Mona Carter National Policy Executive NCCI May 25, 2010 Copyright 2010 National Council on...

Cost and Trends Driving the Workers

Compensation Market

Mona CarterNational Policy Executive

NCCIMay 25, 2010

ã Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved.

What will be the Impact of the Economic Recovery?

How do we Curtail Rising Medical Cost? How Does The National Health Debate

Impact Comp? What is the Impact of An Aging Workforce? What will the work world look like and are

we Ready?


2

Questions On The Horizon

19851986

19871988

19891990

19911992

19931994

19951996

19971998

19992000

20012002

20032004

20052006

20072008

2009p

85

90

95

100

105

110

115

120116

108

105 105

109 110 109

116

107109

107 106

102

106

108

110

116

107

100

98

101

92

95

104

101

3

P/C Industry Calendar YearNet Combined RatiosPrivate Carriers

Percent

Calendar Year

p Preliminary

Source: 1985–2008, Best's Aggregates & Averages; 2009p, ISO

Average (1985–2008): 106.0%

P/C Underwriting Losses ModerateNet Combined Ratio—Private Carriers

p Preliminary

Source: Workers Compensation, NCCI; All Other Lines, Best’s Review Preview and ISO

Personal Auto 98% 100% 99%

Homeowners 96% 117% 106%

Other Liability (Incl Prod Liab) 99% 95% 100%

Workers Compensation 101% 101% 110%

Commercial Multiple Peril 92% 104% 97%

Commercial Auto 94% 97% 97%

Fire & Allied Lines (Incl EQ) 70% 100% 81%

All Other Lines 93% 112% 108%

Total P/C Industry 95% 104% 101%

Calendar Year

2007 2008 2009pLine of Business (LOB)

4

19851986

19871988

19891990

19911992

19931994

19951996

19971998

19992000

20012002

20032004

20052006

20072008

2009p

-6

0

6

12

18

2.8

15.113.9 13.4

9.78.0

9.5

3.6

11.2

5.8

9.7 10.1

13.1

9.6

6.6 6.3

-2.3

3.2

9.510.6

11.4

14.4

12.7

0.6

5.8

P/C Industry Return on SurplusAnnual After-Tax Return on Surplus—Private Carriers

Percent

Calendar Yearp Preliminary

Note: After-tax return on average surplus, excluding unrealized capital gainsSource: 1985–2008, Best's Aggregates & Averages; 2009p After-Tax Net Income, ISO; 2009p Surplus, 2008 Best's Aggregates & Averages + 2009 ISO contributions to surplus

Average (1985–2008): 8.7%

5

Workers Compensation

Results

ã Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved. 6

• Impact of National Healthcare Reform uncertain

• Inadequate return on industry capital

• State legislative changes to benefit models may increase pressure on indemnity cost

• Changes to the nations financial regulatory system creates uncertainty


Challenges for Workers Comp Line

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009p

0

20

40

60

80

100

120

140

117123 121

109102

97 100 101107

115 118 122

111 110 107103

93101 101

110

Dividends Underwriting Expense LAE Loss

WC Calendar Year Combined Ratio Up MarkedlyPrivate Carriers

Percent


Source: 1990–2008, Best's Aggregates & Averages; 2009p, NCCI

1.9% Due to September 11

6

1990*

1991*

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009p

0

5

10

15

20

25

13.0

14.0

18.116.7

14.4

16.817.6

20.421.3

20.519.5

14.0

10.7 10.411.2 10.9

10.0

12.7

9.7

11.8

Workers Compensation InvestmentReturns Remain Below Historical AverageInvestment Gain on Insurance Transactions-to-Premium RatioPrivate Carriers

Percent


Source: 1990–2008, Best's Aggregates & Averages; 2009p, NCCIInvestment Gain on Insurance Transactions Includes Other Income* Adjusted to include realized capital gains to be consistent with 1992 and after

Average (1990–2008): 14.8%

9

1990*

1991*

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009p

-15

-10

-5

0

5

10

15

20

25

-4.2

-8.6

-3.2

7.5

12.7

19.717.9

19.8

13.9

5.2

1.3

-7.6

-0.1

0.9

4.4

8.4

16.8

12.0

8.8

1.6

Workers Compensation Results— Barely an Operating GainPre-Tax Operating Gain Ratio—Private Carriers

