Florida Workers Compensation Overview Presented by Tony DiDonato, NCCI, Inc. 2003 CAS Spring Meeting Marco Island, Florida May 19, 2003 CS7

Impact of Dividends on Premium in Florida Background Notes: See previous slide for the notes. This state specific info can be found on the RSD database accompanying the SAF template (“Price Factor Analysis.”) The spreadsheet is maintained by Tom Sheppard. Based on Florida data through 12/31/01. FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

Florida Accident Year Combined Ratios Source: NCCI website. Publications- Calendar Accident Year underwriting results by State FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

After Adjusting to Florida’s Payroll Distribution, Florida’s Average Loss Costs Remain the Highest in the Region Current Average Voluntary Pure Loss Costs Using Florida’s Payroll Distribution Source: RSD database-Informational documents by projects- SAF-2002 State Advisory Forum Template-Weighted_Average_Loss_Costs.xls NOTE: SD, OR and NV have different payroll definitions (i.e. excluding vacation pay, limited payroll, etc) which could distort the comparison of average loss costs if not taken into account. Similar to what’s done with f-classes, assumptions are made to bring these states data to a total payroll level--the latest factors divided out of the individual state’s payroll are: NV = 0.858, SD = 0.903, OR = 0.949. If you use SD, OR or NV in your regional comparison and want to bring their loss cost to a total payroll level, you need to multiply the average loss cost in SD, OR or NV by their corresponding factor (i.e. SD loss cost x .903 = SD loss cost on total payroll level). For SD, OR or NV --- if you want to bring loss costs from a total payroll state to your state's payroll basis, you need to divide the total payroll average loss cost by your state's corresponding factor (i.e. to bring NE to the SD payroll basis ---> NE average loss cost / .903 = NE loss cost on SD payroll basis). Background: Some states (DOI, etc) might be sensitive to this information, so the actuary and SRE need to discuss whether this information should be presented. Highlighting specific cells rather than entire rows may be more beneficial in some states, depending on the point the speaker is trying to make. These pure loss costs were derived by multiplying the state’s rates or loss costs by a conversion factor. In a “rate state”, the conversion factor removes all expenses, assessments and P&C. In a “loss cost state”, the conversion factor removes LAE (if any) and assessments (if any). Instructions on how to calculate these factors accompany the SAF template on the RSD database. The original posting was made by Rich Moncher on 6/9/00. The posting contains a Lotus Note from Calvin Wolcott to Rich. There are CRS queries, etc. attached to the Lotus Note entry. Note: The regional average figures shown should exclude the state the presentation is for. Based on the latest NCCI published rates and loss costs in the various states. FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

Florida WC Premium Dollar – Where Does It Go? Taxes & Assessments Policyholder Dividends Claimant Attorney Fees Commissions Carrier Portion Defense & Cost Containment … 8% Claims Adjusting ………………. 6% General …………………………. 9% Other Acquisition ……….………. 6% Underwriting Loss ………….… -27% TOTAL 2% + Investment income ………… 10% 12% Medical Benefits Florida WC Premium Dollar - Where Does It Go? Indemnity Benefits 26% Medical Benefits 40% Claimant Atty Fees 6% Dividends 7% Taxes/Assess 9% Commissions 10% Carrier expenses and underwriting profit 2% Indemnity Benefits Taxes & Assessments – latest state mandated amounts Claimant Attorney Fees – estimated from Div of WC data All Other items from Calendar Yr 2001 data or Accident Yr 2000 data developed to ult  2003 National Council on Compensation Insurance, Inc.

Florida Workers Compensation System Overview  Three cost drivers have been identified: (1) High frequency of permanent total claims - four times higher than countrywide. (2) High medical costs for permanent partial claims - nearly two times higher than countrywide . (3) High medical costs for temporary total claims - 50% higher than countrywide FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

Florida Workers Compensation System Overview (Continued …)  Hospital costs are relatively high in Florida according to WCRI studies. Since they generally represent nearly half of the Medical dollar, this is a significant reason for the high Medical costs.  Physician costs may also contribute to the high Medical costs. Although Florida’s Physician Fee schedule is relatively low, there could be high utilization of physician services or a relatively expensive mix of services being provided. Florida does NOT have unusual types of injuries that would explain the higher costs.  Attorney involvement is significant in Florida and also helps explain the cost drivers. When attorneys are not involved, the difference in claim costs between Florida and countrywide is minimal. When attorneys are involved, the difference in claim size between Florida and countrywide is nearly 40%. Attorneys may contribute to the frequency of PT claims and to increased Medical services. FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

Medical Costs Constitute the Majority of Total Losses in Florida Countrywide Average Indemnity Medical Based on the latest available year of NCCI’s WCSP data. Includes Lost Time and Medical-Only claims. FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

Permanent Total Costs in Florida Are a Larger Percentage of Total Costs Than Countrywide Based on WCSP data. Source for individual state’s info: RSD Database in file ASB_SAF.xls or in the ASB Exhibit X, page 317. Note: The regional average figures shown should exclude the state the presentation is for. Florida Countrywide Medical Only Temporary Total Permanent Partial Permanent Total Fatal Based on the latest available year of NCCI’s WCSP data (or equivalent in non-NCCI states) FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

