Self-funding Workers’ Compensation Exposures
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Self-funding Self-funding Workers’ Workers’ Compensation Compensation Exposures Exposures What your MAMA never told What your MAMA never told you… you…
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Self-funding Workers’ Compensation Exposures. What your MAMA never told you…. Excess W/C Coverage. How does it work?. Excess W/C Declarations. Excess Workers’ Compensation Coverage ….(how does it work?). Excess. Excess Aggregate Max Limit. Excess. Specific Limit Per Claim “Statutory”. - PowerPoint PPT Presentation
Transcript of Self-funding Workers’ Compensation Exposures
Self-funding Workers’ Self-funding Workers’ Compensation Compensation
ExposuresExposures
What your MAMA never told What your MAMA never told you…you…
Excess W/C CoverageExcess W/C Coverage
How does it work?How does it work?
Excess W/C DeclarationsExcess W/C Declarations
Excess Workers’ Compensation Excess Workers’ Compensation CoverageCoverage….(how does it work?)….(how does it work?)
RetentionRetentionRetentionRetention
$300,000 $300,000 $300,000$300,000
Retention
$300,000Retention$172,162
ExcessAggregateMax Limit
$1,000,000
Specific RetentionPer Claim
Retention
$300,000
Aggregate Retention is the sum of all retention in a fund year or the “loss fund” $1,672,162
ExcessSpecific Limit
Per Claim“Statutory”
Excess
A little Missourian A little Missourian never hurts……never hurts……
““Show Me”Show Me”
Vendors are VendorsVendors are Vendors
► TPA’sTPA’s► BrokersBrokers► ActuariesActuaries► CPA’sCPA’s► Financial ExpertsFinancial Experts
You pay them for a service, be careful to accept You pay them for a service, be careful to accept praise without sufficient proofpraise without sufficient proof
Know your business better than they do.Know your business better than they do. Have them prove their praise via bench marks, Have them prove their praise via bench marks,
true comparative analysis, good solid data.true comparative analysis, good solid data.
What Ratios or Metrics What Ratios or Metrics Matter?Matter?
► GroupsGroups Premium to SurplusPremium to Surplus
► At least 1:1At least 1:1 Combined Ratio <100%Combined Ratio <100%
► Losses + IBNR + ULAELosses + IBNR + ULAE
PremiumPremium Expense RatioExpense Ratio<25%<25%
► Commercial Companies Commercial Companies 28-32%28-32%
Rate/$100 payrollRate/$100 payroll► How do you measure How do you measure
rate achievement (+ or -)rate achievement (+ or -)
► IndividualsIndividuals Frequency Frequency
► Comparative analysis to Comparative analysis to like entitieslike entities
Experience ModExperience Mod Closed claim cost Closed claim cost
comparisoncomparison
IndividualsIndividuals
►How are you funding lossesHow are you funding losses Dedicated Trust Fund?Dedicated Trust Fund? Balance Sheet? “Accrued Liability”Balance Sheet? “Accrued Liability”
►Balance Sheet protection is paramountBalance Sheet protection is paramount e.g. Aggregate Excesse.g. Aggregate Excess
►A dedicated fund for W/C exposures is very A dedicated fund for W/C exposures is very important, especially as we approach a important, especially as we approach a transitioning market.transitioning market.
