Changing of the Guard in WV: Monopolistic to Competitive (Part One) Harry Mahler Senior Vice President, Insurance Oper

1. Changing of the Guard in WV: Monopolistic to Competitive (Part One) Harry Mahler Senior Vice President, Insurance Operations

2. THE WINDS OF CHANGE • Why did West Virginia change? • Gov. Joe Manchin, January 17, 2005: “Our workers’ compensation debt is the Achilles’ heel of our state’s economy. This system must be fixed permanently now.”

3. THE WINDS OF CHANGE • West Virginia was one of only five states that had a monopolistic state fund. • We had some of the highest rates in the nation • Prior to 1995 reforms, PTD awards were 17 times the national average • Unfunded liabilities exceeding $2.4 billion at the end of 2005

4. LEGISLATIVE REFORMS • 1995 – Senate Bill 250 • Largely gutted by the WV Supreme Court of Appeals • 2003 – Senate Bill 2013 • Aggressive implementation, enforcement • Rapid financial turnaround - solvency • 2005 – Senate Bill 1004 • Privatization years ahead of schedule

5. ACCELERATED TIMETABLE - 2006 • January 1, 2006 – BrickStreet Mutual Insurance Co. opens as the state’s first-ever private WC carrier • Just 10.5 months after bill signed • Half-billion dollar start-up company; 15th largest in the U.S., according to AM Best • Policies issued to approximately 40,000 policyholders, effective 01/01/06

6. ACCELERATED TIMETABLE - 2006 • Challenges: • Prospective invoicing – no longer quarterly, retrospective • Physical policies – issued for the first time • 01/01/06 to 07/01/06 • 07/01/06 to 01/01/07 • Installation and implementation of major new systems: • Policy • Claims • Medical • Financial • Legal

7. ACCELERATED TIMETABLE - 2006 • Monday, January 2 – Sago Mine disaster • Most employees off for holiday • First official day of business January 3 • $10 million-plus catastrophic loss • Immediate, compassionate response by Traumatic Claims team • Worked closely with policyholder, ICG • Commitment to rapid claims processing to get benefits to families quickly

8. ACCELERATED TIMETABLE - 2006 • Also in 2006: • April – 55 independent insurance agencies and four general agencies appointed • July – NCCI becomes rating and classification agent for WV • September – StreetSelect™ PPO formed • October – First annual policyholder meeting held • November – “Old Fund” claims subcontracted

9. ACCELERATED TIMETABLE - 2007 • Staggered policy terms • NCCI experience rating plan adopted • Large deductible program • BrickStreet 360˚ - 8 business teams • New corporate headquarters

10. COPING WITH CHANGE • Building an underwriting company • Manuals, guidelines, policies, procedures • Risk analysis and pricing • Authority structure • Quality Assurance • Business segmentation

11. COPING WITH CHANGE • Commitment to communication • Internal: • Interactive Intranet site called Street Talk – daily messages, feedback • Monthly managers’ meeting – expected dissemination • Employee recognition and reward programs • External: • BrickStreet InSights – biweekly e-newsletter • InSide BrickStreet – quarterly magazine • Media tours – “earned media”

12. COPING WITH CHANGE • Commitment to education • Policyholders and general public: • Speaking engagements – business groups, trade associations, civic organizations (we never turn down a request) • Advertising and public relations campaigns • Government relations • Sponsorships and community giving • Active service on boards, commissions • External Web site, www.brickstreet.com

13. COPING WITH CHANGE • Commitment to education • Agents: • Annual training programs • Annual retreat • Agent Portal • Agent Advisory Council • Employees: • Recruiting and mentoring a dedicated and professional staff • Training and development opportunities

14. COPING WITH CHANGE • And … good old-fashioned elbow grease

15. BRICKSTREET TODAY • Private, WV-based mutual insurance company WITH 450-500 employees • BrickStreet is owned by its 36,000 West Virginia policyholders • BrickStreet was designated the exclusive provider of WC insurance through June 2008 • On July 1, the WV market opens to other private carriers

16. BRICKSTREET’S MISSION STATEMENT: • Partnering with West Virginia employers • to protect their greatest asset - their employees. 

17. FINANCIAL BACKGROUND • $500 million in annual premiums • Surplus = $455 million (includes $200 million surplus note payable to the state of West Virginia) • Company profitable since inception • 2006: $71 million • 2007: $185 million • Strong company that can meet market competition

18. RATE CHANGES SINCE PRIVATIZATION • In the aggregate, national WC rates in 2006 and 2007 decreased by 9.6 percent. • By comparison, rates in West Virginia have decreased by 30.8 percent from 2006 to 2008 (including a 3.3% overall market reduction effective 7/1/08). • 2006 Oregon study shows privatization has brought WV’s rates in line nationally.

19. SURCHARGES • As of 7/1/08, all carriers will apply: • Deficit reduction surcharge – 9% • Admin surcharge (OIC) – 5.5% • WV Fire & Casualty surcharge – 0.55% (new) • (All surcharges collected are remitted to the OIC)

20. BRICKSTREET 360˚ OUR STREAMLINED TEAM APPROACH • New organizational structure for enhanced customer service • Eight multifunctional business teams organized by industry and premium size, including coal, government, small, large and standard accounts

21. COMPONENTS OF BRICKSTREET 360˚ • Adjusters • Underwriters • Return-to-work specialists • Investigators • Risk management professionals • Doctors • Nurses • Legal advisors • Premium auditors

22. QUESTIONS?

23. Changing of the Guard in WV: Monopolistic to Competitive (Part Two) Roger Miller Technical Coordinator, Premium Audit

24. “Any change, even a change for the better, is always accompanied by drawbacks and discomforts”- Arnold Bennett

25. CHALLENGES FOR BRICKSTREET • Premium Audit Management System • Assignment of audits • Training of staff auditors • Review of completed audits • Billing of audits • Dispute resolution of audits

26. CHALLENGES FOR PREMIUM AUDITORS • Number of audits • NCCI Basic Manual • Number of class codes • Audit procedures • Conducting an audit • Mindset change

27. CHALLENGES FOR POLICYHOLDERS • Perception of BrickStreet • Audit process • Audit reporting

28. “We must all obey the great law of change. It is the most powerful law of nature.”- Edmund Burke

29. IMPACT OF LEGISLATION • Voluntary Insurance • Treatment of officers • Treatment of subcontractors

30. "In a time of drastic change, it is the learners who inherit the future. The learned find themselves equipped to live in a world which no longer exists." – Eric Hoffer

31. INCREASING KNOWLEDGE • Agency training • CSR training • Quarterly auditor training • Implemented quality control and timeliness standards

32. “When you are through changing, you are through.” – Bruce Barton

33. TRANSITION • Getting to proper classification • Getting to correct payrolls • Sorting out owner/officer election and payroll issues • Making audits a routine part of WC insurance process • Still changing … still not done

34. QUESTIONS?