May 21, 2024 โข 48 mins
My guest for Episode 90 is Donna Glenn, FCAS, MAAA, Chief Actuary at NCCI.
The theme for the episode is ๐ช๐ผ๐ฟ๐ธ๐ฒ๐ฟ๐ ๐๐ผ๐บ๐ฝ๐ฒ๐ป๐๐ฎ๐๐ถ๐ผ๐ป.
Donna and I explore the following topics:โฃ
โ Working in underwriting and product management as an actuary
โ Origins of workers compensation in the United States
โ Private markets, state funds, and residual markets
โ Indemnity and medical claims transactions
โ The National Council on Compensation Insurance (NCCI)
โ NCCI loss cost and rate analysisย
โ LCMs, e-mods, schedule mods, and company deviations
โ Class-level rating and individual risk ratingย
โ Aggregate loss factors on demandย
โ Legislative pricing, industry-level analytics, and data validationย
โ Impact of extreme temperatures on workers compensation
If you are interested in learning about workers compensation, you want to listen to this.
My Website: maverickactuary.com
The theme for the episode is ๐ช๐ผ๐ฟ๐ธ๐ฒ๐ฟ๐ ๐๐ผ๐บ๐ฝ๐ฒ๐ป๐๐ฎ๐๐ถ๐ผ๐ป.
Donna and I explore the following topics:โฃ
โ Working in underwriting and product management as an actuary
โ Origins of workers compensation in the United States
โ Private markets, state funds, and residual markets
โ Indemnity and medical claims transactions
โ The National Council on Compensation Insurance (NCCI)
โ NCCI loss cost and rate analysisย
โ LCMs, e-mods, schedule mods, and company deviations
โ Class-level rating and individual risk ratingย
โ Aggregate loss factors on demandย
โ Legislative pricing, industry-level analytics, and data validationย
โ Impact of extreme temperatures on workers compensation
If you are interested in learning about workers compensation, you want to listen to this.
My Website: maverickactuary.com
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Welcome to episode ninety of Live withthe Maverick. My name is Dominic Lee,
founder of Maverick Actuary. We area content community. Our mission is
to maximize the impact and value ofQUAN professionals on a global scale. The
goal of this series is to educateour community on the most relevant themes in
(00:23):
actuarial science, risk management, andanalytics. The theme of today's discussion is
workers' compensation and we are very excitedto have with us our guest for today's
episode, Donna Glenn. Donna ischief actuary at the National Council and Compensation
Insurance and CCI. Welcome Donna,thank you, thank you. It's a
(00:46):
mouthful a CCI, you know,saying it all out, It's quite a
mouthful. Yeah. And before Ieven start, Donna and I we are
colleagues at a former company, sofun fact there. Yes, yeah,
I'd love to give you an opportunityto introduce yourself. Donna. Excellent,
So thank you for having me.So I'm delighted to share my experiences with
(01:08):
this with your audience. And I'vebeen watching your podcast so that's been kind
of cool. So I'm the chiefactuary here at NCCI. I've been in
this role since twenty twenty, Soright before COVID I took a new job,
and right after COVID, right afterstarting that job, I kind of
(01:32):
went into lockdown, into you know, with a new organization. So quite
an experience. So three decades beforejoining en CCI, I have experience with
carriers, mostly in the Northeast.I'm going to ask your audience to guess
which ones those are by cluing youin for Connecticut companies, both Travelers and
(01:57):
Harvard and the Boston company Liberty Mutual. But what's interesting, I would say
is fun fact, is the lasttwo roles that I've had in my career,
both of them I've kind of coinedas midlife adventures. So the last
one before NCCI was midlife adventure inthe city. So working at Liberty Mutual
(02:20):
gave me a great opportunity to livein the city and be in the city
of Boston and I saw three,count them, three parades in the Boston
area, two for the Patriots andone for the Red Sox. So fun
fact, I'm a New England fan, so that was a joy to be
(02:40):
part of that midlife adventure and nowliving out another midlife adventure of in the
at the beach. So NCCI isheadquartered in Boca Raton, Florida, and
I happen to love the beach.So that's a little bit about my background.