Percent


Source: 1990–2008, Best's Aggregates & Averages; 2009p, NCCIOperating Gain Equals 1.00 minus (Combined Ratio Less Investment Gain on Insurance Transactions and Other Income)* Adjusted to include realized capital gains to be consistent with 1992 and after

Average (1990–2008): 6.6%

10

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009p

0

10

20

30

40

50

31.0 31.3 29.8 30.5 29.126.3 25.2 24.2 23.3 22.3

25.0 26.129.2 31.1

34.737.8 38.6 37.6

33.829.8

31.0 31.329.8 30.5

29.126.3

28.226.9 25.9 25.0

28.6

32.1

37.7

42.3

46.547.8

46.544.3

39.3

34.1

State Funds ($ B)

Private Carriers ($ B)

Workers Compensation Premium Continues Its Sharp DeclineNet Written Premium

$ Billions


Source: 1990–2008 Private Carriers, Best's Aggregates & Averages; 2009p, NCCI1996–2009p State Funds: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, UT Annual Statements

State Funds available for 1996 and subsequent11

2-Year Change in Countrywide NWP -23%

Contributions to WC Net Written Premium DeclineCalendar Years 2007–2009

Known Pricing Impacts

Change in Bureau Rates and Loss Costs -7%

Change in Carrier Pricing -4%

Economic Impacts

Change in Total Payroll -4%

Impact of Recession on Industry Group Mix -4% to -6%

Impact of Recession by Firm Size -4% to -6%

Other Impacts +1% to -2%

Source: NCCI Analysis12

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009p80

90

100

110

120

130

140

118122

111 110107

103

93

101 101

110

138

125

106

97

8887 86

98102

107

Calendar Year Accident Year

Accident Year Combined RatiosWorkers Compensation Calendar Year vs. Ultimate Accident YearPrivate Carriers

Percent

p PreliminaryAccident Year data is evaluated as of 12/31/2009 and developed to ultimateSource: Calendar Years 2000–2008, Best's Aggregates & Averages;

Calendar Year 2009p and Accident Years 2000–2009p, NCCI analysis based on Annual Statement dataIncludes dividends to policyholders

13

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 20090

5

10

15

20

25

2

5

10

15

18

2021

18

15

12

9

4

2

6

9

2009 Tabular Discount Is $5.3 Billion

Calendar Year Reserve Deficiencies Workers Compensation Loss and LAE Reserve DeficiencyPrivate Carriers

Calendar Year

$ Billions

Loss and LAE figures are based on NAIC Annual Statement data for each valuation date and NCCI latest selectionsSource: NCCI analysisConsiders all reserve discounts as deficiencies 14

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009p

-25

-20

-15

-10

-5

0

5

10

-7.1 -7.4 -7.1-8.5

-10.5

-14.6

-17.7

-22.6 -23.2

-19.2

-14.3

-4.0 -1.7

2.1 0.7

-2.2-4.7

-7.4 -7.9

Rate/Loss Cost DepartureSchedule RatingDividends

Impact of Discounting on Workers Compensation PremiumNCCI States—Private Carriers

Policy Yearp PreliminaryDividend ratios are based on calendar year statisticsNCCI benchmark level does not include an underwriting contingency provisionBased on data through 12/31/2009 for the states where NCCI provides ratemaking services

Percent

15

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009p

5

10

15

20

25

$1

0.1

$9

.8

$9

.5

$1

0.0

$1

0.2

$1

0.8

$1

1.6

$1

2.6

$1

3.9

$1

5.3

$1

6.7

$1

7.3

$1

8.0

$1

8.3

$1

8.8

$1

9.8

$2

0.8

$2

2.0

$2

3.0

+1.0% -3.1% -2.8% +4.9%+1.7%+5.9%

+7.7%+9.0%

+10.1%

+10.1%

+9.2%+3.1%

+4.1%+1.7%+3.1%

+5.0%+5.0%

+5.8%+4.5%

Workers Compensation IndemnityClaim Costs Continue to GrowAverage Indemnity Cost per Lost-Time Claim

