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THE EFFECTS OF MAJOR REFORMS ON WORKERS’ COMPENSATION RATES IN CALIFORNIA

THE EFFECTS OF MAJOR REFORMS ON WORKERS’ COMPENSATION RATES IN CALIFORNIA. DWC Educational Conference March 2 and March 7 th , 2006 Gregory Trout, MPA Bickmore Risk Services Los Angeles & Oakland, California. Conditions Leading to Reforms. Open Rating: 1995 Claims Cost Increases

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THE EFFECTS OF MAJOR REFORMS ON WORKERS’ COMPENSATION RATES IN CALIFORNIA

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  1. THE EFFECTS OF MAJOR REFORMSONWORKERS’ COMPENSATION RATESIN CALIFORNIA DWC Educational Conference March 2 and March 7th, 2006 Gregory Trout, MPA Bickmore Risk Services Los Angeles & Oakland, California

  2. Conditions Leading to Reforms • Open Rating: 1995 • Claims Cost Increases • Premium Increases • Insolvencies

  3. California Workers' Compensation - Indicated Average Rates 7.00 6.00 5.00 4.00 Average Rate 3.00 2.00 1.00 0.00 Jan-95 May-95 Jan-96 May-96 Jan-97 May-97 Jan-98 May-98 Jan-99 May-99 Jan-00 May-00 Jan-01 May-01 Jan-02 May-02 Jan-03 Sep-95 Sep-96 Sep-97 Sep-98 Sep-99 Sep-00 Sep-01 Sep-02 WCIRB Estimated Pure Premium Charged Premium Rate Conditions Leading to Reforms

  4. BRS Study of Reforms • Authorized by SB 899 • Initiated by DWC • No Cost to Taxpayers (insurance industry assessment) • Scope: Impact of Reforms on Claims Costs • Charged Premiums • Insurance Company Surplus • Marketplace/Competition • WCIRB/CDI Estimates

  5. Scope of Study Reforms Focused on: • AB 749 (2002) • AB227/SB228 (2003) • SB 899 (2004)

  6. BRS Study of Reforms • Background Leading to Workers’ Compensation Reforms • Scope and Approach • Claims Savings Generated by Reforms • Effect of Reforms on Insurance Rates • Effects of the Reforms on Insurance Industry Surplus and Solvency • Insurance Markets and Competition • Adequacy and Accuracy of Workers’ Compensation Insurance Bureau and California Department of Insurance Rates • Evaluation of Reforms in Other States • Evaluation of Regulatory Structure • Areas of Further Research

  7. Limitations of Study • Fairness of Benefit Levels and Medical Fees • Quality of and Access to Medical Care • Effects on Self-Insurers • Long Term Effects of Reforms

  8. Retrospective Impact of Reforms • Overall Savings

  9. Exhibit V.3. Estimated Ultimate Losses Less Reported Losses at Successive December 31 Evaluations • (After Reflecting the Estimated Impact of AB 227, SB 228, & SB 899 on Unpaid Losses) As of 9/30/2005 $14 $12.9 $12 $11.4 $11.2 $9.8 $10 $7.8 $8 In Billions $6.3 $5.9 $6 $4.4 $4 $3.6 $2.3 $2 $1.6 $0.5 $- 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Evaluation Year Source: WCIRB Quarterly Report at September 30, 2005 Retrospective Impact of Reforms • Historical Evaluations

  10. Prospective Impact of Reforms • Claims Costs

  11. Prospective Impact of Reforms • Claims Costs: Dollars

  12. Prospective Impact of Reforms • Claims Costs: Percent

  13. Prospective Impact of Reforms • Claims Costs by Major Component

  14. Prospective Impact of Reforms • Insurance Company Rates

  15. Prospective Impact of Reforms • Insurance Industry Return to Profit

  16. Exhibit VI.6. SCIF Market Share, 1998 – 2004 (Percent of Written Premium) 70% 58% 53% 60% 53% 51% 50% 51% 47% 50% 43% 41% 36% 40% Market Share 33% 28% 30% 22% 22% 20% 10% 0% 1998 1999 2000 2001 2002 2003 2004 2005 Year Adjusted Unadjusted Note: Unadjusted percentages are as reported to CDI. Adjusted reflect adjustments by BRS to amount reported by SCIF due to difference in recognition of written premium. Prospective Impact of Reforms • Insurance Company Market Share

  17. California vs. Other States • Loss Rate Comparison

  18. Uncertainties Remain ? • Future and Retroactive Cost Savings will be impacted by: • Changes due to Legal Decisions • Legislative Changes • Regulatory Changes • Changes to System through Voter Initiatives ? ?

  19. Areas of Further Research • SCIF’s Role • CIGA Funding • Review of Regulatory Oversight • Cost Savings of Reforms to Public and Private Self-Insurers • Need for claims data from Self-Insurers • MPN’s • Annual Monitoring of the Effects of Reforms and Subsequent Changes

  20. Next Year’s DWC Session Will it be: • “The Effects of Proposition 142, 143, and 144 on the Workers’ Compensation System in California” • “The Effects of the Revised P.D. Schedule Adopted July 1, 2006 & other changes to Previous Reforms”, or • “The Savings Continues From the Reforms of 2002-2004” ???

  21. Study Availability • The Study can be downloaded on the internet from: • BRSrisk.com • dir.ca.gov/DWC • Or by requesting a CD from BRS or DWC

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