workers compensation insurance industry overview trends & challenges amid the economic storm...

Workers Compensation Insurance Industry Overview

Trends & Challenges Amid theEconomic Storm

American Association of State Compensation Insurance Funds (AASCIF)

Park City, UT

August 20, 2008

Robert P. Hartwig, Ph.D., CPCU, PresidentInsurance Information Institute 110 William Street New York, NY 10038

Tel: (212) 346-5520 Fax: (212) 732-1916 [email protected] www.iii.org

Presentation Outline• Economic Factors Affecting Exposure in WC

Economic Downturn and Inflation• Overall P/C Insurance Industry Performance Cycles

Profitability Underwriting Premium Growth Drivers Investment Performance

• Workers Comp Performance Review Underwriting performance Premium Drivers Frequency & Severity Trends Predictive Modeling and Workers Comp

• Mega-Trends/Emerging Issues Affecting Workers Comp The Aging Workforce Returning Veterans The Obesity Epidemic Non-English Speaking Workers

• Other Trends & Concerns

Q&A

THE ECONOMIC STORM

What a Weakening Economy, Rising Unemployment & The Threat of

Inflation Mean for Workers Comp Insurers

3.7%

0.8%

1.6%

2.5%

3.6%

3.1%2.9%

2.2%

1.6%1.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Real Annual GDP Growth, 2000-2009F

March 2001-November

2001 recession

Recession?

* Red bars are actual; Yellow bars are forecastsSources: US Department of Commerce (actual), Blue Economic Indicators 8/08 (forecasts).

3.0%2.6%

3.8%

1.3%

4.8%

2.7%

0.8%

1.5%

0.1%

4.8%

-0.2%

1.9%

1.2%

0.3%

1.1%

2.0%2.5%2.7%

4.8%

0.9%

-1%

0%

1%

2%

3%

4%

5%

6%

05

:1Q

05

:2Q

05

:3Q

05

:4Q

06

:1Q

06

:2Q

06

:3Q

06

:4Q

07

:1Q

07

:2Q

07

:3Q

07

:4Q

08

:1Q

08

:2Q

08

:3Q

08

:4Q

09

:1Q

09

:2Q

09

:3Q

09

:4Q

Real Quarterly GDP Growth, 2005-2009F*

* Red bars are actual; Yellow bars are forecastsSources: US Department of Commerce (actual), Blue Economic Indicators 8/08 (forecasts).

Oil price spike, Credit crunch, Soft Labor

Markets & Recession?

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

Ja

n-0

0

Ja

n-0

1

Ja

n-0

2

Ja

n-0

3

Ja

n-0

4

Ja

n-0

5

Ja

n-0

6

Ja

n-0

7

Ja

n-0

8

January 2000 through June 2008

Unemployment will likely continue to approach 6% during this cycle, impacting payroll sensitive p/c and non-life exposures

Source: US Bureau of Labor Statistics; Blue Chip Economic Indicators

June 2008 unemployment jumped to 5.7%, its highest

level since March 2004

Unemployment Rate:On the Rise

Average unemployment rate since 2000 is 5.0%

Previous Peak: 6.3% in June 2003

Trough: 4.4% in March 2007

Jun

-08

U.S. Unemployment Rate,(2007:Q1 to 2009:Q4F)*

4.7%4.6%

4.7%

4.5% 4.5% 4.5%4.6%

4.8%4.9%

5.4%

5.7%

5.9%

6.1% 6.1% 6.1% 6.1%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

06:Q1 06:Q2 06:Q3 06:Q4 07:Q1 07:Q2 07:Q3 07:Q4 08:Q1 08:Q2 08:Q3 08:Q4 09:Q1 09:Q2 09:Q3 09:Q4

* Blue bars are actual; Yellow bars are forecastsSources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (8/08); Insurance Info. Inst.

Rising unemployment will erode payrolls and workers

comp’s exposure base

Total Private Employment* Grew by25½ Million Workers from 1991 to 2008

89.7

89.9 91

.7 94.9 97

.7 100.

1 103.

0 106.

0 108.

6

108.

8

108.

2

115.

4

115.

2

110.

9 114.

0

111.

8

111.

0

109.

8

80

90

100

110

120

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

*seasonally adjusted at mid-yearSource: U.S. Bureau of Labor Statistics, at http://data.bls.gov/cgi-bin/surveymost

Millions

The US economy added 25.5 million jobs between 1991 and

2008, but job growth has recently stagnated, impacted payrolls and the workers comp exposure base

Average Weekly Real Earnings in Private Employment Were Flat from 1999 to 2008$2

59.2

$257

.9

$258

.3

$260

.1

$258

.0

$260

.7 $264

.3

$271

.5 $276

.1 $279

.4

$279

.3

$281

.2

$276

.1

$275

.1

$277

.3

$276

.9

$275

.0

$276

.0

$250

$260

$270

$280

$290

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

Sources: U.S. Bureau of Labor Statistics; I.I.I.

(at mid-year) Constant 1982 dollars

Virtually all of the real wage growth occurred between 1995 and 1999 and has now stagnated

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07*

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45Wage & SalaryDisbursementsWC NPW

*Average of quarterly figures.Source: US Bureau of Economic Analysis; Federal Reserve Bank of St. Louis at http://research.stlouisfed.org/fred2/series/WASCUR; I.I.I. Fact Books

Wage & Salary Disbursements (Payroll Base) vs. Workers Comp

Net Written Premiums

7/90-3/91

Shaded areas indicate recessions

3/01-11/01

Wage & Salary Disbursement (Private Employment) vs. WC NWP$ Billions $ Billions

Weakening wage and salary growth is

expected to cause a deceleration in workers comp

exposure growth

p PreliminarySource: US Department of Labor, Bureau of Labor Statistics (BLS), National Bureau of Economic Research; NCCI Frequency and Severity Analysis

Workplace Injury Incidence RatesDeclined in Last 4 Economic Downturns

0

5

10

15

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007p

Inc

ide

nc

e R

ate

s p

er

10

0 F

TE

Wo

rke

rs(B

LS

)

0

1250

2500

3750

Cla

ims

pe

r 10

0,0

00

Wo

rke

rs(N

CC

I)

Recessions

Manufacturing Industry Injuries and Illnesses per 100 Full-Time Workers

Private Industry Injuries and Illnesses per 100 Full-Time WorkersNCCI Lost-Time Claims per 100,000 Workers

New Private Housing Starts,1990-2014F (Millions of Units)

2.07

1.80

1.36

0.97

0.97

1.38 1.

45

1.54 1.56

1.51

1.48

1.35

1.46

1.29

1.20

1.01

1.19

1.47

1.62 1.64

1.57 1.

60

1.71

1.85

1.96

0.91.01.11.21.31.41.51.61.71.81.92.02.1

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07F08F 09F 10F11F 12F 13F 14FSource: US Department of Commerce; Blue Chip Economic Indicators (10/07), except 2008/09 figures from 8/08 edition of BCEF; Insurance Info. Institute

Exposure growth forecast for HO insurers is dim for 2008/09

Impacts also for comml. insurers with construction risk exposure

New home starts plunged 34% from 2005-2007;

Drop through 2008 trough is 54% (est.)—a net annual decline of

1.11 million units

I.I.I. estimates that each incremental 100,000 decline in housing starts costs

home insurers $87.5 million in new exposure (gross premium). The net

exposure loss in 2008 vs. 2005 is estimated at $971 million.

$1

,08

2

$1

,14

4

$1

,22

6

$1

,30

7

$1

,36

8

$1

,40

6

$1

,41

3

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

03 04 05 06 07 08F 09F

0%

1%

2%

3%

4%

5%

6%

7%

8%

% C

ha

ng

e

Nonresidential Fixed Investment% Change Nonresidential Fixed Investment

Nonresidential Fixed Investment,* 2003 – 2009F (Billions of 2000 $)

Sharp dip in business investment growth in 2007-2009 will slow

commercial exposure growth

*Nonresidential fixed investment consists of structures, equipment and software.

Sources: US Bureau of Economic Analysis (Historical), Blue Chip Economic Indicators (7/08) for forecasts.

Non

resi

den

tial F

ixed

In

vest

men

t ($

Bill

)

Total Industrial Production,(2007:Q1 to 2009:Q4F)

1.5%

3.2%3.6%

0.3%

-0.3%

-2.7%

0.2%

1.1%1.7%

2.3%2.7% 2.8%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

07:Q1 07:Q2 07:Q3 07:Q4 08:Q1 08:Q2 08:Q3 08:Q4 09:Q1 09:Q2 09:Q3 09:Q4Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators (7/08); Insurance Info. Inst.

Industrial production shrank during Q1 2008 and is expected to shrink again in Q2, growing very

slowly thereafter

Industrial production affects exposure both directly and indirectly

Inflation Overview

Pressures Claim Costs via Medical and Tort Channels

Annual Inflation Rates(CPI-U, %), 1990-2009F

4.9 5.1

3.0 3.2

2.6

1.51.9

3.3 3.4

1.3

2.5 2.3

3.0

3.8

2.8

5.6

4.4

2.92.82.92.4

0

1

2

3

4

5

6

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08* 08F 09F

*12-month change July 2008 vs. July 2007 Sources: US Bureau of Labor Statistics; Blue Chip Economic Indicators, August 10, 2008. (forecasts)

In July 2008, on a year-over-year basis inflation was 5.6% -- a level not seen since 1991.