Accident Year2009p: Preliminary based on data valued as of 12/31/20091991–2008: Based on data through 12/31/2008, developed to ultimateBased on the states where NCCI provides ratemaking services, including state fundsExcludes high deductible policies

Annual Change 1991–1993: -1.7%Annual Change 1994–2001: +7.3%Annual Change 2002–2008: +4.0%

IndemnityClaim Cost (000s)

16

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008p0

2

4

6

8

10

12

14

16

4.5

3.52.8

3.2 3.54.1

4.6 4.74.0

4.4 4.2 4.04.4

3.7

Lost-Time Claims

Change in Medical CPI Change in Medical Cost per Lost-Time Claim

17

WC Medical Severity Still Growing Faster Than the Medical CPI

YearMedical severity 2008p: Preliminary based on data valued as of 12/31/2008Medical severity 1995–2007: Based on data through 12/31/2007, developed to ultimateBased on the states where NCCI provides ratemaking services, excludes the effects of deductible policiesSource: Medical CPI—All states, Economy.com; Accident year medical severity—NCCI states, NCCI

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008p0

2

4

6

8

10

12

14

16

4.5

3.52.8

3.2 3.54.1

4.6 4.74.0

4.4 4.2 4.04.4

3.7

5.1

7.4

10.1

8.3

10.6

7.3

13.5

8.2

7.1

5.4

7.7

6.0 5.8 6.0

Lost-Time Claims

Change in Medical CPI Change in Medical Cost per Lost-Time Claim

18

WC Medical Severity Still Growing Faster Than the Medical CPI

YearMedical severity 2008p: Preliminary based on data valued as of 12/31/2008Medical severity 1995–2007: Based on data through 12/31/2007, developed to ultimateBased on the states where NCCI provides ratemaking services, excludes the effects of deductible policiesSource: Medical CPI—All states, Economy.com; Accident year medical severity—NCCI states, NCCI

Utilization a Major Factor1996–2001

1996 1997 1998 1999 2000 2001 2002 2003 2004 20050.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

Indexes of Medical Severity and Medical Care CPI, 1996 = 1.0

Medical Care CPI

Closed Lost-Time Claims Medical Severity

Utilization

19

Countrywide Medical SeverityIs Outpacing the Medical Care CPI

Accident year for medical severity; calendar year for Medical Care CPILost-Time Claims Closed Within 24 Months of Date of Injury, NCCI StatesSource: NCCI; US Bureau of Labor Statistics

Accident/Calendar Year

“Utilization”

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009p

5

10

15

20

25

30

$8

.4

$8

.5

$8

.4

$9

.1

$9

.6

$1

0.3

$1

1.3

$1

2.3

$1

3.6

$1

4.6

$1

6.5

$1

8.0

$1

9.3

$2

0.4

$2

1.9

$2

3.0

$2

4.3

$2

5.9

$2

7.2

+6.8%+1.3% -2.1%+9.0%+5.1%

+7.4%+10.1%

+8.3%+10.6%

+7.3%

+13.5%+8.8%

+7.3%+5.6%

+7.4%+5.4%

+5.4%+6.7%

+5.0%

WC Medical Claim CostsWill Moderate Trends Continue? Average Medical Cost per Lost-Time Claim

Accident Year

Annual Change 1991–1993: +1.9%Annual Change 1994–2001: +8.9%Annual Change 2002–2008: +6.6%

MedicalClaim Cost (000s)

2009p: Preliminary based on data valued as of 12/31/20091991–2008: Based on data through 12/31/2008, developed to ultimateBased on the states where NCCI provides ratemaking services, including state fundsExcludes high deductible policies

20

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009p

-10

-8

-6

-4

-2

0

2

-4.2 -4.4

-9.2

0.3

-6.5

-4.5

0.5

-3.9

-2.3

-4.5

-6.9

-4.5-4.1

-3.7

-6.6-6.2

-3.0-3.4

-4.0

Workers Compensation Lost-Time ClaimFrequency Continues to DeclineLost-Time Claims

