1. Indiana— Workers Compensation Outlook and Observations

2. Indiana—Workers Compensation System Overview
Premium base beginning to stabilize
Dramatic deterioration in 2010 accident year combined ratio
Claim frequency continues to gradually decline
Medical severity is higher than countrywide and second highest among neighboring states (behind KY)
Indemnity severity well below countrywide

3. Indiana’s Workers Compensation Premium Volume Direct Written Premium
$ Millions
State-specific information. This is necessarily Direct Written Premium, because reinsurance isn’t purchased by state.
Sources: NAIC Annual Statement data
A.M. Best State/Line Report
Calendar Year

4. The Impact on Premium of Rate/Loss Cost Departures, Schedule Rating, and Dividends in Indiana
This state specific info can be found on the SharePoint database accompanying the SAF template (“Price Factor Analysis.”) The spreadsheet is maintained by Tom Sheppard.
Background Notes:
Note: This slide shows the effect of discounting – departures/deviations from bureau levels, schedule rating, and dividends and is based financial data.
Discounting and average rate changes were two major changes that undoubtedly impacted underwriting decisions over the past several years.
Based on data through 12/31/2010
Dividend ratios are based on calendar year statistics

5. Indiana Accident Year Combined Ratios
Source: NCCI Web site. Publications-Calendar-Accident Year Underwriting Results by State or Industry Info- Actuarial Update- Calendar-Accident Year Underwriting Results by State.
Note: The AY 2008 combined ratio on this slide should match the state-specific combined figure on the other SAF slide entitled, “Results Vary From State to State.”
Sources: NCCI financial data, NAIC Annual Statement data

6. State of the Workers Compensation Market— “Deteriorating”
Calendar year and accident year combined ratios continue to deteriorate
Decline in lost-time claim frequency stopped in 2010
More increases proposed in latest NCCI filing cycle

7. Workers Compensation Premium Decline Moderates Net Written Premium
$ Billions
p Preliminary
Sources: 1990–2009 Private Carriers, Annual Statement data; 2010p, NCCI
1996–2010p State Funds: AZ, CA, CO, HI, ID, KY, LA, MD, MO, MT, NM, OK, OR, RI, TX, UT Annual Statements
State Funds available for 1996 and subsequent
Calendar Year

8. Countrywide Impact of Discounting on Workers Compensation Premium NCCI States—Private Carriers
Percent
Loss Cost Departure is actually slightly negative for 2010
p Preliminary Dividend ratios are based on calendar year statistics
NCCI benchmark level does not include an underwriting contingency provision
Based on data through 12/31/2010 for the states where NCCI provides ratemaking services
Policy Year

9. Percent Impact of CA on AY p Preliminary
Countrywide Accident Year Combined Ratios Workers Compensation Calendar Year vs. Ultimate Accident Year Private Carriers
Percent
Impact of CA on AY
p Preliminary
Accident Year data is evaluated as of 12/31/2010 and developed to ultimate
Sources: Calendar Years 2001–2009, Annual Statement data;
Calendar Year 2010p and Accident Years 2001–2010, NCCI analysis based on Annual Statement data
Includes dividends to policyholders

10. Results Vary From State to State Accident Year 2010 Combined Ratios
Source: NCCI Web site. Publications- Calendar-Accident Year Underwriting Results by State
The data in the above chart is valued as of 12/31/ It includes private carrier plus state fund data in those states for which a state fund reports a financial call to NCCI.
The dashed line represents a 100 combined ratio.
The magnitude of the AY combined ratio varies significantly by state. Therefore not everyone is experiencing the impact of a same combined ratio.
Data is evaluated as of 12/31/2010

