delaware compensation rating bureau...claim frequency trend is consistent by industry group notes:...

Delaware Compensation

Rating Bureau

Pennsylvania Workers Compensation Insurance Market

Results

2

Pennsylvania Direct Written Premium

The level of written premium has fluctuated over the 29 years shown. Written premium has increased from 2010 to 2015 followed by a slight decrease in 2016 and 2017. Premium stands at $2.78 billion for 2018, which is the second highest premium on the graph. Source: A.M. Best, Inc.: Best’s State/Line Report

3

2.2

1

2.4

6

2.3

0

2.3

9

2.2

2

1.9

8

1.9

6

1.5

6

1.3

6

1.4

7

1.5

5

1.7

3

1.8

7

1.9

9

2.0

9

2.2

5

2.2

6

2.3

0

2.2

0

1.9

9

2.0

3

2.2

1

2.3

4

2.3

6

2.4

2

2.5

1

2.4

8

2.4

4

2.6

3

2.44

2.76 2.64

2.86 2.69

2.32 2.16

1.66

1.43 1.52

1.62

1.85

2.08

2.27

2.45

2.66 2.64 2.67

2.47

2.20 2.19

2.37 2.53 2.58 2.64

2.72 2.67 2.62

2.78

0.00

0.50

1.00

1.50

2.00

2.50

3.00

Wri

tte

n P

rem

ium

($

bill

ion

)

Calendar Year

Private Carriers SWIF

Pennsylvania Earned Premium and Payroll History

Earned Premium has risen and fallen over the 26 years shown. Payroll has more than doubled over the same time period. Sources: Premium: A.M. Best, Inc.: Best’s State/Line Report; Calendar Year Basis Payroll: Unit Statistical Data; PCRB Financial Data Calls as of 12/31/2018, adjusted to an “effective” level to reflect deductible discounts; Policy Year Basis. * Payroll for Policy Years 2017 and 2018 is projected using the Statewide Average Weekly Wage.

4

2.8

2

2.7

3

2.2

9

2.2

0

1.7

9

1.4

1

1.4

7

1.5

1

1.7

1

1.9

7

2.2

5

2.4

2

2.5

8

2.6

2

2.6

7

2.4

7

2.2

4

2.1

7

2.3

3

2.5

0

2.5

7

2.6

3

2.7

2

2.6

7

2.6

3

2.7

3

70 70 71 74 82 86 90

97 99 97 99 102 106 112

117 117 116 121 124 125

130 135 140

145 152

159

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Po

licy

Ye

ar P

ayro

ll ($

bill

ion

)

Cal

en

dar

Ye

ar E

arn

ed

Pre

miu

m (

$b

illio

n) Direct Earned Premium Payroll

10

6.9

%

10

7.2

%

10

5.6

%

10

0.0

%

10

0.9

%

10

3.8

%

11

4.0

%

10

3.8

%

10

6.1

%

10

0.1

%

99

.2%

95

.3%

99

.5%

77

.3%

84

.6%

10

1.8

%

10

2.0

%

96

.7%

98

.5%

10

3.6

%

10

9.9

%

11

9.6

%

10

8.7

%

10

8.6

%

98

.4%

98

.3%

95

.3%

93

.2%

89

.5%

84

.4%

0%

20%

40%

60%

80%

100%

120%

140%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Pennsylvania Countrywide

Combined Ratios Pennsylvania and Countrywide

The Combined Ratio is the sum of the loss, LAE and underwriting expense ratios to premium, and does not include income from investments. Source: 2019 NAIC Profitability by Line by State in 2018

5

After-tax Operating Ratios Pennsylvania and Countrywide

6

The After-tax Operating Ratio is the Combined Ratio less the Investment Gain on Insurance Transactions and a reduction for Federal Tax on Insurance Transactions. An operating ratio of less than 100 indicates an overall operating profit. Source: 2019 NAIC Profitability by Line by State in 2018

92

.9%

93

.7%

95

.1%

91

.3%

93

.3%

94

.6%

97

.1%

91

.3%

93

.3%

92

.4%

90

.1%

87

.3%

90

.9%

75

.5%

78

.4%

91

.0%

91

.2%

89

.6%

89

.8%

94

.1%

96

.6%

98

.8%

92

.6%

93

.5%

90

.6%

89

.2%

87

.0%

86

.6%

83

.2%

77

.4%

0%

20%

40%

60%

80%

100%

120%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Calendar Year

Pennsylvania Countrywide

Loss Costs and Market-wide Pricing

7

Pennsylvania Approved Loss Cost Change History

Significant Milestones: • Act 44 of 1993 introduced several medical cost containment features into the Pennsylvania Workers Compensation Act, and required that

the PCRB file loss costs rather than rates. • Act 57 of 1996 introduced several features that impacted indemnity benefits. • Protz v. WCAB (Derry Area School District), June 2017, eliminated the provisions in the Workers Compensation Act that provided for

Impairment Rating Evaluations. • HB 1840 of 2017 (Act 111 of 2018), October 2018, reinstated the Impairment Rating Evaluation (IRE) process and lowered the impairment

threshold percentage for making a change in disability status from 50% to 35%.