Percent

Accident Year2009p: Preliminary based on data valued as of 12/31/20091991–2008: Based on data through 12/31/2008, developed to ultimateBased on the states where NCCI provides ratemaking services, including state funds; excludes high deductible policiesFrequency is the number of lost-time claims per 100,000 workers as estimated from reported premium

Cumulative Change of –54.7%(1991–2008)

21

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

p

0

5

10

15

0

1,250

2,500

3,750

Recessions

Manufacturing Industry Injuries and Illnesses per 100 Full-Time Workers

Private Industry Injuries and Illnesses per 100 Full-Time Workers

NCCI Lost-Time Claims per 100,000 Workers

Inc

ide

nc

e R

ate

s p

er

10

0 F

TE

Wo

rke

rs(B

LS

)C

laim

s p

er 1

00

,00

0 W

ork

ers

(NC

CI)

Workplace Injury Incidence Rates Have Shown Declines in Last Four Economic Downturns

p Preliminary

Source: US Department of Labor, Bureau of Labor Statistics (BLS), National Bureau of Economic ResearchNCCI Frequency and Severity Analysis; based on the states where NCCI provides ratemaking services,including state funds; excludes high deductible policies

22

Direct Impacts

1. Changes to Federal Black Lung Benefit Entitlement Provisions**

a. Reinstates the 15-year rebuttable presumption of total disability for benefits

b. Eliminates the requirement to prove that death of miner was due to occupational disease for survivor benefits

2. Changes to Medicare reimbursement levels;potential impacts will depend on:

a. Potential modifications to Medicare reimbursements

b. How the states react to those potential changes

National Health Care BillImplications for Workers Compensation InsuranceThe Patient Protection and Affordable Care Act*

*HR3590 as amended by HR4872

**Section 1556: Federal Coal Mine Health and Safety Act 23

Provisions Worth Watching Increased healthcare coverage in general population Wellness initiatives Consumer access to more generic drugs New taxes on medical devices, pharmaceutical

manufacturers, and health insurance companies Fraud and abuse provisions

Other Areas of Interest Electronic transaction standards Coordination, subrogation, and reimbursement issues Medicare as a secondary payer

National Health Care BillImplications for Workers Compensation InsuranceThe Patient Protection and Affordable Care Act*

*HR3590 as amended by HR487224

72.9%

5.4%

1.9% 19.8%

1998

Wages and Salaries

Health Insurance


All Other


Employer Costs as Percentage ofTotal CompensationPrivate Industry

70.8%

7.1%

1.7%

20.4%

2008

All Other includes Paid Leave, Supplemental Pay, Insurance (other than Health), Social Security, Retirement and SavingsSource: US Department of Labor, Bureau of Labor Statistics

25



Loss Drivers

26

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008p0

2

4

6

8

10

12

14

16

5.1

7.4

10.1

8.3

10.6

7.3

13.5

8.2

7.1

5.4

7.7

6.0 5.8 6.0

4.5

3.52.8

3.2 3.54.1

4.6 4.74.0

4.4 4.2 4.04.4

3.7

Change in Medical Cost per Lost-Time Claim

Change in Medical CPI


WC Medical Severity Still Growing Faster Than the Medical CPI Average Medical Cost per Lost-Time Claims

YearMedical severity 2008p: Preliminary based on data valued as of 12/31/2008Medical severity 1995–2007: Based on data through 12/31/2007, developed to ultimateBased on the states where NCCI provides ratemaking services, including state funds; excludes high deductible policiesSource: Medical CPI—All states, Economy.com; Accident year medical severity—NCCI states, NCCI

Percent Change

27


Workers Compensation Medical LossesAre More Than Half of Total Losses

All Claims—NCCI States

47%

53%

1989

MedicalIndemnity

1999

52%

48%

Indemnity Medical

2009p

58%

42%

Indemnity Medical

Accident Year

2008p: Preliminary based on data valued as of 12/31/20091989, 1999: Based on data through 12/31/2008, developed to ultimateBased on the states where NCCI provides ratemaking services, including state fundsExcludes high deductible policies