11. Medical Benefits Constitute the Majority of Total Benefit Costs in Indiana
Note to presenters: Prior to the SAF, research and be able to generally compare benefit provisions in the SAF-state and those in the regional states (in order to speak to notable differences in the Ind/Med split in the pie charts).
Source: For individual state: State team database-law amendment pricing- latest automatics for main state. Based on financial data.
Source for regional average: SharePoint By Project- State Advisory Forums-State Advisory Forum-in file CW Ind Med Split.xls
Source for countrywide average: Figures shown at the AIS (should match the slide showing how the I/M split has changed over the last 20 years (3 pie charts) contained elsewhere in this SAF template)
Note: The regional average figures shown should exclude the state the presentation is for.
Indiana
Regional Average
Countrywide
Indemnity
Medical
Regional states are IA, IL, KY, and MO

12. Workers Compensation Medical Losses Are More Than Half of Total Losses All Claims—NCCI States
2009
Indemnity
Medical
1999
Indemnity
Medical
1989
Medical
Indemnity
Accident Year
2009: Based on data valued as of 12/31/2009
1989, 1999: Based on data through 12/31/2008, developed to ultimate
Based on the states where NCCI provides ratemaking services, including state funds
Excludes high deductible policies

13. Filing Activities

14. Indiana’s Filing Activity Voluntary and Assigned Risk Rate Changes
Source: Annual Statistical Bulletin (ASB) Exhibit II.
Note: If the state has filed before the SAF presentation, please include the pending filing’s information on the chart—unless we are prohibited from showing the data before it has been approved.

15. Breakdown of Indiana January 1, 2012 Loss Cost and Rate Filings
Voluntary Loss Cost Components
Impact
Due to Change in Experience
+2.3%
Due to Change in Benefits
0.0%
Due to Change in Trend
+0.9%
Overall Change Due to Experience, Trend, and Benefits
+3.2%
Change in Loss Adjustment Expense
-0.9%
Overall Voluntary Loss Cost Change
Change in Production and General Expenses
+0.3%
Overall Rate Level Change
+2.6%

16. Indiana’s January 1, 2012 Filing Average Changes by Industry Group
Note: This slide is optional.
Source: Circular for the respective state (NCCI Web site – Products and Services-Circulars/FYI Plus releases). Usually found in the first few pages.
Note: If the state has filed before the SAF presentation, please include the pending filing’s information in the chart—unless we are prohibited from showing the data before it has been approved.

17. Indiana’s Indemnity and Medical Loss Ratios
Source: Ratelevel spreadsheet for the state.
These are based on financial data for the specific state.
Note: If the state has filed before the SAF presentation, please include the pending filing’s information on the chart—unless we are prohibited from showing the data before it has been approved. Otherwise, use the most recently available data that has been shared publicly.
Based on NCCI’s financial data at current benefit level and developed to ultimate

18. Current Average Voluntary Pure Loss Costs Using Indiana’s Payroll Distribution
Note to presenters: Prior to the SAF, research and be prepared to discuss the outlying underlying drivers of outlying states’ high and/or low average loss costs.
Source: SharePoint database-SAF Template location - 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 = 0.794, SD = 0.903, OR = 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.
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).
Note: The regional average figures shown should exclude the state the presentation is for. CW figures are for NCCI states only and excludes TX.
Based on the latest NCCI approved rates and loss costs in the various states

19. Status of NCCI Filing Activity Voluntary Market Filings
This slide will be updated as new info is available.
In general, NCCI’s filing season runs from June until May. The 2011/2012 season started in June 2011 and runs through May The 2011/2012 season only includes filings based data.

