1. THE EFFECTS OF MAJOR REFORMS ON WORKERS’ COMPENSATION RATES IN CALIFORNIA DWC Educational Conference March 2 and March 7 th, 2006 Gregory Trout, MPA Bickmore Risk Services Los Angeles & Oakland, California

2. Conditions Leading to Reforms Open Rating: 1995 Claims Cost Increases Premium Increases Insolvencies

3. Conditions Leading to Reforms California Workers' Compensation - Indicated Average Rates 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 Jan-95 May-95 Sep-95 Jan-96 May-96 Sep-96 Jan-97 May-97 Sep-97 Jan-98 May-98 Sep-98 Jan-99 May-99 Sep-99 Jan-00 May-00 Sep-00 Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 Jan-03 Average Rate WCIRB Estimated Pure PremiumCharged Premium Rate

4. BRS Study of Reforms Authorized by SB 899 Initiated by DWC No Cost to Taxpayers (insurance industry assessment) Scope: Impact of Reforms on Claims Costs –Charged Premiums –Insurance Company Surplus –Marketplace/Competition –WCIRB/CDI Estimates

5. Scope of Study Reforms Focused on: AB 749 (2002) AB227/SB228 (2003) SB 899 (2004)

6. I.Background Leading to Workers’ Compensation Reforms II.Scope and Approach III.Claims Savings Generated by Reforms IV.Effect of Reforms on Insurance Rates V.Effects of the Reforms on Insurance Industry Surplus and Solvency VI.Insurance Markets and Competition VII.Adequacy and Accuracy of Workers’ Compensation Insurance Bureau and California Department of Insurance Rates VIII.Evaluation of Reforms in Other States IX.Evaluation of Regulatory Structure X.Areas of Further Research BRS Study of Reforms

7. Limitations of Study Fairness of Benefit Levels and Medical Fees Quality of and Access to Medical Care Effects on Self-Insurers Long Term Effects of Reforms

8. Retrospective Impact of Reforms Overall Savings

9. Historical Evaluations Evaluation Year Source: WCIRB Quarterly Report at September 30, 2005 $1.6 $2.3 $3.6 $4.4 $5.9 $7.8 $9.8 $11.4 $12.9 $0.5 $ 11.2 $ 6.3 $- $2 $4 $6 $8 $10 $12 $14 199319941995199619971998199920002001200220032004 Exhibit V.3. Estimated Ultimate Losses Less Reported Losses at Successive December 31 Evaluations (After Reflecting the Estimated Impact of AB 227, SB 228, & SB 899 on Unpaid Losses) In Billions As of 9/30/2005 Retrospective Impact of Reforms

10. Prospective Impact of Reforms Claims Costs

11. Claims Costs: Dollars Prospective Impact of Reforms

12. Claims Costs: Percent

13. Prospective Impact of Reforms Claims Costs by Major Component

14. Prospective Impact of Reforms Insurance Company Rates

15. Prospective Impact of Reforms Insurance Industry Return to Profit

16. Prospective Impact of Reforms Insurance Company Market Share Exhibit VI.6. SCIF Market Share, 1998 – 2004 (Percent of Written Premium) 41% 33% 51% 53% 51% 53% 50% 43% 28% 58% 47% 36% 22% 0% 10% 20% 30% 40% 50% 60% 70% 19981999200020012002200320042005 Year Market Share Unadjusted Adjusted Note: Unadjusted percentages are as reported to CDI. Adjusted reflect adjustments by BRS to amount reported by SCIF due to difference in recognition of written premium.

17. California vs. Other States Loss Rate Comparison

18. Uncertainties Remain Future and Retroactive Cost Savings will be impacted by: Changes due to Legal Decisions Legislative Changes Regulatory Changes Changes to System through Voter Initiatives

19. Areas of Further Research SCIF’s Role CIGA Funding Review of Regulatory Oversight Cost Savings of Reforms to Public and Private Self-Insurers Need for claims data from Self-Insurers MPN’s Annual Monitoring of the Effects of Reforms and Subsequent Changes

20. Next Year’s DWC Session Will it be: 1.“The Effects of Proposition 142, 143, and 144 on the Workers’ Compensation System in California” 2.“The Effects of the Revised P.D. Schedule Adopted July 1, 2006 & other changes to Previous Reforms”, or 3.“The Savings Continues From the Reforms of 2002-2004” ???

21. Study Availability The Study can be downloaded on the internet from: BRSrisk.com dir.ca.gov/DWC Or by requesting a CD from BRS or DWC