Book Yah, BOOKA is really nice. You know, I have lots
(03:00):
of family in Florida, and Ihave some friends and some family also in
Boca so so really nice place.I'd recommend to anyone visiting Florida. And
I almost forgot about your role atLiberty. I forgot that you were at
Buston. So I just want tobegrudgingly say congrats to the Celtics fans on
getting to the Eastern Conference finals asa Lakers fan, but congratulations all the
(03:23):
same. Yeah, I happen tonot be so much of the basketball fans.
I like college basketball, but theBruins and the Patriots and the Red
Sox are all my favorite teams.Excellent. Yeah. So one of the
things I noticed about your background,something that we certainly haven't common for you,
you know, your career is obviouslymore mature than mine, is that
(03:46):
you know you've you've previously held nontraditional roles. So what were some of
your most notable non traditional roles.It's an interesting question, and as I
was thinking about that question my wholecareer. I've been looking for new challenges.
So I want to go back andactually talk about like the first decade
(04:09):
of my career and as an actuarialstudent, and what I was trying to
do there was get as many differentversatile experiences, experiences that kind of created
some versatility in me as an actuary. So think about it as pricing,
(04:30):
reserving, predictive modeling, and personallines, commercial lines, and just getting
as much experience as I could.And then from there, what I learned
was that what was really in demandwas anybody with analytical skills, anyone with
quantitative skills and technical skills. Andso that's when I decided to open myself
(04:56):
up to some non traditional roles.And the when I think about some of
those roles, it was how doyou complement actuarial analytical skills with underwriting or
business skills? And I thought atthat point I would benefit from getting seeing
how other functions worked, be itunderwriting, be it risk control. So
(05:19):
the non traditional roles that I wasmost attracted to was things like product management,
and product management took me closer tothe frontline than some of the actuarial
roles. So you could be pricingproducts, but you really want to know
how competitive your pricing is in themarketplace. So the product management aspect took
(05:46):
me to the frontline and took meto better understand how business was transacted transacted.
So that was a specific role,was product management for personal line companies
and they would give me a stateassignment so you could do personal lines for
the state of Texas. That wasmy very first one, and for homeowners
(06:10):
and auto and back then it washow do you figure out the mold crisis?
So that was back in the turnof the century two thousand and two
thousand and two ish two thousand andone, two thousand and two, when
there was a big litigation case aboutmold in a home and the big question
for insurance carriers were was it covered. That's not usually the question that actuaries
(06:36):
get, and actuaries are going toget the question of how much is it
going to cost? But should iteven be covered? And how do you
exclude it from the policy? Thatwas my tasket at this product management role.
So it took me to places whereI wasn't really prepared. Your training
(06:58):
as an actuary doesn't try you inthat regard you kind of have to think
differently. That's just one example.Yeah, no, that well, I
was just going to say that I'mglad that you mentioned I was actually going
to ask you, but it soundslike you're very intentional. I was going
to ask if you know you wereintentionally in choosing these rules or if it
was an opportunity that came out.But it sounds like you intentionally were seeking
(07:19):
out versatility. You understood that whatwas in demand at a time from a
skills perspective. You got an opportunityto be close to the business and see
how some of that actuarial work productwas being used. And I was fortunate
too, because I was tapped onthe shoulder. I think people saw something
(07:40):
in me in like I was interestedand I was engaged, highly engaged,
and then I was tapped on theshoulder and to do that job. And
they said, we need someone tokind of come in. And the Texas
situation was one where there was someprofitability concerns and it was how do we
adjust those concern and they wanted somebodywho could get underneath the surface of the
(08:05):
analytics to understand what was happening.So that's why I think they tapped me,
but once I was tapped, Iwas kind of like drinking some kool
aid. Yeah, I can certainlyrelate. I had. I really only
had one business unit role when Iwas you know, or by my first
company, and what the underwriters,I could say, really appreciate when you
(08:28):
have someone who can, like yousaid, dig into the numbers, but
not only look at the numbers andanalyze them and report back on them,
but who can understand what that meanswithin the context of the business. So
I remember in that role getting closeto things like policy forms. I think,
you know you're hinting at some ofthat when it comes to some of
those the mold claims and yeah,so that's something that would highly recommend or
(08:48):
encourage anyone if they have an opportunityor if there's a chance to seek that
out, and those those are someof the most fun out of unbiased.