Quarterly Inflation Rate (CPI-U), % Change from Prior Quarter, Annualized

2.3%

3.8%

5.5%

3.3%3.8%

4.6%

2.7%

5.1%

4.2%

5.0%5.4%

2.8%2.1%

2.4%2.6%2.2%

-2.0%

3.0%

5.1%

1.8%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

05

:Q1

05

:Q2

05

:Q3

05

:Q4

06

:Q1

06

:Q2

06

:Q3

06

:Q4

07

:Q1

07

:Q2

07

:Q3

07

:Q4

08

:Q1

08

:Q2

08

:Q3

08

:Q4

09

:Q1

09

:Q2

09

:Q3

09

:Q4

Source: US Bureau of Labor Statistics; Blue Chip Economic Indicators, Aug. 10, 2008; Ins. Info. Institute.

Inflation is on the rise, but medical

cost inflation rises faster

Inflation: Important Economic Risks and Implications for Insurers

Effects of Inflation Risks to Insurers & Buyers

Claim Severity Increase

•Claims (property and liability) costs may rise as the price of goods and services increase•PMLs could be (much) higher

Rate Inadequacy •Accelerating inflation historically contributed to rate inadequacy because ratemaking is largely a retrospective process•Many types of loss trends are sensitive to the pace of inflation: medical cost, tort, etc.•Historical loss cost trends could be biased predictors of future loss if inflation accelerates

Inflation: Important Economic Risks and Implications for Insurers (cont’d)

Effects of Inflation Risks to Insurers

Reserve Deficiency

•Reserves are established using certain assumptions about future development and discounting factors•If inflation accelerates, development could be more rapid and/or be more substantial (in dollar terms) than assumed and discount factors may be too low

Inadequate Insurance Limits

•Policyholders could find themselves inadequately insured as claims costs escalate

Inadequate Reinsurance

•Inflation can lead to a more rapid and unexpected exhaustion of reinsurance because losses are higher than expected

Comparative 2007 Inflation Statistics Important to Insurers ( %)

2.8

4.43.9

2.3

4.1

6.7

0

1

2

3

4

5

6

7

8

CPI-U Core CPI* TotalMedical

Care

PhysicianServices

HospitalServices

LegalServices

Infl

atio

n R

ate

(%)

*Core CPI is the Consumer Price Index for all Urban Consumers (CPI-U) less food and energy costs.Source: US Bureau of Labor Statistics; Insurance Information Institute.

CPI and “Core” CPI are not representative of

many of the costs insurers face

Medical/Legal costs typically run well ahead of inflation

Medical & Tort Cost Inflation

Amplifiers of Inflation, Major Insurance Cost Driver

Consumer Price Index for Medical Care vs. All Items, 1960-2007

207.3

351.1

0

100

200

300

400

60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

Ind

ex V

alu

e (1

982-

84=

100)

All Items Medical Care

Source: Department of Labor (Bureau of Labor Statistics; Insurance Information Institute.

(Base: 1982-84=100)

Inflation for Medical Care has been surging

ahead of general inflation (CPI) for 25

years. Since 1982-84, the cost of medical care has

more than tripled

Soaring medical inflation is among the most serious

long-term challenges facing

casualty, disability and LTC insurers

Tort Cost Growth & Medical Cost Inflation vs. Overall Inflation (CPI-U), 1961-2008*

0%

2%

4%

6%

8%

10%

12%

14%

1961-70 1971-80 1981-90 1991-2000 2001-08E

Tort Costs Medical Costs CPI

*Medical cost and CPI-U through April 2008 from BLS. Tort figure is for full-year 2008 from Tillinghast.

Tort System is an Inflation Amplifier

Avg. Ann. Change: 1961-2008*

Torts Costs: +8.4%Med Costs: +6.0%

Overall Inflation: +4.2%

Sources: US Bureau of Labor Statistics, Tillinghast-Towers Perrin, 2007 Update on U.S. Tort Costs; Insurance Info. Inst.

Tort costs move with inflation but at twice the rate

PROFITABILITY

In the Midstof a Cyclical Decline

5.2%

-0.9

%-7

.4%

-6.5

%-1

.5%

1.8%

4.3%

18.6

%20

.3%

5.8%

0.3%

-1.6

%-1

.0%

-1.8

%-1

.0%

3.1%

1.1%

0.8%

0.4%

0.6%

-0.4

%-0

.3%

1.6%

5.6%

13.7

%7.

7%1.

2%-2

.9% -0

.5%

-3.4

%-4

.9%

-10%

-5%

0%

5%

10%

15%

20%

25%7

87

98

08

18

28

38

48

58

68

78

88

99

09

19

29

39

49

59

69

79

89

90

00

10

20

30

40

50

60

70

8F

Rea

l N

WP

Gro

wth

-4%

-2%

0%

2%

4%

6%

8%

Rea

l G

DP

Gro

wth

Real NWP Growth Real GDP

Real GDP Growth vs. Real P/C Premium Growth: Modest Association

P/C insurance industry’s growth is influenced modestly by growth

in the overall economy

Sources: A.M. Best, US Bureau of Economic Analysis, Blue Chip Economic Indicators, 8/08; Insurance Information Inst.

P/C Net Income After Taxes1991-2008 ($ Millions)*

$14,

178

$5,8

40

$19,

316

$10,

870

$20,

598

$24,

404 $3

6,81

9

$30,

773

$21,

865

$3,0

46

$30,

029

$61,

940

$32,

936

-$6,970

$65,

777

$44,

155

$20,

559

$38,

501

-$10,000

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08*

*ROE figures are GAAP; 2008 figure is annualized Q1 net income of $8.234B; 1Return on avg. surplus.Sources: A.M. Best, ISO, Insurance Information Inst. ***9.5% excl. mortgage and finl. guarantee insurers.

2001 ROE = -1.2%2002 ROE = 2.2%2003 ROE = 8.9%2004 ROE = 9.4%2005 ROE= 9.6%2006 ROE = 12.2%2007 ROAS1 = 12.3%**2008 ROAS = 6.4%***

Insurer profits peaked in 2006

-5%

0%

5%

10%

15%

20%

87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08Q1

US P/C Insurers All US Industries

ROE: P/C vs. All Industries 1987–2008:Q1

2008 P/C insurer figure is annualized Q1 return on average surplus. Excluding mortgage and financial guarantee insurers = 9.5%. Source: ISO, Fortune; Insurance Information Institute.

Andrew Northridge

Hugo Lowest CAT losses in 15 years

Sept. 11

4 Hurricanes

Katrina, Rita, Wilma

P/C profitability is cyclical and volatile

Mortgage & Financial Guarantee Impact

-5%

0%

5%

10%

15%

20%

25%

75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

Profitability Peaks & Troughs in the P/C Insurance Industry,1975 – 2008:Q1

1975: 2.4%

1977:19.0% 1987:17.3%

1997:11.6%

2006:12.2%

1984: 1.8% 1992: 4.5% 2001: -1.2%

10 Years

10 Years

9 Years

*GAAP ROE for all years except 2007 which is ROAS of 12.3%. All figures include mortgage an d financial guarantee insurers. Excluding M&FG insurers 2008:Q1 ROAS is 9.5%..Source: Insurance Information Institute, ISO; Fortune

2008Q1: 6.4%(9.5% excl. M&FG)

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08*

ROE Cost of Capital

ROE vs. Equity Cost of Capital:US P/C Insurance:1991-2008:Q1

*Excludes mortgage and financial guarantee insurers.Source: The Geneva Association, Ins. Information Inst.

The p/c insurance industry achieved its cost of capital in 2005/6 for the first time in many years

-13.

2 p

ts

US P/C insurers missed their cost of capital by an average 6.7 points from 1991 to 2002, but on

target or better 2003-07

-1.7

pts

+2.

3 p

ts

-9.0

pts

The cost of capital is the rate of return

insurers need to attract and retain

capital to the business

-1.3

pts

Factors that Will Influence theLength and Depth of the Cycle

• Capacity: Rapid surplus growth in recent years has left the industry with between $85 billion and $100 billion in excess capital, according to analysts, at end of 2007 All else equal, rising capital leads to greater price competition and a liberalization of terms

and conditions• Reserves: Reserves are in the best shape (in terms of adequacy) in decades, which

could extend the depth and length of the cycle• Investment Gains: With sharp declines in stock prices and falling interest rates,

portfolio yields are certain to fallContributes to discipline and shallower cycle• Sarbanes-Oxley: Presumably SOX will lead to better and more conservative

management of company finances, including rapid recognition of deficient or redundant reserves With more “eyes” on the industry, the theory is that cyclical swings should shrink

• Ratings Agencies: Focus on Cycle Management; Quicker to downgrade• Information Systems: Management has more and better tools that allow faster

adjustments to price, underwriting and changing market conditions than it had during previous soft markets

• Analysts/Investors: Less fixated on growth, more on ROE through soft mkt. Management has backing of investors of Wall Street to remain disciplined

• M&A Activity: More consolidatio would imply greater discipline

Source: Insurance Information Institute.

115.8

107.4

100.198.3

100.7

92.4

96.7

99.9

95.6

90

100

110

120

2001 2002 2003 2004 2005 2006 2007 08:Q1 08:Q1*

P/C Insurance Industry Combined Ratio, 2001-2008:Q1

*Excluding Mortgage & Financial Guarantee insurers. Sources: A.M. Best, ISO; III.