Workers Compensation Benefit Cost Components The overall level of benefit costs are determined from: Indemnity benefits Medical benefits Frequency of Claims The following slides will examine the three most costly injury types to see which of the above components are higher than average. FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

Florida’s Permanent Total Indemnity Average Cost per Case is Less than Countrywide However, recent FL Case Law may have significantly increased this historical (1999) average Based on the latest available year of NCCI’s WCSP data (or equivalent in non-NCCI states) FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

Florida’s Permanent Total Medical Average Cost per Case is Lower than Countrywide Based on the latest available year of NCCI’s WCSP data (or equivalent in non-NCCI states) FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

Florida’s Frequency of Permanent Total Claims is Five Times Greater than Countrywide Permanent Total Frequency per 100,000 Workers Based on the latest available year of NCCI’s WCSP data (or equivalent in non-NCCI states) FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

As a Result of a Higher Frequency, Florida’s Total Cost for Permanent Total Claims is More than 4 Times Greater than Countrywide Permanent Total Costs per 100,000 Workers Based on the latest available year of NCCI’s WCSP data FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

Florida’s Permanent Partial Indemnity Average Cost per Case is Comparable to Countrywide Based on the latest available year of NCCI’s WCSP data (or equivalent in non-NCCI states) FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

Florida’s Permanent Partial Medical Average Cost per Case is Nearly Two Times Greater than Countrywide Based on the latest available year of NCCI’s WCSP data (or equivalent in non-NCCI states) FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

Florida’s Frequency of Permanent Partial Claims is Slightly Less than Countrywide Permanent Partial Frequency per 100,000 Workers Based on the latest available year of NCCI’s WCSP data (or equivalent in non-NCCI states) FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

As a Result of Higher Medical Costs, Florida’s Total Cost for Permanent Partial Claims is 15% Higher than Countrywide Permanent Partial Costs per 100,000 Workers Based on the latest available year of NCCI’s WCSP data FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

Florida’s Temporary Total Indemnity Average Cost per Case is Higher than Countrywide Based on the latest available year of NCCI’s WCSP data (or equivalent in non-NCCI states) FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

Florida’s Temporary Total Medical Average Cost per Case is 80% Higher than Countrywide Based on the latest available year of NCCI’s WCSP data (or equivalent in non-NCCI states) FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

Florida’s Frequency of Temporary Total Claims is Comparable to Countrywide Temporary Total Frequency per 100,000 Workers Based on the latest available year of NCCI’s WCSP data (or equivalent in non-NCCI states) FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

Temporary Total Claims is 40% Higher than Countrywide Primarily as a Result of Higher Medical Costs, Florida’s Total Cost for Temporary Total Claims is 40% Higher than Countrywide Temporary Total Costs per 100,000 Workers Based on the latest available year of NCCI’s WCSP data. FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

Adjusting Three Florida Cost Drivers Would Yield Total Costs Comparable to Countrywide Total Overall Costs per 100,000 Workers *Assumes the CW values for: PT Freq, PP Med Avg, and TT Med Avg and no other changes Based on the latest available year of NCCI’s WCSP data (or equivalent in non-NCCI states) FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

Indemnity Costs With and Without Attorney Involvement FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

Medical Costs With and Without Attorney Involvement FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

Attorney Involvement Has a Bigger Impact in Florida Than Countrywide - Driving Up Indemnity & Medical Costs Avg Cost per Case -Indemnity & Medical Combined CW FL CW FL Based on NCCI’s Detailed Claim Information database for 1998. FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

Attorney Involvement Helps Explain Florida’s Higher Costs  Attorney involvement is significant in Florida and helps explain the cost drivers shown on the prior slides.  When attorneys are not involved, the difference in claim costs between Florida and countrywide is minimal.  When attorneys are involved, the difference in claim size between Florida and countrywide is nearly 40%. Both Medical and Indemnity costs are impacted.  This helps explain the high Medical costs in the prior slides. FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

Summary of Key Provisions Considered by Legislature Eliminating PTD COLA at age 62 Eliminating PTD basic at age 65 or 70 Eliminating Social Security standard for PTD Doubling PPD Impairment benefit from 1/3 AWW to 2/3 Eliminating PPD Supplemental benefits Increasing Physician Fees & Reducing Hospital Fees Potential Impact -5% Indem, -1% Med +7% Indem, -1% Med -2% to -4% Generally cost neutral FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

Summary of Key Provisions Considered by Legislature Continued … Provision Changes to Attorney Fees Changes to Dispute Resolution Tightening Compensability Standards Apportionment of 2nd Injury Construction Exemptions Impact -4% to +5% 0 to -2% -1% FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.

Glossary of Terms WCSP - Workers Compensation Statistical Plan. Payroll, premium and claim information by injury type is collected for individual risks. The data shown represents the most recent information available and generally is from policies expiring in 2000 or early 2001. DCI - Detailed Claim Information. This data provides more detail than is available under the WCSP data. It is collected on a sample of claims and contains information such as attorney involvement. C/W – Countrywide. For WCSP, the data would exclude DE and PA. For DCI, the data would exclude several states. FL WC Overview 5/03  2003 National Council on Compensation Insurance, Inc.