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					         California Workers’ Compensation
                      Update
                   CAS 2005 Annual Meeting
                      Phoenix, Arizona
                      May 15-18, 2005


               Roberta J. Garland, FCAS, MAAA
                        Roberta@GarlandActuarial.com




Garland Actuarial LLC                                  1
                                   The Problem
                     Average Insurer Rate as percent of Payroll

     7.0%                                                                                       6.4%
     6.0%                                                                                5.6%
                                                                                  4.8%
     5.0%   4.4%                                                           4.3%
     4.0%          3.5%                                             3.5%

     3.0%                 2.6% 2.6% 2.5%           2.7%
                                         2.4% 2.3%
     2.0%

     1.0%

     0.0%
            1993   1994   1995   1996   1997   1998   1999   2000   2001   1/02- 7/02- 1/03- 7/03-
                                                                           6/02 12/02 6/03 12/03


                                                                                    Source: WCIRB



Garland Actuarial LLC                                                                                  2
                 Loss Rates by State




                                  Source: Oregon DOI Survey 2004



Garland Actuarial LLC                                              3
                             The History
     1995
     • Open Rating – Led to Severe Under-pricing and Insurer Insolvencies.
     2001-2002
     • Benefit Increases and Medical Cost Inflation led to higher loss costs on
       new claims and open claims.
     • Reaction of Insurers to insolvencies and reserve deficiencies was to raise
       rates dramatically.
     • Small Employers - Rate Increases affecting their ability to stay in
       business.
     • Large Self-Insured Employers – Reserve deficiencies impacting earnings.
     • State of California – Businesses leave or threaten to leave.
     2003-2004
     • Governor Recalled.
     • Workers’ Compensation becomes major campaign issue in election.

Garland Actuarial LLC                                                             4
             Early Attempts at Reform

      In the fall of 2003, two pieces of WC legislation
      were signed by Governor Davis, AB 227 and SB
      228. This legislation primarily targeted increased
      medical costs by providing limitations on
      chiropractic and physical therapy visits, as well as
      requiring that medical treatment be provided in
      accordance with MediCal and Medicare fee
      schedules.
      It was widely viewed by employer advocates as
      insufficient to stop or even slow down increasing
      costs.
Garland Actuarial LLC                                        5
              With a Little Arm-Twisting




              The California Legislature Passes
           Substantive Reform in April 2004, SB 899
Garland Actuarial LLC                                 6
               And the Early Results Are
      • WCIRB advisory rates have declined.
      • More insurers are entering the market.
      • Charged rates are lower.
      • Claims adjusters are implementing cost-effective reforms.
      • Self-insurers and insurance companies are starting to see early
        positive results in loss costs.
      • Frequency in 2004 is declining.
      • Average reported and paid loss costs for 2004 are declining.
      • Insurers’ loss ratios for 2004 are the lowest in decades.




Garland Actuarial LLC                                                     7
           Average Reported Claim Costs for 2004 are Lower
              (Compared to prior year at 12 months of development)


                      Change in Average Reported Claim
                Garland Composite Index of Self Insured Clients

   40.0%
                        31.0%
   30.0%

   20.0%
                                   13.9%                 13.5%

   10.0%     5.0%                                6.7%


   0.0%
             1999       2000       2001           2002    2003        2004
  -10.0%

  -20.0%

  -30.0%                                                             -25.8%
                                      Accident Year



Garland Actuarial LLC                                                         8
                Average Paid Losses in 2004 are Lower
            (Compared to prior year at 12 months of development)

                         Change in Average Paid Claim
                 Garland Composite Index of Self Insured Clients

   25.0%
                        21.1%
   20.0%     16.4%
   15.0%                           13.0%
                                                          11.4%
   10.0%
                                                   5.2%
    5.0%

    0.0%
              1999       2000       2001           2002   2003      2004
    -5.0%

   -10.0%

   -15.0%

   -20.0%
                                                                   -19.2%
   -25.0%
                                       Accident Year



Garland Actuarial LLC                                                       9
                 Claim Frequency is Decreasing
            (Compared to prior year at 12 months of development)
                      Change in Number of Claims per adjusted Payroll
                      Garland Composite Index of Self Insured Clients

   15.0%
                            10.1%
   10.0%                                             8.1%
                                                             5.3%
    5.0%

    0.0%
              1999          2000       2001           2002   2003        2004
    -5.0%

   -10.0%     -8.1%                    -8.0%

   -15.0%                                                               -13.6%
                                          Accident Year



Garland Actuarial LLC                                                            10
                           Insurer Rates are Declining

                      Average Insurer Rate as percent of Payroll

   7.0%                                                                                      6.4%
                                                                                      5.6%          5.8%
   6.0%                                                                                                    5.3%
                                                                               4.8%                               4.8%
   5.0% 4.4%                                                            4.3%
   4.0%        3.5%                                              3.5%
                       2.6% 2.6% 2.5% 2.4%      2.7%
   3.0%                                    2.3%
   2.0%
   1.0%
   0.0%




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                                                                                              Source: WCIRB


Garland Actuarial LLC                                                                                                    11
           Insurers are Experiencing Declining Loss Ratios
                    Further Rate Decreases Expected

                              Accident Year Loss Ratio

    160%
             142%
    140%               126%
    120%                             110%

    100%                                            90%

     80%
                                                           60%
     60%
                                                                            45%
     40%

     20%

     0%
             1999      2000          2001           2002   2003         2004
                                        Accident Year


                                                            Source: WCIRB




Garland Actuarial LLC                                                             12
                 Clouds on the Horizon

       • Disability Schedule challenged by California Applicants
         Attorneys Association

       • Suit filed by Worker Groups against Division of Workers’
         Compensation

       • California Labor Federation opposes Permanent
         Partial Disability Schedule

       • Some California legislators stating that reforms went too
         far in reducing benefits




Garland Actuarial LLC                                                13

				
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