2005 ratio benefited from heavy use of reinsurance which lowered net losses

Best combined ratio since 1949

(87.6)

As recently as 2001, insurers paid out nearly $1.16 for every

$1 in earned premiums

Relatively low CAT

losses, reserve releases

Including Mortgage

& Fin. Guarantee insurers

Excluding Mortgage

& Fin. Guarantee insurers

U.S. Insured Catastrophe Losses*$7

.5

$2.7

$4.7

$22.

9

$5.5 $1

6.9

$8.3

$7.4

$2.6 $1

0.1

$8.3

$4.6

$26.

5

$5.9 $1

2.9 $2

7.5

$6.7

$9.3

$100

.0

$61.

9

$9.2

$0

$20

$40

$60

$80

$100

$120

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

08:Q

2**

20??

*Excludes $4B-$6b offshore energy losses from Hurricanes Katrina & Rita.**Based on preliminary PCS data through June 30. Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01. Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B.Source: Property Claims Service/ISO; Insurance Information Institute

$ Billions2008 CAT losses already exceed the annual totals recorded for all

of 2007 and 2006. 2005 was by far the worst year ever for

insured catastrophe losses in the US, but the worst has yet to come.

$100 Billion CAT year…

Coming Soon?

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

22%

24%

1971

1972

1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2008 is Q1 actual (-0.7%), including Mortgage & Financial Guarantee insurersSources: A.M. Best, ISO, Insurance Information Institute

Strength of Recent Hard Markets by NWP Growth

1975-78 1984-87 2000-03

In 2007 net written premiums fell 0.6%, the first decline since 1943

Shaded areas denote “hard

market” periods

Excluding Mortgage &

Financial Guarantee

insurers, Q1 2008 NWP

dropped 0.9%

Year-to-Year Change in Net Written Premium, 2000-

Q1:2008

Source: A.M. Best; ISO.

5.0%

8.4%

15.3%

10.0%

3.9%

0.5%

4.2%

-0.6% -0.7%2000 2001 2002 2003 2004 2005 2006 2007 Q1:2008

P/C insurers are experiencing their slowest growth rates

since 1943.

Excluding Mortgage &

Financial Guarantee

insurers, Q1 2008 NWP

dropped 0.9%

Property/Casualty Insurance Industry Investment Gain1

$ Billions

$35.4

$42.8$47.2

$52.3

$44.4

$36.0

$45.3$48.9

$59.4$55.7

$63.6

$12.2

$56.9$51.9

$57.9

$0

$10

$20

$30

$40

$50

$60

94 95 96 97 98 99 00 01 02 03 04 05* 06 07

08Q1

1Investment gains consist primarily of interest, stock dividends and realized capital gains and losses. 2006 figure consists of $52.3B net investment income and $3.4B realized investment gain. *2005 figure includes special one-time dividend of $3.2B.Sources: ISO; Insurance Information Institute.

Investment gains are off in 2008 due to lower yields and

poor equity market conditions.

P/C Stocks: Mirroring theS&P 500 Index in 2008

2.51%

-57.27%

-37.58%

-46.46%

-15.23%

-11.97%

-25.22%

-11.59%

-70.0% -60.0% -50.0% -40.0% -30.0% -20.0% -10.0% 0.0% 10.0%

S&P 500

All Insurers

P/C

Life/Health

Multiline

Reinsurance

Mortgage*

Brokers

*Includes Financial Guarantee.Source: SNL Securities, Standard & Poor’s, Insurance Information Institute.

Total YTD Returns Through August 15 , 2008P/C, Life insurance stocks caught in financial services

downdraft

Mortgage & Financial Guarantee insurers were down

69% in 2007

Workers Compensation

Review:

Underwriting andOperating Performance

102

97

111 110107

103

93

99100 101

107

115118

122

80

85

90

95

100

105

110

115

120

125

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007p

Percent

p Preliminary. Sources: Calendar Years 1994-2006, A.M. Best Aggregates & Averages; Calendar Year 2007p NCCIIncludes dividends to policyholders

Workers Comp Combined Ratios, (Calendar Year, Private Carriers) 1994-2007p

WC insurers lopped 30 points off the

combined ratio in just 5 years

117123 121

109102

97 100 101107

115 118 122

111 110 10799

93103

0

20

40

60

80

100

120

140

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 20062007p

Loss LAE Underwriting Expense Dividends

WC Calendar Year Combined Ratio—On the Rise Again?

Private CarriersPercent

P = Preliminary

Source: 1990–2006, Best's Aggregates & Averages; 2007p, NCCI

1.9% Due to September 11

Calendar Year

Workers Comp Calendar Year vs. Ultimate Accident Year – Private Carriers

101

97

111

110

107

103

93

101 10

6

119

133

142

136

123

88

85 84

9210

1.5

99.0

100

101 10

7 115 11

8 122

97

105

96

80

90

100

110

120

130

140

94 95 96 97 98 99 00 01 02 03 04 05 06 07E 08F

Calendar Year Accident Year

Percent

p Preliminary AY figure. Accident Year data is evaluated as of 12/31/2007 and developed to ultimateSource: Calendar Years 1994-2006, A.M. Best Aggregates & Averages; Calendar Year 2007p and Accident Years 1994-2007pbased on NCCI Annual Statement Analysis.

Includes dividends to policyholders *2008 figure from A.M. Best.

Workers Comp Combined Ratios, 1994-2008F*

A.M. Best expects 2008 combined ratio to rise by 2.5 points

96

115 119130

145137

122 122

104

8679 83*

74

0

30

60

90

120

150

180

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

California Workers CompensationCY Combined Loss and Expense Ratios

Calendar Year

Percent As of December 31, 2007

* 2007 Combined Loss and Expense Ratio is preliminaryData includes State Compensation Insurance Fund

Source: WCRIB California via NCCI ®

55.8 64

91 101115

131141

126107

83

5333 29 37

48

12.413

1719

20

2422

22

18

15

12

10 1012

14

1518

2020

21

2222

20

18

16

15

14 14

16*16

8395

128140

156

177185

168

143

114

80

57 5365

78

0

50

100

150

200

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007*

Other ExpensesLAE

Losses

California Workers CompensationAY Combined Loss and Expense Ratios

Accident Year

Percent As of December 31, 2007

* 2007 Other Expenses are preliminaryData includes State Compensation Insurance Fund

Source: WCIRB California ®

$ Billions

Calendar Year

2

5

10

15

1820

21

18

15

12

9

42

0

5

10

15

20

25

30

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

2007 Tabular Discount Is $5.5 Billion

Considers all reserve discounts as deficienciesLoss and LAE figures are based on NAIC Annual Statement data for each valuation date and NCCI latest selectionsSource: NCCI analysis

Calendar Year Reserve Deficiencies Continue to Decline

WC Loss and LAE Reserve Deficiency: Private Carriers

13

1.3 0.9

8.4

-0.1

17.0

-4.2

-8.6-7.8

-3.2

7.5

12.7

19.717.9

19.8

13.9

5.2 4.4

-10

-5

0

5

10

15

20

90* 91* 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07pCalendar Year

Percent

Workers Comp Pre-Tax Operating Gain Ratio: Strong But Slipping?

*Adjusted to include realized capital gains to be consistent with 1992 and after.Sources: 1990-2006, Best’s Aggregates and Averages; 2007p, NCCI

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

94 95 96 97 98 99 00 01 02 03 04 05 06p

Pre-Tax Operating Gain Ratio Adjusted Combined Ratio*

WC Investment Income Has Been Less Helpful Lately in Producing Profits

* Adjusted Combined Ratio (ACR) translates combined ratio into typical percentage terms. For example, a combined ratio of 107.0 becomes a -7.0% ACR. Source: NCCI

As u/w results strengthened, investment

results weakened, producing only a modest

operating gain ratio

Workers CompCost Drivers

Medical/Indemnity Frequency & Severity

Trends

Workers Compensation Medical Claim Trends

$8.4 $8.5 $8.3$9.1 $9.5

$10.3$11.3

$12.2$13.5

$14.5

$16.5$17.7

$19.0$20.2

$22.1

$24.0$25.4

$5

$10

$15

$20

$25

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07p

Annual Change 1991–1993: +1.9%Annual Change 1994–2001: +8.9%Annual Change 2002-2006: +7.8%

Accident Year

MedicalClaim Cost ($000s)

2007p: Preliminary based on data valued as of 12/31/20071991-2006: Based on data through 12/31/2006, developed to ultimateBased on the states where NCCI provides ratemaking services; Excludes the effects of deductible policies

Workers Comp Medical Claims Costs Continue to Climb

Cumulative Change = +200%(1993-2007p)

4.5%3.5%

2.8% 3.2% 3.5%4.1%

4.6% 4.7%4.0% 4.4% 4.2% 4.0% 4.4%

5.1%

7.4%

10.1%

8.3%

10.6%

7.3%

13.6%

7.6% 7.2%6.2%

9.2%8.6%

6.0%

0%

2%

4%

6%

8%

10%

12%

14%

16%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007p

Change in Medical CPIChange Med Cost per Lost Time Claim

WC Medical Severity Rising at Double the Medical CPI Rate

Sources: Med CPI from US Bureau of Labor Statistics, WC med severity from NCCI based on NCCI states.

Average annual increase in WC medical severity from

1995 through 2007 was more than twice the medical CPI

rate (8.2% vs. 4.0%)

Med Costs Share of Total Costs is Increasing Steadily

Indemnity54%

Medical46%

Source: NCCI (based on states where NCCI provides ratemaking services).