I like the business side. Youknow, I know some actuaries prefer the
computational side, the mechanically technical side, but I definitely think when you can
blend those that with the business,you know that that gets really exciting.
Absolutely. I think I've always describedmyself as an applied actuary, not the
(09:13):
theoretical or even a mathematician. Right, So my degree is math and computer
science. But I was always like, I'm not a theoretical mathematician. I'm
an applied math sure. But Ithink in addition to what we just talked
about, there was there's also,you know, you look at in the
product management space, there was complianceand a lot of regulations. Understanding how
(09:37):
regulations would impact your profitability or impactyour ability to write new business or ability
to cancel business. So you understanda little bit more of those dynamics and
the ideas of risk control and howthat is influences commercial lines. It's not
(10:00):
necessarily something that's in personal line,but I was tapped and I think once
I was tapped in the personal linesmarket, I was then again tapped and
several years later in small commercial andsaid hey, we want to charge something
in small commercial. And that wasat Travelers and they were introducing new products
(10:22):
more quote to issue, fast,efficient underwriting, and they wanted to create
a regional pricing organization, which morphedinto a product organization. I think I
think you're painting this picture really wellbecause I was going to ask you,
you know, how if some ofthese experiences helped the shape or helped you
(10:43):
to get to where you are today, which sounds just like between the combination
of the versatility working with the businesspartners and you mentioned then you mentioned the
regulatory piece, the commercial piece,it sounds like you've nottgrown tdo very nicely
for where you are today. Butis there anything else you want to add
on that. I think when Ilook back to and it wasn't purposeful at
(11:09):
the time, but I look backand I see the benefit of One of
the things that these roles did forme is and I have a very long
career, so it wasn't like Iwas doing something for two or three years.
There was like five to seven yearsof product management in the personal line
(11:30):
space, another five years in smallcommercial, and then I did five years
in commercial auto product management before comingback into an actuarial role. And even
you know, broader casualty and libertyhad all casualty lines of business, so
(11:50):
all of those things. When Ilook back, there were times when I
went deep and got into one lineof business, and then there were other
times where I had responsibilities where Icould see the breath of the business and
it was more like all select insmall commercial or all of casualty lines.
(12:13):
So it kind of helped me buildthe skills, the business skills to see
larger parts of the organization, butalso given me the ability to go deep
when you need to. So Ithink that's that's another key benefit of some
of the roles that I've had inmy journey. I think that positioned me
(12:35):
for this guy for this one.Yeah, that sounds very dynamic. You
have some depth and you have breathas well, which are bringing out different
skills. So that's interesting. No, something that I'm very excited about for
today's episode. This is really thefirst episode where we're able to get deep
on a one a single line ofbusiness. So I'm very excited about that.
And you know, the FEO today'squestion is workers' compensation. So we
(12:58):
have a great opportunity to educate peoplenot just in the US who may be
somewhat familiar with that, but peopleare in the world who may either call
it something else or may not happyin that exact shape or form. So
what is workers compensation and why isit unique to the United States? Workers
compensation? You know, I'll takeyou back just one one more anecdote from
(13:20):
the past. I was in backas an actuarial student. I was advised
by I think it was my secondrotation, and I was advised to look
at workers' compensation and if you haveworkers comp in your background, you're going
to do great. And I said, okay, sign me up. That
(13:41):
was when it started, and that'swhen I first got my interest in workers'
compensation. But what it is isan line of insurance that basically covers the
workers and employers. So employers arerequired to have workers compensation coverage so that
if any of their employees get injuredon the job, that they will be
(14:05):
covered and compensated for the injury thatoccurs, but also for their time away
from work. So there's two componentsto any worker's compensation loss, an indemnity
or wage replacement, and workers compensationbasically gives you back, in most cases,
about two thirds of your pay ifyou're injured on the job, so
(14:28):
you don't get full pay when you'reout on the disability from an injury,
and then all of the medical thatyou incur is covered by workers compensations.
