1. Restoring Operational Excellence Improving Ohio’s Experience Rating and Strengthening the Ohio Group-Rating Program 1 June 26, 2008 Project Plan Proposal BWC Board of Directors, Actuarial Committee John Pedrick, BWC Chief Actuarial Officer, FCAS, MAAA

2. Restoring Operational Excellence Comprehensive, Customer-Focused Reform o Stable Costs o Better Services o Accurate Rates o Safe Workplaces Reforms Include: o Transition to a New Claims Reserving System o Improvements to Experience Rating Plan o Strengthening Ohio’s Group Rating Program 2

3. Restoring Operational Excellence Board Resolution to Reduce Credibility, Develop Long-Term Plan by June 2008 o Reduced credibility from 90% to 85% on Nov. 21, 2007 o Consider adopting split experience rating plan o Develop rules to improve continuity and governance Overview BWC Project Plan Proposal o Improves rating accuracy & equity o Reduces premium volatility o Improves service options for employers o Makes Ohio more competitive with neighboring states 3

4. Restoring Operational Excellence Overview Key Recommendations #1.Implement split experience rating by 2011 with transitional credibility reductions #2.Moderate premium volatility by capping increases #3.Create performance-based safety incentive, discount options #4.Further analysis on continuity and group rules 4

5. Restoring Operational Excellence Overview Recommendations will Fundamentally Improve Ohio’s Overall Premium Rating Method o Improves rating accuracy by using both frequency and severity o Provides stability by distinguishing random accidents from consistently unsafe workplaces o Establishes equity among employer groups by aligning premiums with costs for individual employers o Sets performance targets and utilizes ongoing testing, analysis o Loss ratio is a key performance measure 5

6. Restoring Operational Excellence Recommendation #1 Loss Ratio Performance Split plan improves equity among employer segments Policy Year 2003Policy Year 2004Policy Year 2005 Employers by Premium Size Current Plan Split Plan Current Plan Split Plan Current Plan Split Plan Greater than $4,500,000 148.5%86.9%156.2%84.0%126.8%76.4% $1,000,001 to $4,500,000 124.2%83.3%95.1%68.2%103.4%73.1% $250,001 to $1,000,000 62.1%76.0%49.8%62.1%60.3%71.9% $50,001 to $250,000 61.8%79.3%53.7%70.6%54.6%70.3% Less than or equal to $50,000 69.1%86.9%59.1%75.3%56.7%68.5% 6 Current plan loss ratios use actual payroll and claims from each policy year using 85% table to develop EM’s and base rates. These ratios do not reflect claim costs charged to the surplus fund (e.g. handicapped claims), which are the included rates. Oliver Wyman (2008). Development of a Split Plan for Experience Rating Private Employers. Exhibit N-2

7. Restoring Operational Excellence Recommendation #1 Policy Year 2003Policy Year 2004Policy Year 2005 Employers by Premium Size Current Plan Split Plan Current Plan Split Plan Current Plan Split Plan Greater than $4,500,000 1.661.032.071.161.711.06 $1,000,001 to $4,500,000 1.390.991.260.941.401.01 $250,001 to $1,000,000 0.700.900.660.860.811.00 $50,001 to $250,000 0.690.940.710.980.740.98 Less than or equal to $50,000 0.781.030.781.040.770.95 Loss Ratio Relativities Split plan improves equity among employer segments 7 Oliver Wyman (2008). Development of a Split Plan for Experience Rating Private Employers; Exhibit N-2

8. Restoring Operational Excellence Recommendation #1 Transitional Credibility Reductions Improve Equity Improvement in the relationship of group loss ratios to non group shows that the past credibility changes have progressed in the right direction to improving equity, however there is still a large gap remaining between these policy segments. Past CredibilityEstimated Group loss ratios compared to Non-group 100 percent2.24 X’s higher 95 percent1.94 X’s higher 93 percent1.77 X’s higher 90 percent1.67 X’s higher 85 percent1.52 X’s higher RecommendedEstimated Group loss ratios compared to Non-group 77 percent1.34 X’s higher 65 percent1.11 X’s higher Oliver Wyman (2008). Experience Rating Plan Options and Considerations; page 20 8

