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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

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Improving ohio s experience rating and strengthening the ohio group rating program

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


Improving ohio s experience rating and strengthening the ohio group rating program

Comprehensive, Customer-Focused Reform

Stable Costs

Better Services

Accurate Rates

Safe Workplaces

Reforms Include:

Transition to a New Claims Reserving System

Improvements to Experience Rating Plan

Strengthening Ohio’s Group Rating Program

2


Improving ohio s experience rating and strengthening the ohio group rating program

Board Resolution to Reduce Credibility, Develop Long-Term Plan by June 2008

Reduced credibility from 90% to 85% on Nov. 21, 2007

Consider adopting split experience rating plan

Develop rules to improve continuity and governance

Overview

BWC Project Plan Proposal

  • Improves rating accuracy & equity

  • Reduces premium volatility

  • Improves service options for employers

  • Makes Ohio more competitive with neighboring states

3


Improving ohio s experience rating and strengthening the ohio group rating program

Overview

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

4


Improving ohio s experience rating and strengthening the ohio group rating program

Overview

Recommendations will Fundamentally Improve Ohio’s Overall Premium Rating Method

  • Improves rating accuracy by using both frequency and severity

  • Provides stability by distinguishing random accidents from consistently unsafe workplaces

  • Establishes equity among employer groups by aligning premiums with costs for individual employers

  • Sets performance targets and utilizes ongoing testing, analysis

  • Loss ratio is a key performance measure

5


Improving ohio s experience rating and strengthening the ohio group rating program

Recommendation #1

  • Loss Ratio Performance

  • Split plan improves equity among employer segments

Oliver Wyman (2008). Development of a Split Plan for Experience Rating Private Employers. Exhibit N-2

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.

6


Improving ohio s experience rating and strengthening the ohio group rating program

Recommendation #1

  • Loss Ratio Relativities

  • Split plan improves equity among employer segments

Oliver Wyman (2008). Development of a Split Plan for Experience Rating Private Employers; Exhibit N-2

7


Improving ohio s experience rating and strengthening the ohio group rating program

Recommendation #1

Transitional Credibility Reductions Improve Equity

Oliver Wyman (2008).  Experience Rating Plan Options and Considerations; page 20

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.

8


Improving ohio s experience rating and strengthening the ohio group rating program

Recommendation #1

  • Transitional Credibility Reductions

  • Impact at maximum discount level

9


Improving ohio s experience rating and strengthening the ohio group rating program

Recommendation #2

Moderate Premium Volatility by Capping or Limiting Premium Increases

10


Improving ohio s experience rating and strengthening the ohio group rating program

Recommendation #2

Moderate Premium Volatility by Capping or Limiting Premium Increases

Oliver Wyman (2008). Premium Capping Impacts of the Transition to a New Experience Plan; Exhibit I-2009G

11


Improving ohio s experience rating and strengthening the ohio group rating program

Recommendation #2

Overall Impact to Employer Community

as a result of 85% to 77% reduction with capping

Oliver Wyman (2008) Premium Capping Impacts of the Transition to a New Experience Plan; Exhibit G, p. 2.

12


Improving ohio s experience rating and strengthening the ohio group rating program

Recommendation #2

Overall Impact to Employer Community

as a result of 85% to 77% reduction with capping

# of Employers

Non Group

124,957

Group

120,000

100,000

71,567

80,000

60,000

40,000

20,000

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.

11,579

11,740

7,703

3,211

109

1,042

[-19% to -10%]

[-9% to 0%]

0%

[+1% to 10%]

[+11% to 20%]

Premium Decreases by %

Premium Increases by %

13


Improving ohio s experience rating and strengthening the ohio group rating program

Recommendation #3

  • Create New Performance-based Safety Incentive and Discount Options for Employers

    • Provide menu of discount, incentive options for employers to better manage risks and premium costs

    • Provides claims management service opportunities to entire employer market

    • Allows employers to share risk and more effectively reduce costs

Deductible

Program

Group

Retro

Safety Dividend

Shared Savings

14


Improving ohio s experience rating and strengthening the ohio group rating program

Recommendation #4

  • Further Analysis of Continuity Strategies and Group Rating Rules

    • Continue workgroup with stakeholders

    • Develop recommendations and report to Board

    • Proposed Schedule of Reporting Deliverables

    • Dec. 31, 2008: Group Continuity & Group Homogeneity

    • Mar. 31, 2009: Develop consumer guide & Improve re-rating

    • June 30, 2009: Improve enforcement of sponsor requirements

    • Sept. 30, 2009: Strengthen group employer requirements

    • Dec. 31, 2009: Establish complaint resolution process

15


Improving ohio s experience rating and strengthening the ohio group rating program

Outcomes & Conclusion

16


Improving ohio s experience rating and strengthening the ohio group rating program

  • Improving Ohio’s

  • Experience Rating and Strengthening

  • the Ohio Group-Rating Program

    • Outreach

    • Next Steps

    • Questions?

June 26, 2008

Project Plan Proposal

BWC Board of Directors, Actuarial Committee

John Pedrick, BWC Chief Actuarial Officer, FCAS, MAAA

17


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