It's considered like this grand bargain thatthe employees are covered, but what in
return the employees can't sue the employer. So it's very different and it's very
(14:52):
governed by regulations in the United States, and it originally starts did and if
you really go back in time intothe early nineteen hundreds, there were really
poor working conditions, so really andthere was a lot of immigrants into the
country, so people that were workingfor in factories and meat packing plants.
(15:20):
I think there's a there's a bookcalled The Jungle written by Upton Sinclair,
and that book is actually a reallyinteresting one but kind of scary, and
about the working conditions of immigrant workers, and it explored the problem. It
exposed the problem. But I thinkwhat even was worse in nineteen eleven,
(15:46):
what's very well known is the TriangleShirt Factory. It was a factory in
New York City. I'm getting thename wrong, but it was the first
name Triangle shirt factory. And therewas a fire in the factory and there
was a lot like one hundred andforty some odd workers were killed in this
(16:07):
factory fire, and the employer,the managers on the on site wouldn't let
the people out of the building,couldn't let them get to safety. So
it kind of created all of thereasons in the United States about how do
we make sure that we have safeworkplaces? So that was the impetus way
(16:30):
back in the early nineteen hundred andworkers' compensation is actually about one hundred and
ten years old now, more thanone hundred and fourteen years old, I
think, and in fact NCCI isone hundred and one so we've been around
almost as long as workers come.Now. Regarding the market, that was
(16:51):
a good description of the coverage,you know, was the history the backgrown
what the line of business itself coversregards how does the market work, because
I know it's so within a fewto and ways in the US. So
what are like the main ways thatworkers comp is sold. That's a great
question. The private carriers are writingworkers compensation business and their work. And
(17:11):
if you think about businesses that needworkers compensation, it's every business is required
to have it by regulation. Sosome will get it from the private markets.
Some will actually get it self insurethemselves themselves. If they're large enough,
they could say, hey, we'regoing to self insure this, or
take on a lot of the riskthemselves, or for the most risky types
(17:34):
of business. And think of aroofer, perhaps roof for somebody who's just
getting into the roofing business doesn't reallyhave a great track record of their how
they keep their business safe. Theywill find coverage in a residual market or
an assigned risk. So there's there'sthree different mechanisms. Typically, and if
(17:56):
you're self insured, you would typicallyuse a third party in claims administrator to
handle the claim activity so regard soyou're not necessarily an employer like Amazon,
and Amazon is an employer, andthey wouldn't necessarily have to have all of
the claims handling done in house.They would use a vendor for that.
(18:19):
I had one quick follow up onthat because I know the companies part like
you said, they can purchase froma private carrier. But I know that
there are some states where you haveI think you have an exclusive state fund
where that's the only way that theycan purchase. Is that correct? That
is correct. So it is regulatedby every state. So that's another interesting
(18:40):
fact about the history of workers compensationis some of it is at the state
level, some of it is atthe federal level. So if you think
about the railroad workers at the time, they were crossing state lines, so
there had to be some federal rulesabout those types of workers the versus people
who were like an employer that waslicensed in a particular state to operate.
(19:03):
So there is a little different dimensionson the federal side of things as well
as the state dimension. But thesestates then have different rules. So some
states are actually monopolistic where there isbasically a state fund and one the state
is actually functioning to cover the workerscompensation. In most states in the United
(19:26):
States, it is a competitive marketand it's become a very competitive market.
And NCCI actually handles thirty eight states, so you just could saying what happens
with the other states. So ifyou think of the bigger states like California
and New York, they have independentbureaus and we're considered a rating bureau and
(19:49):
CCI is, and so they willhave an independent state bureau that does the
same work that NCCI does for thatstate. Okay, that's very hopeful.