Indemnity47% Medical

53%

Indemnity41%

Medical59%1987

1997

2007p

WC Med Cost Will Equal 70% of Total by 2017 if Trends Hold

Source: Insurance Information Institute.

Indemnity30%

Medical70%

2017 Estimate

This trend will likely be supported

by the increased labor force

participation of workers age 55 and

older.

Indemnity Claim Cost Trends

$9

.9

$9

.6

$9

.4

$9

.8

$1

0.0

$1

0.6

$1

1.4

$1

2.4

$1

3.7

$1

5.0

$1

6.4

$1

6.8

$1

7.5

$1

9.8

$1

9.1

$1

7.7

$1

8.2

+4.0%

+1.0%-3.1%-2.8%+4.9%+1.7%+5.9%

+7.7%+9.0%

+10.1%

+10.1%

+8.9%+2.3%+4.5%+1.1%+2.7%

+5.0%

5

7

9

11

13

15

17

19

21

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007p

IndemnityClaim Cost ($ 000s)

Annual Change 1991–1993: -1.7%Annual Change 1994–2001: +7.3%Annual Change 2002–2006: +3.1%

2007p: Preliminary based on data valued as of 12/31/20071991–2006: Based on data through 12/31/2006, developed to ultimateBased on the states where NCCI provides ratemaking servicesExcludes the effects of deductible policies

Workers Compensation IndemnityClaim Costs Growth Is Moderate

Lost-Time Claims

Accident Year

IndemnityClaim Cost (000s)

Lost-Time Claims

$9.9 $9.6 $9.4 $9.8 $10.0$10.6

$11.4$12.4

$13.7$15.0

$16.4$16.8$17.5$17.7$18.2

$19.1$19.8

$5

$7

$9

$11

$13

$15

$17

$19

$21

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07p

Annual Change 1991–1993: -1.7%Annual Change 1994–2001: +7.3%Annual Change 2002–2006: +3.1%

2007p: Preliminary based on data valued as of 12/31/20071991-2006: Based on data through 12/31/2006, developed to ultimateBased on the states where NCCI provides ratemaking servicesExcludes the effects of deductible policiesSource: NCCI

Accident Year

Workers Comp Indemnity Claims Cost Growth Has Moderated Recently

Cumulative Change = +110.6%(1993-2007p)

3.0%

4.3%5.0%

4.4%5.2%

4.4%

2.4%2.0%

2.4%2.8%

3.4% 3.3%

5.9%

7.7%

9.0%

10.1%

4.8%

1.9%

3.0%

5.5%

4.0%

3.0% 2.4%

9.7%10.9%

1.7%

0%

2%

4%

6%

8%

10%

12%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007p

Change in CPS Wage Change in Indemnity Cost per Lost-Time Claim

WC Indemnity Severity vs. Wage Inflation

2006p: Preliminary based on data valued as of 12/31/2006; 1991-2005: Based on data through 12/31/2005, developed to ultimate. Based on the states where NCCI provides ratemaking services. Excludes the effects of deductible policies. CPS = Current Population Survey.Source: NCCI

WC indemnity severity is once again outpacing

wage inflation

Predictive Modeling & Workers Comp

Many Enhancements are Possible

Predictive Modeling:What is It?

• What is Predictive Modeling? While people (even within the insurance industry) tend to view it as new, it

is in fact quite old—as old as insurance itself. DEFINITION: Predictive modeling is a process used to create a statistical

model of future behavior. In insurance, predictive models are primarily concerned with forecasting probabilities, trends and relativities.*

A predictive model is made up of a number of predictors, variable factors that are likely to influence future behavior or results.

In auto insurance, for example, a customer's gender, driving experience, type of vehicle, driving record, miles driven, etc., help predict the likelihood and cost of future claims. To create a predictive model, data is collected for the relevant predictors, a statistical model is formulated, predictions are made and the model is validated (or revised) as additional data becomes available. The models used may be simple or extremely complex and employ a wide variety of statistical techniques.

• Use of Some Predictive Factors/Models May Not be Intuitive*Adapted and modified by the Insurance Information Institute from www.searchdatamanagement.com accessed Sept. 16, 2007.

Predictive Modeling Can Enhance Understanding of Claiming Behavior

• Many Ways to Improve Accuracy of Individual Risk Rating by Modeling Claimant and Workforce Data to Better Understand Future Claiming Behavior

• More Closely Analyze Claimant Characteristics to Develop Rates for Individual Employers

• Can Also Be Used to Identify Cost Drivers, to Structure Loss Mitigation Solutions, Improve Outcomes, Speed Recovery

• Frequency and Severity Can Both Be Analyzed• Sample Factors

Prior Injury Datainfluences frequency and severity of future claims; Such data are used intensively in traditional medical research; Could be especially useful in more expensive TT, PT claims

Worker Medical Characteristic Dataco-morbid factors such as obesity (BMI), diabetes, smoking, substance abuse and other disease and risk factor data; Treatment takes these factors into account, should rating and underwriting?

Socio-Economic Factors: Need to Test Rigorously Gender? Primary Language? Union Status? Credit Standing (used in personal lines but would likely be controversial, though use

does not affect employee)?

Residual Market Overview

9

16

18 17

2224

2629 28

24

17

11

8

43 3

13

810

12

5

1113

0

5

10

15

20

25

30

19851986198719881989199019911992199319941995199619971998199920002001200220032004200520062007p

Percent

Calendar Yearp Preliminary•NCCI Plan states plus DE, IN, MA, MI, NJ, NCSource: NCCI

WC Residual Market Shares Continue to Decline

Workers Compensation Insurance Plan States*

Premium as a Percentage of Direct Written Premium

178

166170167160

143

128

112103

97 95100103

117117119

108108115114

107110112

80

100

120

140

160

180

200

Percent

Policy Year

WC Residual Market Combined Ratios

NCCI-Serviced Workers Compensation Residual Market Poolsas of December 31, 2007

* Incomplete Policy Year Projected to UltimateSource: NCCI

1.2

2.12.6

2.8

3.54.0

4.44.8

4.1

3.1

2.0

1.00.6

0.3 0.3 0.40.6

1.11.4 1.5

1.01.21.4

0

1

2

3

4

5

6

$ Billions

Policy Year

Workers Compensation Residual Market Premium Volume Declines NCCI-Serviced Workers Compensation Residual Market Pools

as of December 31, 2007


-945

-1,396

-2,087

-1,714

-1,222

-581

-143-16 -57 -47 -67 -125-106

110281

-114-155-85 -115-124

-1,807-1,906

-2,500

-2,000

-1,500

-1,000

-500

0

500

$ Millions

Policy Year

Workers Compensation ResidualMarket Underwriting Results

NCCI-Serviced Workers Compensation Residual Market Poolsas of December 31, 2007


Residual Markets Are Depopulating in Most States

First Quarter 2008 vs. First Quarter 2007

Total number of assigned risk policies in forceIncludes residual market policies for:AK, AL, AR, AZ, CT, DC, GA, ID, IL, IA, IN, KS, MS, NV, NH, NM, OR, SC, SD, VT, VASource: NCCI

Size of Risk 2007 2008 Change

0$ – 2,499$ 36,146 32,868 -9%

2,500$ – 4,999$ 5,064 4,458 -12%

5,000$ – 9,999$ 3,332 3,092 -7%

10,000$ – 49,999$ 3,187 2,682 -16%

50,000$ – 99,999$ 379 268 -29%

100,000$ and over 167 121 -28%

Total 48,275 43,489 -10%

Investment Performance

13.0

18.116.7

14.4

16.817.6

20.421.3

20.519.5

10.7 10.411.2

14.0 14.012

10.010.9

0

5

10

15

20

25

1990*1991* 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 20062007p

Workers Compensation InvestmentReturns Remain Below Historical Average

Investment Gain on Insurance Transactions-to-Premium RatioPrivate CarriersPercent

p Preliminary* Adjusted to include realized capital gains to be consistent with 1992 and after Investment Gain on Insurance Transactions includes Other IncomeSource: 1990–2006, Best's Aggregates & Averages; 2007p, NCCI

Calendar Year

Average (1990–2006): 15.3%

Premium Growth &Pricing Environment

31.0 31.3 29.8 30.5 29.126.3 25.2 24.2 23.3 22.3

25.0 26.129.2 31.1

34.737.637.8 38.7

31.0 31.329.8 30.5

29.126.3

28.226.9 25.8 24.9

28.4

31.9

37.3

41.8

45.944.0

47.2 46.3

0.0

10.0

20.0

30.0

40.0

50.0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 20062007p

State Funds ($ B)Private Carriers ($ B)

Total Workers Compensation Premium Declined Again in 2007

Net Written Premium

Calendar Year

$ Billions

p Preliminary

Source: 1990–2006 Private Carriers, A.M. Best Aggregates & Averages; 2007p, NCCI 1996–2007p State Funds: AZ, CA, CO, HI, ID, KY, LA, MO, MT, NM, OR, RI, TX, UT Annual Statements State Funds available for 1996 and subsequent

* States approved through 4/11/2008Countrywide approved changes in advisory rates, loss costs and assigned risk rates as filed by the applicable rating organization