28

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008p

-10

-8

-6

-4

-2

0

2

-4.2 -4.4

-9.2

0.3

-6.5

-4.5

0.5

-3.9

-2.3

-4.5

-6.9

-4.5-4.1

-3.7

-6.7-6.0

-2.6

-4.0


Workers Compensation Lost-Time Claim Frequency Continues to DeclineLost-Time Claims

Percent

Accident Year2008p: Preliminary based on data valued as of 12/31/20081991–2007: Based on data through 12/31/2007, developed to ultimateBased on the states where NCCI provides ratemaking services, including state funds; excludes high deductible policiesFrequency is the number of lost-time claims per 100,000 workers as estimated from reported premium

Cumulative Change of –54.9%(1991–2008)

29

0.0000

0.0003

0.0006

0.0009

0.00

0.10

0.20

0.30

0.40

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Fre

qu

en

cy

pe

r $

1M

Wa

ge

-Ad

jus

ted

Pa

yro

ll

Fre

qu

en

cy

pe

r $

1M

Wa

ge

-Ad

jus

ted

Pa

yro

ll


Declines in Claim Frequency Are Consistent for All Injury Types Except Permanent TotalFrequency at First Report

Change in Frequency -22% -10% -28% -40% -37%

All NCCI StatesSource: NCCI Unit Statistical Plan data, First Report.

30

Age <= 50 Age > 50 Total0

20

40

60

80

100

120

140

160

180

2003 2004 2005 2006

Nu

mb

er

of

PT

D C

laim

s a

t 1

st

Re

po

rt


Increase in Permanent Total ClaimsIt Wasn’t Older Workers Change in Permanent Total Claims, by Age GroupData at First Report

Percentage Change Between Policies Expiring in 2003 and 2007

+100% +12% +68%

All NCCI StatesSource: Sample data

31

Falls/slips/trips are by far the greatest cause of injury among older workers.

Indemnity severity is less for older workers, largely because of the lower average weekly wage of such workers. There is a distinct (downward) break in indemnity severity between ages 60–64 and 65 and older.

Medical severity is higher for older workers, although the differential between workers aged 65 and older and nearby age cohorts is small.

Shares of indemnity and medical payments of older workers have a close relationship to their share of claims.

Frequency is less for older workers, especially in the more hazardous manufacturing and construction-related industries and occupations. In contrast, claim frequency is higher for older workers in the leisure and hospitality industry and food preparation and service occupations (as well as in sales and related occupations).


Claims Characteristics of Workers Aged 65 and Older

32

Lost-Time PTD-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Vehicle Slip/Fall Strain All Other

% C

ha

ng

e in

Nu

mb

er

of

Cla

ims


Lost-Time and Permanent TotalDisability Claims by Cause of Injury Percentage Change, Data at First Report

All NCCI StatesPercentage change between policies expiring in 2003 and 2007Source: NCCI Unit Statistical Plan data, First Report.

33

Job creation and job destruction increase frequency

During recessions, job creation slows dramatically

The rate of job creation bottoms at the trough of economic activity and rises sharply during the ensuing economic recovery

During recession, job destruction increases

NCCI’s statistical modeling shows that the decline in job creation dominates quantitatively


Job Creation Is a Leading Indicator of the Change in WC Claim Frequency

34

Countrywide frequency continued its long-term decline

Frequency changes vary considerably by type of injury

“Likely-to-Develop” claims exhibited a larger frequency decline than “Not-Likely-to-Develop”

Frequency changes are relatively consistent by size of loss for claims under $250,000


Key Findings of Frequency Study

35

Temporary Total Disability claim frequency declined more than Permanent Partial Disability claim frequency

Injury type changes notwithstanding, frequency changes are relatively consistent in all size of loss ranges below $250,000

Fatal claim frequency declined less than overall frequency

Permanent Total Disability claim frequency increased. The growth of Permanent Total Disability claim frequency is concentrated in a few carriers

Fatal and Permanent Total claims also exhibited more year-to-year volatility than other injury types, possibly due to the smaller number of these claims