9. Restoring Operational Excellence Recommendation #1 2006: 95% to 93% – 40% increase (.05 to.07)2007: 93% to 90% – 43% increase (.07 to.10)2008: 90% to 85% – 50% increase (.10 to.15)2009: 85% to 77% – 20% capped increase2010: 77% to 65% – 20% capped increase Transitional Credibility Reductions Impact at maximum discount level 9

10. Restoring Operational Excellence Recommendation #2 Caps premium increases at 20% for employers affected by credibility changes Transitional Cap (20%) Caps premium increases at 100% for any employer, particularly those removed from group to avoid continued volatility Global EM Cap (100%) 10 Moderate Premium Volatility by Capping or Limiting Premium Increases

11. Restoring Operational Excellence Recommendation #2 Group Employers by Premium Size Total number of risks Total number of risks capped Avg. Premium with 85% table Avg. Premium with 77% table Avg. Premium with 77% after capping % impact after capping $0 - $50030,36821,433$241$301$28217.0% $501 - $99915,08611,697$721$920$85218.2% $1,000 – $2,49918,77413,152$1,613$2,018$1,88616.9% $2,500 – $4,99910,9746,195$3,552$4,296$4,08114.9% $5,000 – $9,9997,6423,105$7,077$8,216$7,94112.2% $10,000 +12,1512,128$45,307$47,374$47,0013.7% Total94,99557,710$7,285$7,858$7,720 Oliver Wyman (2008). Premium Capping Impacts of the Transition to a New Experience Plan; Exhibit I-2009G 11 Moderate Premium Volatility by Capping or Limiting Premium Increases

12. Restoring Operational Excellence Recommendation #2 Overall Impact to Employer Community as a result of 85% to 77% reduction with capping premium decreases or no change for 144,348 employers controlled premium increases for 90,685 employers 12 Oliver Wyman (2008) Premium Capping Impacts of the Transition to a New Experience Plan; Exhibit G, p. 2.

13. Restoring Operational Excellence # of Employers 120,000 100,000 80,000 60,000 40,000 20,000 Premium Decreases by % Recommendation #2 [+1% to 10%][-19% to -10%] 0% [+11% to 20%][-9% to 0%] Premium Increases by % 109 7,703 11,579 124,957 11,740 71,567 1,042 Group Non Group 13 3,211 Oliver Wyman (2008) Premium Capping Impacts of the Transition to a New Experience Plan; Exhibit G, p. 2. Increases/decreases over 20% not include in this illustration. Overall Impact to Employer Community as a result of 85% to 77% reduction with capping

14. Restoring Operational Excellence Recommendation #3 Create New Performance-based Safety Incentive and Discount Options for Employers o Provide menu of discount, incentive options for employers to better manage risks and premium costs o Provides claims management service opportunities to entire employer market o Allows employers to share risk and more effectively reduce costs Deductible Program Group Retro Safety Dividend Shared Savings 14

15. Restoring Operational Excellence Recommendation #4 Further Analysis of Continuity Strategies and Group Rating Rules o Continue workgroup with stakeholders o Develop recommendations and report to Board Proposed Schedule of Reporting Deliverables o Dec. 31, 2008: Group Continuity & Group Homogeneity o Mar. 31, 2009: Develop consumer guide & Improve re-rating o June 30, 2009: Improve enforcement of sponsor requirements o Sept. 30, 2009: Strengthen group employer requirements o Dec. 31, 2009: Establish complaint resolution process 15

16. Restoring Operational Excellence Outcomes & Conclusion Performance- based Options for Employers Estimated 25% Reduction in Base Rates Caps Transitional Premium Increases Transition to Split Plan by 2011 Improved Rating Accuracy & Equity Reduces Premium Volatility Expanded, Improved Services Makes Ohio More Competitive 16

17. Restoring Operational Excellence 17 Improving Ohio’s Experience Rating and Strengthening the Ohio Group-Rating Program o Outreach o Next Steps o Questions? June 26, 2008 Project Plan Proposal BWC Board of Directors, Actuarial Committee John Pedrick, BWC Chief Actuarial Officer, FCAS, MAAA