20. Countrywide Average Approved Bureau Rates/Loss Costs History of Average Workers Compensation Bureau Rate/Loss Cost Level Changes
Percent
Cumulative 2000–2003
+17.1%
Cumulative 2004–2010
–26.2%
Cumulative 1994–1999
–27.8%
This slide will be updated as new info is available.
This slide shows the average rate / loss cost for all states, except monopolistic state fund states. These changes are based on an evaluation of the rating organization’s rate / loss cost level; the changes are NOT the changes in the final rate / premium charged by carriers.
Cumulative
1990–1993
+36.3%
Calendar Year
* Preliminary
Countrywide approved changes in advisory rates, loss costs, and assigned risk rates as filed by the applicable rating organization

21. Countrywide Average Approved Bureau Rates/Loss Costs All States vs
Countrywide Average Approved Bureau Rates/Loss Costs All States vs. All States Excluding California
Percent
Cumulative 2000–2010
–13.6% All States
–10.4% All States Excl. CA
Calendar Year
* Preliminary
Countrywide approved changes in advisory rates, loss costs, and assigned risk rates as filed by the applicable rating organization

22. 2011/2012 Filing Cycle NCCI Voluntary Market Filing Activity
Data for 36 states has been reviewed
28 states have filed a change of 0% or greater
8 states have filed decreases
Range of voluntary filings: -9.3% to +10.5%
This slide will be updated as new info is available.
This slide only includes NCCI experience filings (not law-only filings) based data.
fyi: the –9.3% is for AL and the +10.5% is for VA.
Based on data evaluated as of 12/31/2010

23. Current NCCI Voluntary Market Filed Rate/Loss Cost Level Changes Excludes Law-Only Filings
Percent
This chart shows the most recent voluntary market filing by state. Not necessarily based on data as of the same valuation date.

24. State Voluntary Market Filed Rates/Loss Costs Midwestern Zone
Iowa 1/1/ % Illinois 1/1/ % Indiana 1/1/ % Wisconsin 10/1/ % Missouri 1/1/ % Michigan 1/1/ %
This slide will be updated as new info is available.
The slide contains the filed indication for pending filings and the approved amount for those states in which an approval has been issued. The info contained in this slide is taken directly from NCCI’s Status of Rate Revisions circular.

25. Claim Frequency

26. Indiana’s Claim Frequency
Source: Based on financial data--from the frequency/severity exhibit—after adjusting all years to a common wage level.
Note: If the state has filed before the SAF presentation, please include the pending filing’s information on the chart—unless we are prohibited from showing the data before it has been approved. Otherwise, use the most recently available data that has been shared publicly.
Based on NCCI’s financial data
Frequency of lost-time claims

27. Indiana’s Distribution of Claims by Injury Type
Based on WCSP data.
Source: SharePoint database-SAF Template location - ASB_SAF.xls (PP, PT, F, TT, MO claims tab).
Note: The regional average figures shown should exclude the state the presentation is for.
Indiana
Regional Average
Countrywide
Temporary Total
Permanent Partial
Permanent Total/Fatal
Medical Only
Regional states are IA, IL, KY, and MO
Based on NCCI’s Statistical Plan data

28. Indiana WC PY Lost-Time Claim Frequency Lost-Time Claims
Percent Change
Cumulative Change of –46.6%
(1996–2009)
State-specific frequency.
Year-over-year financial data changes based on previous chart’s data.
Based on data through 12/31/2010, developed to ultimate

29. Cumulative Change of –56.4%
Countrywide WC AY Lost-Time Claim Frequency Increased in Lost-Time Claims
Percent Change
Cumulative Change of –56.4%
(1991–2009)
These are year-over-year changes in countrywide frequency.
The frequency increase for CY 2010 may be caused, in part, by claims that would have previously been med-only claims now turning into indemnity claims. (Given the large proportion of med-only claims (vs. other injury types), it would not take a large percentage of med-only claims moving to lost-time claims to affect the overall lost-time claim frequency.)
The difference between the CY 2010 unadjusted +9% frequency change and the +3% adjusted change for CY 2010 is primarily due to the impact of calendar year payroll (premium) audits.
On a calendar year basis, there's a mismatch between claims and the premium collected to pay for those claims. After making an adjustment to the calendar year premium to correctly align the payroll audits with the correct policies, the frequency for CY 2009 increases by about 2% and the CY 2010 frequency decreases by about 3%. A combination of these 2% and 3% impacts resulted in the unadjusted CY 2010 frequency change from 2009 to 2010 to be too high by about 5%—taking the +9% figure down to approx +4%.
The remaining 1%, reflected the change in the distribution of premium across industry groups. (Manufacturing and contracting lost the most premium compared with the other IGs.)
Accident Year
2010p: Preliminary based on data valued as of 12/31/2010
1991–2009: Based on data through 12/31/2009, developed to ultimate
Based on the states where NCCI provides ratemaking services, including state funds; excludes high deductible policies
Frequency is the number of lost-time claims per $1M wage-adjusted pure premium at current voluntary level