Now speaking of NCCI, your currentrole is chief Factuary at NCCI. It's
repeat it one more time, NationalCoast and Compensation Insurance for those who may
(20:10):
not know. So what's the purposeof the NCCI. So we are a
service organization and we literally serve theworkers compensation industry. And the purpose is
we were created and established by thestates to be a rating organization to provide
(20:34):
services to each of the states.So but then those services that we originally
did were basically helping to set therates that we needed to be applied in
each of our states. So it'sdone at the state level. So you
analyze all of the data for thestate and the aggregate and you find out
(20:56):
what the state level indication is.So if you know basic rate making state
level indication and then it's distributed downto the class level. And the class
level for workers' compensation is the differencebetween a roofer and a clerical worker,
and that's how it gets distributed.So the purpose of NCCI is basically to
(21:19):
do that primary function. But inorder to do that, we become a
data collector. We aggregate data fromthe industry, and the industry is required
to give us their data because ofthe regulations. And that data collection has
(21:40):
been perfected over time, and wehave quality standards that are significant and the
carriers have to abide by that andwe're looking at it always for the credibility
of the data, integrity of thedata. So there is a lot of
trust in what we do, andwe operate like a not for profit.
(22:03):
But technically NCCI is owned by themember companies that write workers compensation mm hm,
and they are they're sess to feeand that fee is used to provide
our service. Okay, okay,I wasn't familiar with the feed part.
That's good to know. Yeah.Ye, you're tests based on how much
(22:26):
writing and work writings you have ina particular state, and then that gets
transition transferred to us, and thenwe create an operating budget to produce these
services. It's a definitely interest differentmodel than what I've always been in a
for profit insurance carrier. So there'sa very different role type of very interesting.
(22:49):
So, yeah, you articulated everyon the purpose as an aggregator,
you know, for the different states. Now specifically, what are the key
writers? What are your key responsestabilities in this world? Oh? There's
many? Are you ready? Yeah? Ready? No, ready for this?
So first and foremost it's it's settingthe loss costs and the rates and
(23:12):
there do you know the difference betweenlost costs and rates? Yes? Yes,
one doesn't have expenses, right,and I think exactly exactly lost costs
basically cover the loss component, andthen what carriers do with that is then
they add their own expenses on thetop right, and then they have the
ability to compete using the difference oftheir expenses or deviations around our lost costs
(23:41):
rate. We also set the ratesin some states where we actually do that
expense provision as well, and insome cases states can deviate around that with
some parameters, and in other statesit's a little bit more restrictive. So
we do that's our first and foremostthat's what we do. Secondly, we
do legislative analysis. So this isvery interesting too because it's a how do
(24:06):
you interpret the rules? Because it'shighly regulated, the state regulators are changing
those rules and making adjustments to thecoverage of workers' compensation. When they make
that change. Let's for an example, would be the wage replacement. If
I had mentioned earlier that there waslike a two thirds of your pay is
(24:30):
covered, Well, let's say thestate decides they think we're going to go
to seventy percent of pay. Thatchange in that differential of the benefit is
something we will price. So wewill take all the data that we have
and tell the industry back and sayswell, that's going to cost the industry,
it's going to create losses that arefour percent more than they used to
(24:53):
be, or whatever that analysis woulddetermine. So we do slate of analysis
for any benefit level change that's evenproposed, so that we're giving back the
industry some information before it's actually enacted, so that they understand how much it's
going to cost the industry. Andanother side of the house is medical and
(25:19):
the way medical is managed in workers'compensation is very interesting too, because there
is a lot of medical fee schedulesthat doctors and facilities have to adhere to,
and it's a whole system that's setup similar to the way it's set
up for Medicare to control the priceson medical services. Workers compensation has a
(25:41):
similar process to have to control themedical costs. So when those things change,
we also make them do some dataanalysis to just determine what's changed more
(26:02):
keep going. So the other thing, which one of the things that I
have a passion for, is industryresults. So what we since we have
all the data, we look atit and we are telling we give it
back to the industry to say,here's what the data told us, and
we serve it back as benchmarks.So in aggregate, this is what the
(26:25):
combined ratio looks like for the entireWORKOMP industry, and we do analysis of
ani C data that come is alsorequired. Right, carriers have to report
to n a i C schedule Pan. Most actuaries know what schedule P
is, and so I get theopportunity to review schedule P and come up
(26:51):
with our own independent analysis of whataccident your results look like across the industry.