Frequency Changes Vary by Injury Type Over the Last Five Years

36

Overall lost-time claim frequency declined 17%

Frequency of lower back claims declined 27% Frequency of claims involving multiple body

parts declined 24% Frequency of carpal tunnel syndrome claims

declined 46% Frequency of cumulative injury claims

declined 40%


Some of the More Complex Claims Declined More Than Average From

2004 to 2008

As medical costs escalate, states seek effective medical cost containment measuresStates depend on relevant, reliable information to

determine cost containment solutionsWhen data is not available, states may be forced

to develop their own solutionsThrough the EDI project, the IAIBC has developed

standards (i.e., 837) for the collection and electronic transmission of several types of data

Several states have implemented medical data calls already, including adoption of the IAIABC 837

38

State Response to Rising

Medical Costs

38

Legislative/regulatory landscape has been changing◦ States are proposing/enacting more

comprehensive cost controls: Medical Fee Schedules Healthcare Networks Utilization Guidelines Physician Choice

39

Need for Medical Data Call

Over the past five years, approximately 30% of the legislative activity contained a medical component◦ 2005: 45 bills priced (excluding TX)

approx impact $1.9B◦ 2006: 46 bills priced



approx impact $762M◦ 2009: 45 bills priced

approx impact $777M

40

Legislative Analysis

Conclusions:◦ Medical is more than half of the total WC benefits

◦ 30% of legislative pricing contains a medical component, and that number continues to rise

◦ Medical data detail will better assist NCCI in pricing legislation, ensuring the credibility of our analyses

◦ Medical Data Call will begin with medical transactions occurring in the 3rd Quarter of 2010

41

Medical Data Call

Medicare pays a significant share of overall US medical costs. As a result, Medicare reimbursement rates influence prices generally paid for medical services, including prices paid for medical services for workers compensation.

Many states base their workers compensation medical fee schedules on the Medicare physician reimbursement schedule.

Some states control costs for services provided by facilities through systems based on either Medicare’s DRG system for hospital stays or Medicare’s APC system for services provided at ambulatory surgical centers.


Medicare and Workers Compensation Medical Cost Containment

42

Workers compensation fee schedules will need to react appropriately to ongoing changes in Medicare methodology.

To maintain the effectiveness of medical fee schedules, workers compensation might consider using Medicare billing approaches for hospital stays (DRG) and ambulatory services (APC), but in doing so should adapt Medicare models to workers compensation priorities.

As the workforce ages, workers compensation might focus safety initiatives toward falls and hip injuries, where Medicare protocols should provide valuable insight in designing treatment guidelines.

Medicare faces enormous demographic and fiscal challenges. Workers compensation shares some of those challenges, and Medicare’s response might offer suggestions to enhance workers compensation medical cost containment.


Medicare and Workers Compensation Medical Cost Containment (cont)

43


Gauging the Economy

•Slowing of Decline in Employment in 2010 still Suggests Downward Pressure on Both Exposure and Claim Frequency

• Slowing Wage Gains May Dampen Increases in Indemnity Severity

• Accelerating Medical Care Price Increases in 2010 Suggest Further Upward Pressure on Medical Severity

• Financial Market Outlook May Brighten a Bit in 2010 for P&C Portfolio Managers

44

Premium—likely to fall due to the drop in employment and the easing of the growth in wage rates.

Frequency—likely to experience increased downward pressure due to the marked drop in the number of new hires and reduced levels of job creation.

Indemnity severity—growth typically eases in recessions due to the easing in the growth of wage rates and the impact on Average Weekly Wage, but growth remains positive.

Medical Severity—medical price inflation is expected to continue relatively unabated; thus, medical severity will continue to grow.


Gauging the Economy (cont)

45

In Summary

Negatives

Low investment returns continue to put pressure on underwriting results

Potential reform erosion

Uncertain impact from health care reform

Unknown scope of future Federal actions

Underwriting cycle

Positives

Industry’s capital position

Frequency continues to decline

Residual market depopulation continues

ã Copyright 2010 National Council on Compensation Insurance, Inc. All Rights Reserved. ‹#› 46

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Mona Carter National Policy Executive NCCI May 25, 2010 Copyright 2010 National Council on...

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