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Workers Compensation Loss Reserving in California . Michele P. Bernal. General Challenges in CA WC. 99.8% loss ratio projected for AY98 (source WCIRB 6/99 projection). CA Direct Loss Ratios. General Challenges in CA WC. 99.8% loss ratio projected for AY98

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Workers Compensation Loss Reserving in California


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general challenges in ca wc
General Challenges in CA WC
  • 99.8% loss ratio projected for AY98 (source WCIRB 6/99 projection)
general challenges in ca wc1
General Challenges in CA WC
  • 99.8% loss ratio projected for AY98
  • WCIRB projects $3 billion reserve shortage on a direct basis
general challenges in ca wc2
General Challenges in CA WC
  • 99.8% loss ratio projected for AY98
  • WCIRB projects $3 billion reserve shortage on a direct basis
  • 146% Combined Ratio Projection for AY98
projected industry wide direct combined ratio
Projected Industry-wide Direct Combined Ratio

146% Combined Ratio Projection for AY98

Loss Ratio (1/00 filing) 100%

LAE Ratio (1/00 filing) 24%

Other Expense (CY98) 22%

Direct Combined Ratio146%

Source:WCIRB

general challenges in ca wc3
General Challenges in CA WC
  • 99.8% loss ratio projected for AY98
  • WCIRB projects $3 billion reserve shortage on a direct basis
  • 146% Combined Ratio Projection for AY98
  • Pricing Continuing to deteriorate through 1999 (Fully loaded rates are 92% of Advisory Pure Premium) (source WCIRB)
general challenges in ca wc4
General Challenges in CA WC
  • 99.8% loss ratio projected for AY98
  • 146% Combined Ratio Projection for AY98
  • Pricing Continuing to deteriorate through 1999 (Fully loaded rates are 92% of Advisory Pure Premium)
  • Costs are increasing
reserving challenges in california workers comp
Reserving Challenges in California Workers Comp
  • 1/1/94 Reforms
  • 1/1/95 Open Rating
  • 4/1/97 Change in PD Rating Schedule
  • 1/1/98 Change in ALAE Definition
  • 9/18/96 Minniear’s Decision
  • Medical Management
  • 1/1/99 New Medical Fee Schedule
  • Buy-down Reinsurance Programs
1 1 94 california reforms
1/1/94 California Reforms
  • Reduced # of stress cases
  • Anti-fraud measures
  • Vocational Rehab Cap of $16,000
  • Advancing of PD benefits
  • Increased penalties for late payments
  • Large part of the improvement was seen prior to the reforms
reserving challenges in california workers comp1
Reserving Challenges in California Workers Comp
  • 1/1/94 Reforms
  • 1/1/95 Open Rating
  • 4/1/97 Change in PD Rating Schedule
  • 1/1/98 Change in ALAE Definition
  • 9/18/96 Minniear’s Decision
  • Medical Management, etc
  • 1/1/99 New Medical Fee Schedule
  • Buy-down Reinsurance Programs
reserving challenges in california workers comp2
Reserving Challenges in California Workers Comp
  • 1/1/94 Reforms
  • 1/1/95 Open Rating
  • 4/1/97 Change in PD Rating Schedule
  • 9/18/96 Minniear’s Decision
  • 1/1/98 Change in ALAE Definition
  • Medical Management, etc
  • 1/1/99 New Medical Fee Schedule
  • Buy-down Reinsurance Programs
other changes impacting reserves
Other Changes Impacting Reserves
  • 9/18/96 Minniear’s Decision
    • Presumption of the Correctness of the Treating Physician
  • ALAE Definition Change 1/1/98
    • Different from NCCI Definition
    • Medical Management expenses are Medical Loss, not ALAE
    • Some Fraud expenses are ALAE, not ULAE
other changes impacting reserves1
Other Changes Impacting Reserves
  • Medical Management/Early Intervention/Provider Networks
    • Reduced Cost?
    • Return to Work?
    • Accelerated claims closure?
other changes impacting reserves2
Other Changes Impacting Reserves
  • 1/1/99 New Medical Fee Schedules
    • WCIRB projects 2.0% increase in medical costs
    • Lots of uncertainty
      • Hot/Cold pack treatments may be replaced with more expensive modalities
      • Inpatient Hospital Fee Schedule varies charges by individual facility
      • Expanded ability for physicians to charge for chart information & other reports
other changes impacting reserves3
Other Changes Impacting Reserves
  • Buy-Down Reinsurance
    • Quick payout of net losses
    • Substantial uncertainty as to timing of payouts unless your data systems have the ability to restate historical development at new limit (indexed)
    • Use caution when using industry LER’s
coming up sb320 benefit increases
Coming Up... SB320 Benefit Increases
  • Initially $3.2 billion (30%) effective 1/1/00 approved by senate
  • In Assembly
    • 6/30 revision: Phase in over 3 years
    • 9/7 revision: $2 billion phased in over 5 years
    • 9/9 revision: $2 billion phased in over 6 years
  • Governor’s Plan (9/4) $0.5 - 1.0 billion
sb320 benefit increases
SB320 Benefit Increases
  • Only cost increases; no reform provisions
      • Increase in maximum weekly benefits
      • Increase in maximum & duration of permanent partial disability payments
      • Increase in death benefits
      • Additional administrative costs
      • Treating physician retains presumption of correctness only if pre-designated
general notes
General Notes
  • Very important to communicate with claims and underwriting departments
  • Look for trends that are explainable based on that communication
  • Can’t assume long term averages are accurate