30. Indiana’s Average Claim Frequency Frequency per 100,000 Workers—All Claims
Source: This is based on WCSP data from the latest edition of the ASB Exhibit XII
Slide 31 combines Slides 32 and 33 into one slide. Make sure to type in the correct total claim frequency amount at the top of each bar graph.
Using the above data, the denominators are all consistent—per 100,000 workers.
Background:
Financial Data frequency (per million of on-leveled, developed premium) can be misleading when comparing states. For example, a "rate state” will have a much lower frequency simply because premium is used instead of pure premium as in LC states. Further, when comparing LC states, a state with more severe injuries will have a lower frequency simply because its premium will be higher.
Originally, the figures in this chart were based on the financial data—after the required adjustment—In those cases where loss cost and rate states are compared or where the definition of loss costs are different by state, all states should be adjusted to a consistent loss cost level (the loss costs should not be adjusted up to a full rate level) by excluding all expenses.
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 = 0.776, SD = 0.903, OR = 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).
Based on NCCI’s Statistical Plan data

31. Indemnity Severity

32. Indiana’s Indemnity Loss Distribution by Injury Type
Based on WCSP data.
Source: SharePoint database-SAF Template location - ASB_SAF.xls (Indem Loss Dist by Injury Type tab).
Note: The regional average figures shown should exclude the state the presentation is for.
Indiana
Regional Average
Countrywide
Temporary Total
Permanent Partial
Permanent Total/Fatal
Regional states are IA, IL, KY, and MO
Based on NCCI’s Statistical Plan data

33. Indiana’s Average Indemnity Severity
Source:
Based on financial data—usually taken from each state’s frequency/severity exhibit—excluding the wage adjustment (that adjusts all years to a common wage level). Therefore, the severity changes shown in this slide include the impact of cost changes and wage inflation.
Slide 36 combines slide 37 and slide 38 into one graph.
Note: If the state has filed before the SAF presentation, please include the pending filing’s information on the chart—unless we are prohibited from showing the data before it has been approved. Otherwise, use the most recently available data that has been shared publicly.
Based on NCCI’s financial data for lost-time claims at current benefit level and developed to ultimate

34. Indiana Workers Compensation Indemnity Claim Costs Lost-Time Claims
State-specific. The height of the bars show the average cost of an indemnity claim. The percentages on top of the bars show the change from the previous year’s level.
Based on data through 12/31/2010, on-leveled and developed to ultimate

35. Countrywide Workers Compensation Indemnity Claim Costs Decline in Average Indemnity Cost per Lost-Time Claim
Indemnity
Claim Cost ($ '000s)
Annual Change 1991–1993: –1.7%
Annual Change 1994–2001: +7.3%
Annual Change 2002–2009: +4.1%
2010p: Preliminary based on data valued as of 12/31/2010
1991–2009: Based on data through 12/31/2009, developed to ultimate
Based on the states where NCCI provides ratemaking services, including state funds
Excludes high deductible policies
Accident Year

36. Indiana Indemnity Average Cost per Case vs. Countrywide
Source: Countrywide severity figures (for lost-time claims) from the AIS (and shown elsewhere in this presentation).
The countrywide figures have NOT been adjusted to a common wage level. Therefore, for consistency when comparing the figures, the state-specific figures should also NOT be adjusted to a common wage level.
* Countrywide figure is preliminary
Source: NCCI financial data valued as of 12/31/2010

