this practice

Larger payroll = lower mods

Small/mid-sized employers = higher mods

Pre-Qual letters from agent/carrier

Reliability/credibility of mod factors

Some Pre-Qual. Requirements Are Changing

Generals/Owners/Energy Companies Are Listening

Moving to 1.10 EMR to Bid

Asking to Review the NCCI Modsheet

Asking to Review Safety Policies/Procedures

Asking for Actual Work. Comp. Loss Documents/Loss Runs

Less Weighting Assigned to the EMR in

the Pre-Qual. Assessment Factors

Meeting with Subs. Who Have Debit EMRs

Change the Focus Away from a Number

Recent State/Industry/Association Safety Awards

Compare Incident Rate to Industry

Lowered Lost-Time Injuries

Reduced Frequency of Losses

# of Days Without An Injury

Mod Impacted by 3rd Party Negligence?

Frequency of Safety Training

Frequency of JSA’s

Return to Work Commitment

Full-Time Loss Prevention Specialist(s)

Certifications/Designations of LP Spec(s)

Engage Outside Firms in Loss Prevention

Train from Your Injuries?

Behavioral Modeling Programs

Standards for Inj Reporting 8hr/12hr/Same Shift

Compliance/Disciplinary Programs in Place

Pre-Hire Integrity Testing

DART Rates

Letters from External Loss Prevention Specialists – Carrier/Agent

New Safety Programs Implemented in the past year

Buddy Systems for New Hires

Post Accident Investigations

Near-Miss Investigations

Certifications by Employees

Safety Committees

Drug/Alcohol Policies

Pre-Employment Fit-For-Duty Physicals

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