Improving Ohio’s Experience Rating and Strengthening the Ohio Group-Rating Program

1. 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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. Recommendation #1 • Transitional Credibility Reductions • Impact at maximum discount level 9

10. Recommendation #2 Moderate Premium Volatility by Capping or Limiting Premium Increases 10

11. 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

12. 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

13. 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

14. 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

15. 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

16. Outcomes & Conclusion 16

17. 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