37. Indiana Indemnity Average Claim Severity
Source:
Based on financial data--usually taken from each state’s frequency/severity exhibit--including the wage adjustment (to adjust all years to a common wage level).
Note: If the state has filed before the SAF presentation, please include the pending filing’s information on the chart—unless we are prohibited from showing the data before it has been approved. Otherwise, use the most recently available data that has been shared publicly.
If most of the data not been analyzed/filed, then use the most recent information we have shared publicly—which may be a mixture of years (2005 for some states and 2004 for others, for example). In this case, one may wish to only show one set of bars in the chart and not label the x-axis with “2004” or “2005.”
IN is PY
WV is AY 2010
Based on NCCI’s financial data for lost-time claims

38. Medical Severity

39. Indiana’s Medical Loss Distribution by Injury Type
Based on WCSP data.
Source: SharePoint database-SAF Template location - ASB_SAF.xls (Med Loss Dist by Injury tab).
Note: The regional average figures shown should exclude the state the presentation is for.
Indiana
Regional Average
Countrywide
Temporary Total
Permanent Partial
Permanent Total/Fatal
Medical Only
Regional states are IA, IL, KY, and MO
Based on NCCI’s Statistical Plan data

40. Indiana’s Average Medical Severity
Source:
Based on financial data—usually taken from each state’s frequency/severity exhibit—excluding the wage adjustment (that adjusts all years to a common wage level). Therefore, the severity changes shown in this slide include the impact of cost changes and wage inflation.
Slide 43 combines slide 44 and 45 into one graph.
Note: If the state has filed before the SAF presentation, please include the pending filing’s information on the chart—unless we are prohibited from showing the data before it has been approved. Otherwise, use the most recently available data that has been shared publicly.
Based on NCCI’s financial data for lost-time claims at current benefit level and developed to ultimate

41. Indiana Workers Compensation Medical Claim Cost Trends Lost-Time Claims
Claim Cost ($ '000s)
State-specific. The height of the bars show the average cost of the medical portion of a lost-time claim. The percentages on top of the bars show the change from the previous year’s level.
Based on data through 12/31/2010, on-leveled and developed to ultimate

42. Countrywide Workers Compensation Medical Claim Cost Trends Average Medical Cost per Lost-Time Claim
Claim Cost ($ '000s)
Annual Change 1991–1993: +1.9%
Annual Change 1994–2001: +8.9%
Annual Change 2002–2009: +6.7%
2010p: Preliminary based on data valued as of 12/31/2010
1991–2009: Based on data through 12/31/2009, developed to ultimate
Based on the states where NCCI provides ratemaking services, including state funds
Excludes high deductible policies
Accident Year

43. Indiana Medical Average Cost per Case vs. Countrywide
Source: Countrywide severity figures (for lost-time claims) from the AIS (and shown elsewhere in this presentation).
The countrywide figures have NOT been adjusted to a common wage level. Therefore, for consistency when comparing the figures, the state-specific figures should also NOT be adjusted to a common wage level.
* Countrywide figure is preliminary
Source: NCCI financial data valued as of 12/31/2010

44. Indiana’s Medical Average Claim Severity Compared With Neighboring States
Source:
Based on financial data--usually taken from each state’s frequency/severity exhibit--including the wage adjustment (to adjust all years to a common wage level).
Note: If the state has filed before the SAF presentation, please include the pending filing’s information on the chart—unless we are prohibited from showing the data before it has been approved. Otherwise, use the most recently available data that has been shared publicly.
If most of the data not been analyzed/filed, then use the most recent information we have shared publicly—which may be a mixture of years (2005 for some states and 2004 for others, for example). In this case, one may wish to only show one set of bars in the chart and not label the x-axis with “2004” or “2005.”
IN is PY
WV is AY
Based on NCCI’s financial data for lost-time claims