History of Average WC Bureau Rate/Loss Cost Level Changes

12.1

7.4

10.0

2.9 3.5

1.2

4.9

6.6

-7.2

-2.7

-6.0

-2.6

-5.4

-8.0

-6.0

-3.2

-6.4-5.1

-5.7

-10

-5

0

5

10

15

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007* 2008*

Cumulative1990-1993

+36.3%

Cumulative 1994-1999

-27.8%

Percent


+17.1%


-24.0%

Calendar Year

Average Commercial Rate Change by Line: 4Q99 – 1Q08

Source: Council of Insurance Agents & Brokers

Workers Comp rates (red line) and most other commercial lines is renewing down about 10% in

1Q:2008 according to CIAB

WC Rates Have Retreated to Levels Last Seen in 2002

Source: Council of Insurance Agents & Brokers

WC – red line – has generally followed the

pattern for other commercial lines

WC rates– red line – have generally

followed the pattern for other commercial lines

3.5

1.2

4.9

6.6

-6.0-5.1

-5.7

-7.2

-2.7

-0.1-0.8

0.0

1.8

0.5 0.5

-0.7

-4.0-3.3

-8

-6

-4

-2

0

2

4

6

8

2000 2001 2002 2003 2004 2005 2006 2007* 2008*

All States

All States Ex CA

PercentCumulative 2000–2008

– 11.0% All States– 6.1% All States Ex CA

Calendar Year* States approved through 4/11/2008Countrywide approved changes in advisory rates, loss costs and assigned risk rates as filed by the applicable rating organizationSource: NCCI

Average Approved BureauRates/Loss Costs

All States vs. All States Excluding California

States filed through 4/18/2008Source: NCCI

Current NCCI Voluntary MarketFiled Rate/Loss Cost Changes

Excludes Law-Only FilingsPercent

-19

.3

-18

.4

-10

.9

-10

.1 -8.8

-8.2

-7.6 -6

.1 -4.9 -3

.7 -2.8

-2.3

-2.2

-1.7 -0

.3

-0.2

3.4 4.0 4.1 5

.6 7.2

-10

.5 -9.5 -8.6 -7

.2 -4.7

-4.2

-4.0 -1

.2 -0.4

1.6 2.5 3.2

-12

.8

-6.3

-1.8

23

.7

-25

-20

-15

-10

-5

0

5

10

15

20

25

HI FL AR AK NV MO AL CO LA UT DC TN RI KY NM MS VT NE ID NH OR ME MT MD WVSD IA IN NC VA GA CT IL AZ KS OK SC

Effective Dates 1/1/08 and Prior Effective Dates Subsequent to 1/1/08 Filed and Pending

-7.1 -7.4 -7.1-8.5

-10.5

-14.6

-17.7

-22.6

-19.2

-14.3

-4.0

-4.2

-1.7

-23.2

2.1 0.7

-2.1

-25

-20

-15

-10

-5

0

5

10

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007p

Rate/Loss Cost Departure Schedule Rating Dividends

Percent

Impact of Discounting onWorkers Compensation Premium

NCCI States—Private Carriers

p PreliminaryNCCI benchmark level does not include an underwriting contingency provisionDividend ratios are based on calendar year statisticsBased on data through 12/31/2007 for the states where NCCI provides ratemaking servicesSource: NCCI

Policy Year

21.1

11.49.6

1.8

36.8

19.3

34.5

4.8

22.6

0.0

6.0

32.1

11.6

16.8

54.7

0.04.2

12.6

0

10

20

30

40

50

60

Down 21%+ Down 11–20%

Down 1–10%

No Change Up 1–10%

Up 11%+

Pe

rce

nta

ge

of

Re

sp

on

de

nts

January 2006 January 2007 January 2008

Source: Goldman Sachs Research, “Independent Insight | US Insurance: Non-Life,” Proprietary Survey (Exhibit 8, Workers’ Compensation, Percentage of Respondents)

According to Goldman Sachs, Most Survey Respondents See Declining WC Prices

Agent Responses on Policy Renewal Premiums vs. 12 Months Prior

Alternative Risk Transfer MarketSaps Traditional WC Carriers

Automobile, 12%

Property, 10%Workers Comp,

43%

Liability (excl. Auto), 35%

Source: MarketStance.

Workers Comp account for the

largest share of the alternative market,

particularly captives

$ Billions

FREQUENCY & SEVERITY TRENDS

Injury & Fatality Incidence Rates and Claim Cost

Trends

Rate of Work-Related Injuries Decreases Over Time Due to Improved Working Conditions

Rate of Injury per 100 FTE Workers

0

5

10

15

20

25

Private Industry Injuries and Illnesses per 100 Full-Time WorkersManufacturing Industry Injuries and Illnesses per 100 Full-Time Workers

Source: US Department of Labor, Bureau of Labor Statistics; NCCI

Lost-Time Claims

-4.2 -4.4

-6.9

-4.5 -4.1 -3.9

-6.7

-2.5

-9.2

0.3

-6.5

-4.5

0.5

-3.9

-2.3

-4.5

-6.6

-10

-8

-6

-4

-2

0

2

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07p

Cumulative Change of –53.3%since 1991 means that lost work

time claims have been cut by more than half

Accident Year

Percent Change

Workers Comp Lost-Time Claim Frequency Down More than 50% Since 1991


1997

1997

2006

2006

1997

1997

1997

2006

2006

2006

-36%-25% 4% -27% -40%

0.0000

0.0002

0.0004

0.0006

0.0008

0.0010

0.0012

Fatal Permanent Total Permanent Partial Temporary Total Lost-Time

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

All NCCI states except NV and TXSource: NCCI Unit Statistical Plan data, First Report

1997-2006: Claim Frequency Declined for All Injury Types Other Than Permanent Total

Percentage Change Between Policies Expiring in 1997 and 2006Claim Frequency per $1M of Wage-Adjusted Payroll

2002

2002

2002

2002

2002

2006

2006

2006

20062006

-18%-20%-19%-14% -14%

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

Manufacturing Contracting Office & Clerical Goods & Services Miscellaneous

Lost-Time Claim FrequencyDeclined for All Industry Groups

Percentage Change Between Policies Expiring in 2002 and 2006Claim Frequency per $1M of Wage-Adjusted Payroll

All NCCI states except NV and TXSource: NCCI Unit Statistical Plan data, First ReportSource: NCCI

2002

2002

2002

2002

2002

2006

2006

2006

2006

2006

40%30% 20% -8% 12%

0.0000

0.0005

0.0010

0.0015

0.0020

0.0025

0.0030

Manufacturing Contracting Office & Clerical Goods & Services Miscellaneous

Permanent Total ClaimFrequency by Industry Group

Percentage Change Between Policies Expiring in 2002 and 2006Claim Frequency per $1M of Wage Adjusted Payroll

All NCCI states except NV and TXSource: NCCI Unit Statistical Plan data, First ReportSource: NCCI

WHY YOU SHOULD FEEL GOOD ABOUT

WHAT YOU DO Saving Lives, Increasing

Productivity and Much More

It’s Not Just About the Money

Did You Know That When You Prevent a Workplace Injury You…

• Keeping Workers Comp Costs Down is Just the Beginning• You Help Companies Remain Productive1

Permanently Disabling Injuries 565 Lost Future Work Days on Avg. Fatal Injuries 5,850 Lost Future Work Days on Average

• You Increase/Preserve Worker Incomes Seriously Injured Workers Have Lower Lifetime Earnings, on Average Reduced Likelihood of Filing Bankruptcy Less Likely to Need Public Assistance

• You Maintain/Improve the Quality of Worker’s Home Life Higher Incidence of Divorce, Substance Abuse, Depression Among Seriously

Injured

ALL REASONS TO BE PROUD OF WHAT YOU DO!!

1 US Census Bureau: http://www.census.gov/compendia/statab/tables/07s0639.xls

Lost-Time Claims

-4.2 -4.4

-6.9

-4.5 -4.1 -3.9

-6.7

-2.5

-9.2

0.3

-6.5

-4.5

0.5

-3.9

-2.3

-4.5

-6.6

-10

-8

-6

-4

-2

0

2

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07p

Cumulative Change of –53.3%since 1991 means that lost work

time claims have been cut by more than half

Accident Year

Percent Change

Workers Comp Lost-Time Claim Frequency Down More than 50% Since 1991


Number of Fatal Work Injuries is Continues to Fall, 1992 – 2006p

6,05

56,23

8

6,20

2

6,27

5

6,63

2

6,33

1

6,21

7

6,05

4

5,92

0

5,91

5

5,53

4

5,57

5 5,76

4

5,73

4

5,70

3

4,800

5,000

5,200

5,400

5,600

5,800

6,000

6,200

6,400

6,600

6,800

92 93 94 95 96 97 98 99 00 01* 02 03 04 05 06pSource: US Bureau of Labor Statistics, US Department of Labor; III. *Excludes 9/11 deaths.

Workers comp insurers & the entire workplace safety

community have contributed to the 14% decline in workplace

fatalities since 1994

Rate of Fatal Work InjuriesContinues to Drop, 1992 – 2006p

4.5

4.84.84.9

5.35.25.2

4.54.3 4.3

4.0 4.04.1

4.03.9

3

4

4

5

5

6

92 93 94 95 96 97 98 99 00 01* 02 03 04 05 06pSource: US Bureau of Labor Statistics ; Insurance Information Institute. *Excludes 9/11 deaths.