8

-2.00%

-9.43%

-25.00%

-6.94%

-5.26%

+4.50%

-1.55%

+2.12%

-2.41%

+3.32%

-2.89%

-8.58%

+2.95%

-10.22%

-3.00%

+0.68%

+0.87%

-5.66%

-4.01%

-5.15%

-5.99%

-0.90%

-6.21%

+6.06%

+0.70%

-10.02%

-5.24%

-12.95%

-10.08%

-100%

-80%

-60%

-40%

-20%

0%

20%Act 44 Act 57 Protz

Cumulative Change (1/1/1992-4/1/2020)

-73.11%

HB 1840

Pennsylvania Average Loss Cost Multiplier

The Average Loss Cost Multiplier (LCM) is the ratio of Total Carrier Manual Premium to Total Loss Costs at PCRB Level, as reported to the PCRB. It represents the average LCM, weighted by loss costs. Carriers must file their LCMs with the Insurance Department to convert PCRB loss costs, which only include claim costs, into manual rates, including loss adjustment expense, underwriting expenses, a provision for profit and contingencies, and any deviation to reflect differences in loss experience. Investment returns, measured here by the 10-year Treasury Rate, are somewhat correlated with the magnitude of the average loss cost multiplier. The correlation coefficient, , is -79.80%. The implication is that, in times of higher investment returns, average loss cost multipliers tend to be lower. Sources: PCRB Market Profile Report; US Treasury

9

1.0831 1.1805

1.3219 1.4254 1.4382 1.4328 1.4215 1.4080 1.3611 1.3773 1.3777 1.3840 1.4246 1.4704 1.5019 1.5316 1.5177 1.5286 1.5074

1.5927

6.66%

5.16% 5.04%

4.05% 4.15% 4.22% 4.42% 4.76%

3.74%

2.52%

3.73% 3.39%

1.97% 1.91% 2.86%

1.88% 2.09% 2.43% 2.58% 2.71%

0.0%

2.0%

4.0%

6.0%

8.0%

0.00

0.50

1.00

1.50

2.00

2.50

3.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

10

Yr.

Tre

asu

ry R

ate

Ave

rage

LC

M

Policy Year

PA LCM 10 Yr Treasury Rate

Claim Frequency and Severity Trends

10

Pennsylvania Loss Components Frequency, Indemnity Severity, Medical Severity

The combined impact of Frequency Trend, -6.4%, Indemnity Severity Trend, +1.32%, and Medical Severity Trend, +2.16%, is a Loss Ratio Trend of -4.74%. Indexed to 1.00 at Policy Year 2011 Source: PCRB 2020 Loss Cost Revision

11

0.60

0.70

0.80

0.90

1.00

1.10

1.20

1.30

1.40

2011 2012 2013 2014 2015 2016 2017

Policy Year

Indemnity Severity Frequency Medical Severity Loss Ratio

+1.32% per year

+2.16% per year

-6.4% per year

-4.74% per year

0.90

1.00

1.10

1.20

2011 2012 2013 2014 2015 2016 2017

Policy Year

Medical Severity Medical CPI

0.90

1.00

1.10

1.20

2011 2012 2013 2014 2015 2016 2017

Policy Year

Indemnity Severity SAWW

Pennsylvania Severity Compared to Selected Indices

Indemnity Severity Trend: +1.32% SAWW Trend: +2.44%

Changes in indemnity severity appear to be lower than the changes to the state's average weekly wage. Recent changes in medical severity were lower than the Medical Consumer Price Index. Indexed to 1.00 at Policy Year 2011 Sources: PCRB 2020 Loss Cost Revision PA Department of Labor US Bureau of Labor Statistics

12

Medical Severity Trend: +2.16% Medical CPI Trend: +2.86%

Claim Frequency Trend is Consistent by Industry Group

Notes: Excludes large deductible business Claim frequency is measured by the number of claims at first report level per $1 million of expected losses. Decreasing frequency contributes to reductions in statewide loss cost levels. Indexed to 1.00 at Policy Year 2011 Source: PCRB 2020 Loss Cost Revision

13

20.64 19.38 19.07

17.60 16.39 15.47

14.61

0

5

10

15

20

25

30

35

40

45

50

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

1.10

2011 2012 2013 2014 2015 2016 2017

Cla

ims

pe

r $

1 m

illio

n E

xpe

cte

d L

oss

Ind

exe

d F

req

ue

ncy

Policy Year

Manufacturing and Utilities Contracting and Quarrying Other Industries All Industries