45. Glossary

46. Glossary
Assigned Risk Adjustment Program (ARAP)—An assigned risk market program that surcharges residual market risks based on the magnitude of their experience rating modification.
Calendar Year (CY)—Experience of earned premium and loss transactions occurring within the calendar year beginning January 1, irrespective of the contractual dates of the policies to which the transactions relate and the dates of the accidents.
Calendar-Accident Year (AY)—The accumulation of loss data on all accidents with the date of occurrence falling within a given calendar year. The premium figure is the same as that used in calendar year experience.
Claim Frequency—The number of claims per unit of exposure. For example, the number of claims per million dollars of premium or per 100 workers.

47. Glossary
Claim Severity—The average cost of a claim. Severity is calculated by dividing total losses by the total number of claims.
Combined Ratio—The sum of the (i) loss ratio, (ii) expense ratio, and (iii) dividend ratio for a given time period.
Detailed Claim Information (DCI)—An NCCI Call that collects detailed information on an individual workers compensation lost-time claim basis, such as type of injury, whether or not an attorney was involved, timing of the claim’s report to the carrier, etc.
Direct Written Premium (DWP)—The gross premium income adjusted for additional or return premiums, but excluding any reinsurance premiums.

48. Glossary
Indemnity Benefits—Payments by an insurance company to cover an injured worker’s time lost from work. These benefits are also referred to as “wage replacement” benefits.
Loss Ratio—The ratio of losses to premium for a given time period.
Lost-Time (LT) Claims—Claims resulting in indemnity benefits (and usually medical benefits) being paid to or on behalf of the injured worker for time lost from work.
Medical-Only Claims—Claims resulting in only medical benefits being paid on behalf of an injured worker.
Net Written Premium (NWP)—The gross premium income adjusted for additional or return premiums and including any additions for reinsurance assumed and any deductions for reinsurance ceded.

49. Glossary
Permanent Partial (PP)—A disability that is permanent but does not involve a total inability to work. The specific definition and associated workers compensation benefits are defined by statute and vary by jurisdiction.
Policy Year (PY)—The year of the effective date of the policy. Policy year financial results summarize experience for all policies with effective dates in a given calendar year period.
Schedule Rating—A debit and credit plan that recognizes variations in the hazard-causing features of an individual risk.
Take-Out Credit Program—An assigned risk program that encourages carriers to write current residual market risks in the competitive voluntary marketplace.
Temporary Total (TT)—A disability that totally disables a worker for a temporary period of time.

50. Appendix

51. NCCI Workers Compensation Databases
Financial Aggregate Calls
Used for aggregate ratemaking
Statistical Plan for Workers Compensation and Employers Liability Insurance (Statistical Plan)
Used for class ratemaking
Detailed Claim Information
In-depth sample of lost-time claims
Policy Data
Policy Information Page

52. Financial Aggregate Calls
Collected annually
Policy and calendar-accident year basis
Statewide and assigned risk data
Premiums, losses, and claim counts
Evaluated as of December 31
Purpose
Basis for overall aggregate rate indication
Research

53. Policy Year Financial Aggregate Data
1/1/2009
12/31/2009
1/1/2008
1/1/2012
12/31/2012
Policy Expiration Date
Policy Effective Date
Policy Year
2008
2009
2012

54. Calendar-Accident Year Financial Aggregate Data
1/1/2010
12/31/2010
1/1/2009
1/1/2013
12/31/2013
Policy Expiration Date
Policy Effective Date
Calendar-Accident Year
2009
2010
2013

55. Statistical Plan for Workers Compensation and Employers Liability Insurance (Statistical Plan) Data
Experience by policy detail
Exposure, premium, experience rating modifications
Individual claims by injury type
Purposes
Classification relativities
Experience Rating Plan
Research

56. Valuation of Statistical Plan Data
Policy
Effective
18 Months
1st
Report
Valuation
2nd
3rd
4th
5th
30 Months
42 Months
54 Months
66 Months