Fatality rates are down 26.4% since 1994—

nearly double the 14% decline in the number of

on the job fatalities

Fatal Work Injuries per 100,000 Workers

Workplace Deaths Rising Slowly (2002-2006) After Steep Fall (1994-2002)

6,055

6,2386,2026,275

6,632

6,331

6,217

6,054

5,920 5,915

5,534 5,575

5,764 5,734

5,840

5,200

5,400

5,600

5,800

6,000

6,200

6,400

6,600

6,800

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06Source: US Bureau of Labor Statistics, US Department of Labor; Insurance Information Institute.

Number of deaths grew 1.4% per year since 2002

Rate of Work Fatalitiesat Historically Low Level

4.5

4.84.84.9

5.35.25.2

4.54.3 4.3

4.0 4.04.1

4.0 4.0

3.0

3.5

4.0

4.5

5.0

5.5

92 93 94 95 96 97 98 99 00 01 02 03 04 05 06Source: US Bureau of Labor Statistics ; Insurance Information Institute.

Fatality rates are down 26.4% since 1994—

nearly double the 14% decline in the number of

on the job fatalities

Fatal Work Injuries per 100,000 Workers

Lives Saved Due to Reduction inFatal Work Injury Rate, 1995–2006

1,8981,717

1,6231,7581,757

357

585 610

833

1,0771,210

1,382

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

95 96 97 98 99 00 01 02 03 04 05 06Source: Insurance Information Institute from BLS data.

Workers comp insurers are a major force in saving worker lives

Reduction in Occupational Deaths Due to Fall in Fatality Rate from 5.3 per 100,000 Workers in 1994 to 4.0 in 2006

Nearly 2,000 work lives are saved annually due to

improved workplace safety!

Cumulative Lives Saved Due toReduction in Fatal Work Injury Rate

357 9421,552

2,3853,463

4,6736,055

7,811

9,569

11,192

12,909

14,807

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

95 96 97 98 99 00 01 02 03 04 05 06Source: Insurance Information Institute from BLS data.

Saving a Life, Saves a Family

Cumulative Lives Saved Due to Fall in Fatality Rate from 5.3 per 100,000 Workers in 1994 to 4.0 in 2006

Since 1994, nearly 15,000 worker lives have been saved due to improved

workplace safety!

565 590547 582 579

520585 571 553

505 531 559 567 589

618665 651

691734

810719 696

822770

827

1,0741,0801,036

927860

643559 567 540

1,242

1,3431,3461,3461,393

1,4421,365

1,4091,3731,3531,398

1,4371,356

557600

716

706 721

1,044

714651

677 609632

1,158

1,496

400

600

800

1000

1200

1400

1600

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Struck by Object Falls Homicides Highway Incidents

Four Most Frequent Work-Related Fatal Events, 1992-

2006

Work-related homicides dropped 50% since 1994.

Highway deaths still #1 killer.

Source: US Bureau of Labor Statistics, US Department of Labor; Insurance Information Institute.

EMERGING TRENDS & CHALLENGES IN WORKERS COMP

#1Emerging (Mega) Trend

The Obesity Epidemic

Definitions:• Obesity

Having a very high amount of body fat in relation to lean body mass

Body Mass Index of 30 or higher

• Body Mass Index (BMI) A measure of an adult’s weight in relation to his or her

height,Specifically, the adult’s weight in kilograms divided by the

square of his or her height in meters

What Do We Mean by “Obesity”and How Do We Measure It?

Source: Centers for Disease Control and Prevention.

BMIs for VariousHeights and Weights

100

150

200

250

300

350

58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76

BMI=25 BMI=30 BMI=35 BMI=40

Height (inches)

Weight (lbs)

Obesity is defined as a BMI > 30

1998

Obesity Trends* Among U.S. AdultsBRFSS, 1990, 1998, 2006

(*BMI 30, or about 30 lbs. overweight for 5’4” person)

2006

1990

No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%

In Every State (except Colorado), Over 20% of the Adult Population is Obese

Source: Centers for Disease Control and Prevention, Behavioral Risk Factor Surveillance System www.cdc.gov/Features/dsObesity

BMI Categories• Underweight: BMI <18.5• Healthy Weight: BMI=18.5-24.9• Overweight: BMI=25.0-29.9• Obese

Class I BMI=30.0-34.9Class II BMI=35.0-39.9Class III BMI>40.0

For Analysis Purposes,We Create BMI Categories

The Most Obese Workers File Twice as ManyWC Claims as Healthy-Weight Workers

40.9760.17

75.21

14.19

183.63

117.61

5.53 5.807.05

10.80

8.81

11.65

0

20

40

60

80

100

120

140

160

180

200

BMI <18.5(Underweight)

18.5-24.9(HealthyWeight)

25-29.9(Overweight)

30-34.9 (ObeseClass I)

35-39.9 (ObeseClass II)

40+ (ObeseClass III)

Los

t W

ork

day

s p

er 1

00 F

TE

s

0

2

4

6

8

10

12

14

Cla

ims

per

100

FT

Es

Lost Workdays Claims

Source: Ostbye, T., et al, “Obesity and Workers Compensation,” Archives of Internal Medicine, April 23, 2007.

The most obese have 13 times more lost workdays

than healthy weight workers!

WC Medical Claims Costs are 6.8x Higher for the Most Obese Workers

$7,1

09

$13,

338

$19,

661

$3,9

24

$5,3

96 $13,

569

$34,

293

$7,5

03

$51,

091

$23,

373

$23,

633

$59,

178

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000


18.5-24.9(Healthy Weight)

25-29.9(Overweight)

30-34.9 (ObeseClass I)

35-39.9 (ObeseClass II)

40+ (ObeseClass II)

Medical Claims Costs Indemnity Claims Costs

Source: Ostbye, T., et al, “Obesity and Workers Compensation,” Archives of Internal Medicine, April 23, 2007.

Indemnity costs are 11 times higher for the most obese workers than for healthy-

weight workers.

Some people with high BMI also have other characteristics that contribute to disability and/or death. They… Smoke and/or regularly drink alcohol heavily

Are older and/or male

Have chronic diseases (e.g., diabetes, heart disease)

Have other conditions/circumstances (e.g., no health

insurance, don’t exercise) that are related to poor health

Failure to adjust for these “confounding factors” likely results in overstating the effect of obesity.

It’s Not All Because of Obesity: “Confounding Factors”

Source: Flegal, Graubard, Williamson, and Gail, “Excess Deaths Associated with Underweight, Overweight, and Obesity,” JAMA Vol. 293, No. 15 (April 20, 2005) pp. 1861-1867.

Relative* Death Risk for “Never-Smokers” by BMI and Age Category

1.25

0.660.77

2.97

1.000.81

2.30

1.50

1.00 0.901.13 1.12

1.00

1.251.21

0.0

0.5

1.0

1.5

2.0

2.5

3.0


18.5-24.9 (HealthyWeight)

25-29.9 (Overweight) 30-34.9 (Obese ClassI)

35+

25-59 60-69 >70

Source: Flegal, Graubard, Williamson, and Gail, “Excess Deaths Associated with Underweight, Overweight,and Obesity,” JAMA Vol. 293, No. 15 (April 20, 2005) pp. 1861-1867.

For never-smokers, the relative death risk appears to be highest for ages 60-69 whose BMI is

either under 18.5 or over 34.9. The pattern including smokers is

similar.

*Compared to people with BMI of 18.5-24.9.

Relative Risk

#2Emerging (Mega)Trend

The Aging Workforce

Source: US Bureau of Labor Statistics, 2004.

40.5

39.0

35.8

34.335.2

36.6

38.0

39.440.6 40.7

30

32

34

36

38

40

42

1962 1970 1975 1980 1985 1990 1995 2000 2005 2008Year

U.S. Workforce is Aging: Significant Implications for Workers Comp

Median Age of U.S. Worker

The median age of US workers as the Baby Boomer begin to retire is about 41 years. Immigration will hold this

number down and may even lower the figure.

Older and less healthy workforce

Sources: US Bureau of Labor Statistics, and Toossi, “Labor Force Projections to 2014: retiring boomers,” Monthly Labor Review, November 2005, pp. 25-44.

57.5

%

57.4

%

57.8

%

57.9

%

58.8

%

58.9

%

59.3

%

59.8

%

59.8

%

60.0

%

59.9

%

59.8

%

59.6

%

59.5

%

59.2

%

59.3

%

59.4

%

76.4

%

75.8

%

75.8

%

75.4

%

75.1

%

75.0

%

74.9

%

75.0

%

74.9

%

74.7

%

74.8

%

74.4

%

74.1

%

73.5

%

73.3

%

73.3

%

73.5

%

57%

60%

63%

66%

69%

72%

75%

78%

1990 1992 1994 1996 1998 2000 2002 2004 2006

% of women in the labor force% of men in the labor force

Year

Changes in Labor Force Participation by Gender, 1990-2006

Projected change from 2004-2014: -1.5% for

men, +0.5% for women

Male/Female Labor Force Participation Rates*, Ages 55-64, 1998-2008

51.0

%

51.2

%

51.5

% 53.1

%

54.5

% 56.5

%

56.0

%

56.6

%

57.9

%

57.9

%

58.5

%

68.3

%

68.5

%

69.0

%

68.2

%

67.1

%

67.9

%

68.2

%

69.6

%

69.9

%

69.5

%

70.1

%

50%

55%

60%

65%

70%

75%

1998.2 1999.2 2000.2 2001.2 2002.2 2003.2 2004.2 2005.2 2006.2 2007.2 2008.2

MaleFemale

Source: US Bureau of Labor Statistics, US Department of Labor; Rates shown are end of 2nd quarter each year.