National DataNational DataInsurance Information InstituteInsurance Information Institute
Robert P. Hartwig, Ph.D., CPCU, President & Economist
Insurance Information Institute 110 William Street New York, NY 10038
Tel: 212.346.5520 Cell: 917.453.1885 [email protected] www.iii.org
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Frequency: 1926–2008Frequency: 1926–2008A Long-Term Drift DownwardA Long-Term Drift Downward
Note: Recessions indicated by gray bars.Sources: NCCI from US Bureau of Labor Statistics; National Bureau of Economic Research
Manufacturing – Total Recordable CasesRate of Injury and Illness Cases per 100 Full-Time Workers
0
5
10
15
20
25
30
'26 '29 '32 '35 '39 '42 '45 '48 '52 '55 '58 '61 '65 '68 '71 '74 '78 '81 '84 '87 '91 '94 '97 '00 '04 '07
$8.5 $8.6 $8.4$9.2 $9.6$10.3
$11.4$12.3
$13.6$14.6
$16.6$18.0
$19.2$20.3
$21.9$23.0
$24.3$25.9
$27.2
$5
$10
$15
$20
$25
$30
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09p
Annual Change 1991–1993: +1.9%Annual Change 1994–2001: +8.9%Annual Change 2002-2009: +6.6%
Accident Year
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; Excludes the effects of deductible policies
Cumulative Change = 224%(1993-2009p)
Workers Comp Medical Claim Costs Continue to Rise
$1
0.0
$9
.7
$9
.4
$9
.9
$1
0.1
$1
0.7
$1
1.5
$1
2.5
$1
3.8
$1
5.3
$1
6.7
$1
7.3
$1
8.0
$2
2.0
$2
3.0
$2
0.8
$1
9.8
$1
8.3
$1
8.8
+5.0%
+1.0%-3.1% -2.8%+4.9%+1.7%+5.9%
+7.7%+9.0%
+10.1%
+10.1%
+9.2%+3.1%+4.1%+1.7%
+3.1%+5.0%
5
7
9
11
13
15
17
19
21
23
25
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009p
IndemnityClaim Cost ($ 000s)
Annual Change 1991–1993: -1.7%Annual Change 1994–2001: +7.3%Annual Change 2002–2008: +4.0%
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 servicesExcludes the effects of deductible policies
Accident Year
+4.5
Workers Comp Indemnity Claim Costs Continue to Grow
+5.8
Med Costs Share of Med Costs Share of Total Costs is Increasing Total Costs is Increasing
SteadilySteadily
Indemnity53%
Medical47%
Source: NCCI (based on states where NCCI provides ratemaking services).
Indemnity48%
Medical52%
Indemnity42%
Medical58%1989
1999
2009p
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* 2010 NWP and Surplus figures are % changes as of H1:10 vs H1:09. Sources: A.M. Best, ISO, Insurance Information Institute
Historically, Hard Markets FollowHistorically, Hard Markets FollowWhen Surplus “Growth” is When Surplus “Growth” is
Negative*Negative*
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10*
NWP % change Surplus % change
(Percent)
Sharp Decline in Capacity is a Necessary butNot Sufficient Condition for a True Hard Market
Surplus growth is now positive but premiums
continue to fall, a departure from the historical pattern
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-5%
0%
5%
10%
15%
20%
25%
71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 0910
F
Soft Market Appears to Persist in Soft Market Appears to Persist in 2010 but May Be Easing: Relief in 2010 but May Be Easing: Relief in
2011?2011?(Percent)1975-78 1984-87 2000-03
Shaded areas denote “hard market” periodsSources: A.M. Best (historical and forecast), ISO, Insurance Information Institute.
Net Written Premiums Fell 0.7% in 2007 (First Decline Since 1943) by 2.0% in 2008, and 4.2% in 2009, the First 3-Year Decline Since 1930-33.
NWP was flat with 0.0% growth in 10:H1 vs. -4.4% in 09:H1
Workers Compensation Workers Compensation Combined Ratio: 1973–2012PCombined Ratio: 1973–2012P
96
.8 99
.91
01
.1 10
4.2
10
3.6
99
.49
6.4
10
1.4
10
2.8
10
3.9
11
2.5
12
1.9
11
8.8
12
1.1
11
7.6
11
8.4
11
8.2
11
7.4 12
2.6
12
1.5
10
9.1
10
2.0
97
.0 10
0.0
10
1.0
10
7.0
11
5.3 11
8.2
12
1.7
11
0.9
11
0.0
10
7.0
10
2.7
98
.41
03
.51
04
.31
09
.81
16
.01
17
.01
17
.0
80
85
90
95
100
105
110
115
120
125
73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11P
Workers Comp Underwriting Results Are Deteriorating Markedly
Sources: A.M. Best; Insurance Information Institute.
On the HorizonOn the HorizonWhat does the future hold?What does the future hold?
►As in all things, the economy is cyclicalAs in all things, the economy is cyclical When the economy begins to grow you When the economy begins to grow you
will experience an increase in:will experience an increase in:►PersonnelPersonnel►PayrollPayroll►Frequency of claimsFrequency of claims►Higher medical costsHigher medical costs►Higher loss wagesHigher loss wages►Greater severity ………………….Greater severity ………………….
All of these will be the result of good things happening in the economy. Be prepared!