Distributions of the Pennsylvania Workers Compensation System

14

2% 1%

46%

27%

24%

5 Policy Year Average (2012-2016)

Death

Permanent Total

Major PermanentPartial

Minor PermanentPartial

Temporary

Indemnity Benefits by Type of Injury

Over these time periods, the portion of indemnity benefits attributable to Permanent Total and Major Permanent Partial injuries decreased by 1 and 6 percentage points, respectively, while the portion attributable to Minor Permanent Partial and Temporary injuries increased by 5 and 3 percentage points, respectively. Based on losses developed to ultimate values. Sources: 2008-2012: PCRB 2016 Loss Cost Revision 2012-2016: PCRB 2020 Loss Cost Revision

15

2%

2%

52% 22%

21%


Death

Permanent Total



Temporary

1%

5%

33%

21%

25%

15%


Death

Permanent Total



Temporary

Medical Only

Medical Benefits by Type of Injury

Over these time periods, the portion of medical benefits attributable to Major Permanent Partial injuries decreased by 8 percentage points. The portion attributable to Minor Permanent Partial , Temporary and Medical Only injuries increased by 5, 2 and 1 percentage points, respectively. Based on losses developed to ultimate values. Sources: 2008-2012: PCRB 2016 Loss Cost Revision 2012-2016: PCRB 2020 Loss Cost Revision

16

0.6%

5%

41%

16%

23%

14%


Death

Permanent Total



Temporary

Medical Only

Ultimate Indemnity Benefits by Type of Injury

Pennsylvania has a higher percentage of Permanent Partial benefits and a lower percentage of Temporary benefits in comparison to the NCCI states. Sources: PCRB 2020 Loss Cost Revision NCCI States: 2019 Annual Statistical Bulletin

17

2.4% 1.2%

72.2%

24.1%

5.7% 4.5%

57.0%

32.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Death Permanent Total Permanent Partial Temporary

Pennsylvania NCCI States

Ultimate Medical Benefits by Type of Injury

The largest component of medical costs is payments for Permanent Partial (more than half of total medical cost). The NCCI States have higher percentages of Permanent Total and Temporary injury types, while Pennsylvania has higher percentages of Permanent Partial and Medical Only claims. Sources: PCRB 2020 Loss Cost Revision NCCI States: 2019 Annual Statistical Bulletin

18

1.2% 5.0%

54.7%

24.1%

15.3%

1.2%

9.7%

47.2%

29.2%

12.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Death Permanent Total Permanent Partial Temporary Medical Only


Premium and Loss by Industry Group

Source: PCRB 2020 Loss Cost Revision, Policy Year 2016

19

Standard Premium Reported Losses

1 - Manufacturing 2 - Contracting 3 - Other

20%

18% 62%

20%

17% 63%

22%

78%

Premium and Loss by Industry Group

Standard Premium

Source: PCRB 2020 Loss Cost Revision, Policy Year 2016

20

Reported Losses

Excluding Deductible Policies Deductible Policies

Manufacturing Contracting Other

53% 47%

22%

78%

41%

59%

47% 53%

39%

61%

Measures of Claim Reporting

21

Portion of Reported Indemnity Claims Closed

The rate at which claims are settled and closed impacts the ultimate claim costs. The chart shows the percentage of indemnity claims that are closed at each report level. Approximately 4% of indemnity claims remain open at 5th report. Source: PCRB 2020 Loss Cost Revision

22

64%

84%

92% 95% 96% 97% 98% 98% 99% 99%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th

Report Level

Portion of Ultimate Indemnity Loss Paid by Claim Maturity

Sources: PCRB 2020 Loss Cost Revision, on a Policy Year basis NCCI States: April, 2020, Annual Statistical Bulletin, Interim Exhibits, on an Accident Year basis

23

35.1%

86.1%

92.4% 96.0%

15.7%

81.8%

92.9% 97.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 5 10 19

Pe

rce

nta

ge o

f In

de

mn

ity

Pai

d b

y C

laim

Mat

uri

ty

Maturity Level in Years


Portion of Ultimate Medical Loss Paid by Claim Maturity


24

53.0%

72.9% 77.0%

84.0%

35.0%

79.4%

85.5%

92.1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 5 10 19

Pe

rce

nta

ge o

f M

ed

ical

Pai

d b

y C

laim

Mat

uri

ty



Portion of Ultimate Indemnity Case Incurred by Claim Maturity


25

65.7%

96.5% 98.5% 99.7%

51.4%

94.3% 97.8% 98.9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 5 10 19

Pe

rce

nta

ge o

f In

de

mn

ity

Cas

e In

curr

ed

by

Cla

im M

atu

rity



Portion of Ultimate Medical Case Incurred by Claim Maturity


26

82.0%

87.6% 89.0%

94.2%

80.3%

96.0% 97.4% 97.9%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 5 10 19

Pe

rce

nta

ge o

f M

ed

ical

Cas

e In

curr

ed

by

Cla

im M

atu

rity



delaware compensation rating bureau...claim frequency trend is consistent by industry group notes:...

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