During the last decade, about 68-69% of men ages 55-64 were in the labor force. But over that span the percent of labor-force participation by women

ages 55-64 rose from 51% to 58.5%.

Participation Rate

*not seasonally adjusted

In January 2008, 18 percent of workers said that, in the past year, they’d changed their expected retirement start.14.2% postponed retirement, 3.8% accelerated it.

These percentages can change quickly: in 2003 the percent changing their planned retirement age in the prior year was 32%.

Some Workers Are Planning to Start Retirement at a Later Age

Source: EBRI Issue Brief No. 316, (April 2008), p. 15

Fatal Work Injury RatesClimb Sharply With Age

5.04.2

3.73.32.72.8

0.9

11.2

0

2

4

6

8

10

12

16-17 18-19 20-24 25-34 35-44 45-54 55-64 65+


The fatality rate for workers 65 and older is triple that of workers age 35-44. The workplace of the future will have to be completely redesigned to accommodate

the surge in older workers.

Fatal Work Injuries per 100,000 Workers (2006)

Older Workers Have More Lost Time from Work Due to Injury or Illness

1211

10

8

6

44

0

2

4

6

8

10

12

14

16-19 20-24 25-34 35-44 45-54 55-64 65+

Source: US Bureau of Labor Statistics, US Department of Labor

There will be more lost time as the

workforce ages in the future.

Median Days Away From Work (2005)

Age 65+ workers median lost time is 50% greater than workers age 35-44

Distribution of Non-Fatal Work Injury Days AwayFrom Work, by Length of Period and Age group,

Ages 45 and over, 2005

38.8

%

11.6

%

20.5

%

30.2

%

32.5

%

15.3

%

17.7

%

34.5

%

28.4

%

19.1

%

12.3

%

40.3

%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

1-5 days 6-10 days 11-30 days 31+ days

Ages 45-54

Age 55-64

Age 65 and over

Source: US Bureau of Labor Statistics, US Department of Labor, Table 8 from 2005 Survey of Nonfatal Occupational Injuries and Illnesses Requiring Days Away from Work, Revised data released 11-17-2006.

Percentage of cases

Workers 65+ more likely to be out a month or more

Workers 65+ more likely to

be out two weeks than one

US Population:2007 vs. 2025 Projection*

14,269

10,721

8,440

7,361

5,523

5,334

21,128

19,647

16,041

12,268

7,557

8,011

0 4,000 8,000 12,000 16,000 20,000 24,000

60 to 64

65 to 69

70 to 74

75 to 79

80 to 84

85 and over

2007 2025

Source: National Projections Program, Population Division, U.S. Census Bureau*Using the Census Bureau’s Middle (i.e., most probable) projections

Population in each age group (in thousands)

There will be nearly as many 85+ people in 2025 as there are

70-74 today

At What Once Was Retirement Age, More People Are Working

25.2

%

25.2

%

26.3

%

26.5

%

26.2

%

27.9

%

27.2

%

27.4

%

27.9

%

27.3

% 27.8

%

27.6

%

26.8

% 27.6

%

29.3

%

29.5

%

27.9

% 28.5

%

28.7

%

30.8

%

29.3

% 30.1

%

29.1

%

30.3

%

30.1

%

27.0

%

22.9

%

23.0

%

22.8

%

23.0

%

22.3

%

22.5

%

22.1

%

23.5

% 24.4

%

24.4

%

24.3

% 24.9

%

24.4

%

24.4

%

24.8

%

20.0%

22.0%

24.0%

26.0%

28.0%

30.0%

32.0%


The labor force participation rate for workers 65-69 has grown considerably since 1998. It might grow even faster in the future as seniors find they can’t fully retire on their meager retirement savings.

Labor Force participation rate

People born

1929-1933

People born 1939-1943

Quarterly Labor Force Participation Rate, Ages 70-74, 1998-2008

14.2

%

13.8

%

14.2

%

14.0

%

14.0

%

14.4

%

14.4

% 14.9

%

14.9

% 15.4

%

15.6

%

15.3

%

16.4

% 17.0

%

15.8

%

16.2

% 16.7

%

16.9

%

17.2

%

17.0

%

16.7

%

16.8

%

18.0

%

17.5

%

17.3

%

14.6

%

13.1

%13.6

%

12.4

%12.9

%

12.4

%

12.2

%

12.5

% 13.1

%

13.3

%

13.5

%

13.6

%

13.8

% 14.4

%

13.7

% 14.2

%

10%

12%

14%

16%

18%

20%


The labor force participation rate for workers 70-74 has also grown considerably—by about 50%—since 1998. It too might grow even faster in the future as seniors find they can’t fully retire on their meager

retirement savings.

Labor Force participation rate

People born

1924-1928

People born 1934-1938

Quarterly Labor Force Participation Rate, Ages 75 and Over, 1998-2008

5.4%

5.1%

5.1% 5.2%

5.0%

5.5%

5.9%

5.8% 5.9% 6.0% 6.1%

6.5%

6.1%

6.6%

6.3%

6.7%

6.4% 6.

6%

6.0%

6.5%

6.5%

7.1%

7.0%

6.9%

6.9%

5.8%

5.4%

5.1%

4.8%5.

0%

4.6%

4.6%

4.5%

5.2% 5.

4%

5.3%

5.2% 5.3%

5.2%

5.2%

5.1%

2%

3%

4%

5%

6%

7%

8%


The labor force participation rate for workers 75 and over has grown slowly in absolute terms—

but relatively by about 50%—since 1998.Labor Force participation rate

People born 1923 and

earlier

People born 1933 and

earlier

The percent working full time grew from 44% in 1995 to 56% in 2007

Workers 65+ by Work Schedule,1977-2007

Why Elderly Stop Working, byAge Group: 2002

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

55-59 60-64 65-69 70-74 75-79 80+

Poor Health More Time With Family

Wanted To Do Other Things Didn't Like Work

Source: Growing Older in America, US Department of Health and Human Services, p 47.

Percent whostop working

Age 80+ workers not retiring due to poor health!

No Help from Medicare …

Medicare law has long specified that

• If Workers Compensation is available, Medicare will pay nothing,

• Medicare will pay if costs remain after all WC medical benefits are exhausted, and

• If Medicare does pay a bill, it has a right of recovery from the employer or WC insurer.

Workers Compensationand Medicare

Source: Title 42 Code of Federal Regulations, Section 411 et seq.

and Maybe a Fight from Medicare

Medicare is worried that, for workers who are covered by, or eligible for, Medicare, it will be stuck with costs shifted from those responsible for paying WC costs.

So, in those cases,

• It wants to review, and maybe disapprove, Workers Compensation settlements, if it believes there is insufficient WC money to pay for future medical costs,

• This may align Medicare with workers against employers and WC insurers

• This will increase WC administration costs

Workers Compensationand Medicare

Effect on WC Claims of Social Security Retirement Income

When a SS DI recipient reaches the “full benefit” retirement age, the DI benefit becomes a retirement benefit

• Social Security Retirement Income is not offset for WC indemnity paymentsSo disabled workers age 66 and over can collect both – moral

hazard?

Workers Compensation andSocial Security

#3Emerging Trend

Returning InjuredWar Veterans to the

Workforce

Injury Count from March 19, 2003through Aug 2, 2008

0

200

400

600

800

1,000

1,200

1,400

1,600

Mar

-03

Apr

-03

May

-03

Jun-

03Ju

l-03

Aug

-03

Sep

-03

Oct

-03

Nov

-03

Dec

-03

Jan-

04F

eb-0

4M

ar-0

4A

pr-0

4M

ay-0

4Ju

n-04

Jul-

04A

ug-0

4S

ep-0

4O

ct-0

4N

ov-0

4D

ec-0

4Ja

n-05

Feb

-05

Mar

-05

Apr

-05

May

-05

Jun-

05Ju

l-05

Aug

-05

Sep

-05

Oct

-05

Nov

-05

Dec

-05

Jan-

06F

eb-0

6M

ar-0

6A

pr-0

6M

ay-0

6Ju

n-06

Jul-

06A

ug-0

6S

ep-0

6O

ct-0

6N

ov-0

6D

ec-0

6Ja

n-07

Feb

-07

Mar

-07

Apr

-07

May

-07

Jun-

07Ju

l-07

Aug

-07

Sep

-07

Oct

-07

Nov

-07

Dec

-07

Jan-

08F

eb-0

8M

ar-0

8A

pr-0

8M

ay-0

8Ju

n-08

Jul-

08

Non-Fatal Injuries to Military Personnel Deployed in Iraq

Source: Brookings Institution, Iraq Index Archive, updated August 18, 2008.

