Evaluation of the Qualified Loss Management Program for Massachusetts Workers’ Compensation. History and description of the Program Data and techniques for evaluation Conclusions from the evaluation Ratemaking considerations. Background: Massachusetts Workers’ Compensation.
Situation in 1990:
Estimated Ultimate Loss Ratio
(on 2/14/98 rate level)
Applicable to Assigned Risks only
Maximum credit of 10%
Up to 3 years of credit if stay in Program; reduced to half in 3rd year, as improved experience (or failure to improve) is reflected in employer’s experience rating mod
Administered by Workers’ Compensation Rating and Inspection Bureau of Mass.Original provisions of the QLMP
Maximum credit of 15% (1/1/93)
4th year of credit available, at one-quarter of full value (1/1/94)Current provisions of the QLMP
Action plans for post-injury response (relationship with medical providers; continuing case management)
Early return to work provisions (modified / light duty)Requirements for a loss management firm’s program to be certified for QLMP
Based on loss reduction success for current and former clients, calculated from their experience rating data
Recalculated annually by Bureau
New firms may offer 5% credit until enough client data accumulate
Credit level applies to each client of the firm, if firm certifies full QLMP participationDetermination of QLMP credit
Aggregate premium of participants ($M)
Credits applied ($M)
Number of participants (policies with credit)
Premium size of participants ($000)
* preliminary, as of 7/15/97
As of 7/15/97, 8,258 policies had received a credit.
1st year 8.8%
2nd year 10.5%
3rd year 6.6%
4th year 3.7%
Standard Premium and Manual Premium for the Year 1 (first credit) policy, Years 2 and 3 if applicable, and the Prior policy (immediately before the Year 1 policy). Adjusted for rate changes.
Incurred Losses for each of those policies, valued at 1st report (18 months from policy effective date) and at later reports if availableData used for evaluation: Participants
Voluntary and Assigned Risks, or Assigned Risks only
Standard Premium, Expected Losses, and Incurred Losses for policies with time periods matching those of QLMP dataset
Expected Losses ( = Payroll/100 x Expected Loss Rate) as proxy for Manual Premium ( = Payroll/100 x Manual Rate)Data used for evaluation: Nonparticipants
Does improvement continue with ongoing participation (Years 2 and 3) in the Program?
Does improvement vary by size of insured or experience mod?
Does ongoing participation affect loss development?Additional questions
(First-year credit period 9/1/90 - 8/31/91; loss ratios are to on-level Standard Premium.)
“Mod” = Standard Premium in Year 1 / Manual Premium in Year 1
( 1 - 15% ) + 15% / ( 1 - 20% ) = 1.0375