Workers' Compensation Ratemaking (Selected Chapters)

Worker's Compensation pricing procedures are changing rapidly for several reasons: The advent of open competition and the movement to bureau loss costs in several states; The legislative enactment of benefit and administrative reforms, often with substantial but uncertain effects on loss costs; The growth of involuntary pools and the deterioration of industry earnings Private carriers, compelled to independently set rates, improvise alternative insurance programs, and quantify the expected effects of legislative reforms, are re-examining the bureau pricing methods. This paper reviews both the traditional ratemaking procedures and the modifications now being proposed by actuaries and economists, in the following sections: Sections 3 through 5 define the concepts used in ratemaking and the adjustments applied to historical data; Sections 6 through 8 review development, trend, and adjustments to current rate and benefit levels applied to premiums and losses; Sections 9 and 10 discuss the direct and indirect effects of benefit reforms; Sections 11 through 13 deal with more specific ratemaking topics: involuntary market burdens, expense constants, premium discounts and assessments; Sections 14 and 15 analyze classification systems and relativities; Section 16 deals with occupational diseases and cumulative injuries; Section 17 provides illustrative exhibits; Section 18 reviews current issues, such as the evolving loss costs environment and alternative insurance programs. Keywords: Workers Compensation, Class Rating, Territorial Rating