Injury counts can fluctuate dramatically from month to month but are now near their

lowest levels since the start of the war

30,480 military personnel were reported wounded through July 2008 in Operation Iraqi Freedom. There

are important employer issues associated with their return to work

Injury Rate of Troops Deployed in Iraq May 2003 through July 2008 (Injuries as % of Total Troops Deployed)

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

May

-03

Jun-

03Ju

l-03

Aug

-03

Sep-

03O

ct-0

3N

ov-0

3D

ec-0

3Ja

n-04

Feb-

04M

ar-0

4A

pr-0

4M

ay-0

4Ju

n-04

Jul-

04A

ug-0

4Se

p-04

Oct

-04

Nov

-04

Dec

-04

Jan-

05Fe

b-05

Mar

-05

Apr

-05

May

-05

Jun-

05Ju

l-05

Aug

-05

Sep-

05O

ct-0

5N

ov-0

5D

ec-0

5Ja

n-06

Feb-

06M

ar-0

6A

pr-0

6M

ay-0

6Ju

n-06

Jul-

06A

ug-0

6Se

p-06

Oct

-06

Nov

-06

Dec

-06

Jan-

07Fe

b-07

Mar

-07

Apr

-07

May

-07

Jun-

07Ju

l-07

Aug

-07

Sep-

07O

ct-0

7N

ov-0

7D

ec-0

7Ja

n-08

Feb-

08M

ar-0

8A

pr-0

8M

ay-0

8Ju

n-08

Jul-

08

Non-Fatal Physical Injury Rates Among Troops in Iraq

Source: Insurance Information Institute calculations based in data from the Brookings Institution, Iraq Index Archive, updated August 18, 2008.

About 1-in-300 troops is wounded in any given month. On an annual basis,

a soldier in Iraq has about a 4% chance of being wounded

Troops Deployed from May 2003 through July 2008

100

110

120

130

140

150

160

170

180

May

-03

Jun-

03Ju

l-03

Aug

-03

Sep

-03

Oct

-03

Nov

-03

Dec

-03

Jan-

04F

eb-0

4M

ar-0

4A

pr-0

4M

ay-0

4Ju

n-04

Jul-

04A

ug-0

4S

ep-0

4O

ct-0

4N

ov-0

4D

ec-0

4Ja

n-05

Feb

-05

Mar

-05

Apr

-05

May

-05

Jun-

05Ju

l-05

Aug

-05

Sep

-05

Oct

-05

Nov

-05

Dec

-05

Jan-

06F

eb-0

6M

ar-0

6A

pr-0

6M

ay-0

6Ju

n-06

Jul-

06A

ug-0

6S

ep-0

6O

ct-0

6N

ov-0

6D

ec-0

6Ja

n-07

Feb

-07

Mar

-07

Apr

-07

May

-07

Jun-

07Ju

l-07

Aug

-07

Sep

-07

Oct

-07

Nov

-07

Dec

-07

Jan-

08F

eb-0

8M

ar-0

8A

pr-0

8M

ay-0

8Ju

n-08

Jul-

08

Troop Strength Levels in Iraq Guarantee Significant Flow of Injured


Approximately 30% - 40% of deployed troops are National Guard or Reservists,

meaning up to 200,000+ people have been or will be returned to the workforce soon

(Thousands)

Status of Personnel Deployed to Iraq and Afghanistan*

61.3%70.6%

86.7% 93.5% 89.1%

24.0%18.8%

14.8% 10.6% 13.3% 6.5% 10.9%

0%

20%

40%

60%

80%

100%

Army Air Force Marines Navy CoastGuard

Reserves

National Guard

Active Duty

Nearly 40% of Army and 30% of Air Force personnel deployed to Iraq and Afghanistan

are National Guard or Reservists

*September 2001 through January 2005. (latest available).Source: Brookings Institution, Iraq Index Archive, updated June 5, 2006.

513

197

53

0

100

200

300

400

500

600

Since 2003 More than Once Three or MoreTimes


There have been more than a half million Iraq deployments

since 2003 (as of August 2008). Many troops are deployed

multiple times. The likelihood of exhibiting symptoms of PTSD increase with each deployment

Total Number of U.S. Army Troops Deployed to Iraq (Thousands)

Percentage of Non-Commissioned Officers Suffering from Symptoms of PTSD by Number of Deployments…

12.0%

18.5%

27.0%

0%

5%

10%

15%

20%

25%

30%

% Suffering from PTSD

First Deployment

Second Deployment

Third or Fourth Deployment

Symptoms of PTSD are 54% more likely to be

observed in second deployments and 125% higher in third or fourth

deployments


9,1408,672

5,397

8,996

10,854

0

2000

4000

6000

8000

10000

12000

2003 2004 2005 2006 2007


The number of troops declared medically unfit for duty increased

69% from 2005 to 2007

U.S. Troops Deployed to Iraq or Afghanistan Deemed Medically Unfit for Combat, 2003-2007

#6Emerging (Mega) Trend

Non-EnglishSpeaking Workers

Fatal Worker Injury Rates byRace and Ethnicity, 2006

4.03.7

5.0

0.00.51.01.52.02.53.03.54.04.55.0

White Black or AfricanAmerican

Hispanic

Source: U.S. Dept. of Labor, Bureau of Labor Statistics, Census of Fatal Occupational Injuries, 2006

Hispanic workers experience highest rate of fatal injuries on the job

Fatality Rate per 100,000 Workers Employed

Fatal Worker Injury Rates byRace and Ethnicity, 2002*

3.80

2.97

4.78

2.32

0.00.51.01.52.02.53.03.54.04.55.0

White, Non-Latino

Black Latino Asian

Source: Worker Health Chart Book, 2004: Centers for Disease Control and III calculations.

Latino workers experience highest

rate of fatal injuries on the job, 25% more

than whites, 61% more than blacks and more than double the

rate for Asians


742810

1091

420

0

200

400

600

800

1000

1200

White, Non-Latino

Black Latino Asian

Source: Worker Health Chart Book, 2004: Centers for Disease Control and III calculations.

Latino workers experience highest rate of non-fatal

injuries on the job as well; 46% more than

whites, 34% more than blacks and 150%

the rate for Asians

Injury Rate per 100,000 Workers Employed

Non-Fatal Worker Injury Rates by Race and Ethnicity, 2002

Fatality Rates in Construction: 1992-2001

0

5

10

15

20

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Latino Non-Latino

Source: Worker Health Chart Book, 2004: Centers for Disease Control and author’s calculations.

Persistent gap (average 60%) between Latino and non-Latino fatality rates in construction attributed to: (1) language gap between workers and managers and (2)

overrepresentation of Latinos in construction


Employment and Non-Fatal Injuryby Race, 2002

Group Percent of Injuries

Percent Employment

White, Non-Latino 68.2% 74.1%

Latino 17.1% 10.2%

Black, Non-Latino 11.9% 9.8%

Asian 2.3% 3.8%

Source: Worker Health Chart Book, 2004: Centers for Disease Control and author’s calculations.

Latino workers experience a disproportionate share of non-fatal injuries relative to their share of employment as compared to all other groups

A Look Ahead…

• Rapid rise in Latino population over the next decade (including a substantial share of undocumented workers) suggests increasing worker injury and death in industries where Latinos are over-represented.

• Shift of Latino populations to lower risk jobs due to improvements in educational attainment will reduce Latino workplace injury and deaths rates.

Not a Mega-Trend Yet, but …

Other things to keep aware of

Terrorism Risk InsuranceProgram Provisions

Provision Original(TRIA)

Extension(TRIEA)

Revision and Extension (TRIPRA)

Coverage

Most commercial lines

(med. mal., financial guaranty specifically excluded)

All current TRIA lines (except comm. auto, surety, prof. liability, farmowners, burglary and theft)

No new lines of insurance added

Eliminated distinction between foreign and domestic terrorism

Retentions 7%–10%–15% 17.5%–20% 20%

Fed. Contrib./ Insurer Co-Pay

90%–10%90%–10% (yr. 1)

85%–15% (yr. 2)85%–15%

Federal Program Payment Trigger

$5M

$5M (yr. 1 through 3/31/06)

$50M (yr. 1 after 3/31/06)

$100M (yr. 2)

$100M

Expiration 12/31/05 12/31/07 12/31/14

The Terrorism Risk Insurance Program Reauthorization Act of 2007

• 7-Year Extension, expiring 12/31/14• Keeps Federal government’s cap at $100 billion• Keeps 20% Direct Earned Premium Deductible (about $35B)• Eliminates

distinction between foreign and domestic acts of terrorism requirement that terrorist act be on behalf of foreign person or foreign

interest Changes in definition of terrorist act require substantial rate and form

filings in states• Requires Comptroller General to issue report within 180 days on

obstacles in development of private sector market for terror insurance

• NBCR NBCR risks remain excluded Requires Comptroller General to issue report within 1 year on feasibility of

NBCR insurance market

Source: Insurance Information Institute

Insured Loss Estimates: Large NBCR Terrorist Attack ($ Bill)

Type of Coverage New York WashingtonSan

FranciscoDes

Moines

Group Life $82.0 $22.5 $21.5 $3.4

General Liability 14.4 2.9 3.2 0.4

Workers Comp 483.7 126.7 87.5 31.4

Residential Prop. 38.7 12.7 22.6 2.6

Commercial Prop. 158.3 31.5 35.5 4.1

Auto 1.0 0.6 0.8 0.4

TOTAL $778.1 $196.8 $171.2 $42.3

Source: American Academy of Actuaries, Response to President’s Working Group, Appendix II, April 26, 2006.

Summary

• Workers Compensation Has Benefited from Favorable Underlying Claims Trends, but this might not continue

• WC Premium Trends have followed the trend for Commercial Insurance generally

• Trends in Medical and Indemnity Cost are Worrisomeand Have Historically Been Sensitive to Increases in the Rate of Inflation

• The Aging of the Population and the Obesity Epidemic could cause WC claims to explode

Insurance Information Institute On-Line

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workers compensation insurance industry overview trends & challenges amid the economic storm...

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