We give it back to the industryso that you, as an individual
carrier can say, hey, atmy carrier, we're you know, either
higher or lower, and how dowe compare and perhaps why do we why
do we have those differences? SoI help companies understand what they look like
(27:17):
relative to industry benchmarks. There's twomore, Yeah, there's two more you
mentioned we previously spoke, which Iwant to have follow ups, by the
way, on those, A coupleof more I want to talk about.
First, as you mentioned, dataautidation and then servicing residual markets. Oh,
those they're good ones too, Sofirst and foremost, before and before
(27:37):
we can do any of the analysis. The data validation is a huge part
of our work. And it's importantbecause NCCI wants to be the source that's
trusted in the industry. So inorder to do that, it requires us
to have some really high confidence levelsand integrity levels of the data. So
(27:57):
we call that the data valid NCCIhas a huge data team. Kudos to
the team. If anyone's listening,kudos to everyone. But even my team
will get in there and look atyear over year comparisons such that we're understanding
if there's any even any significant shiftin the way it's reported, and we
(28:18):
can detect those types of things andunderstand what the impact might be to our
results. But also we could goback to the carrier and ask some questions
and say like that was that reallywhat you intended to send us? And
oftentimes there's we identify problems, wego back to the carrier and get those
(28:38):
corrected such that we have better data. So that's data validation. Residual market
is another interesting one because NCCI hasa responsibility in administering the residual market plans
and the pools. So what happensis each state might have a plan residual
(28:59):
market plan, and of course sinceit's all done by state, you have
you know, thirty fifty different flavorsof residual markets. Well, they also
have a pool mechanism where all ofthe loss activity is pooled together and then
carriers are assessed a piece of that. So NCCI has a role by understanding
(29:26):
what the reserves need to be forthese entire residual market pools. So my
team has a reserving function as wellas a pricing function. So I get
as a chief actually and I getthe best of both worlds. Excellent.
So yeah, I have there's four. I'm going to recap the four items
you mentioned because I have follow upson all of them. The first one
(29:48):
I heard was legislative pricing at thestate level, the second was industry level
analytics, the third was data validation, and the fourth was servicing the residual
markets. The first question have onthe legislative pricing is I can imagine when
you're working with state legislators there couldpotentially be an inherent conflict or a balance
(30:08):
I guess between political motivations perhaps,but then also affordability. So for instance,
if they want to increase the benefit, but at the same time,
in turn, that could actually increasedoverall costed industry. So it sounds like
that those are those might be somevery interesting conversations to have with the legislators.
(30:30):
And it's interesting because you know what, we're not in the We are
not lobbyists. We are not inin that position of lobbyists. What we
will do is objectively say this isthe what you've asked us to price,
this is the implication, and wemight say, well, here are the
(30:51):
down the pitfalls like because it's anunintended consequence of what you perhaps the words
that were included in the legislative change, and we might say, hey,
if this is if we clarify this, the impact of that would be very
significantly different. And so we sometimesgive a lot of consultation in that way,
(31:18):
but we do not have a sayin what gets enacted, so we
don't have a really skin in thatgame, but we are definitely in more
responsive to process. Interesting and theone that you mentioned is go ahead,
go ahead. I was going tosay, there's other people that do get
involved in that, right, there'sother trade groups, trade associations and carrier
(31:41):
groups that we'll get in there andsay hey, this isn't good for the
carrier community. And that's just notour role in CCI okay one. The
second one you mentioned that you arepassionate about is the industry level analytics,
and you mentioned one application of thatbeing benchmarking, so companies are able to
benchmark their company compared to the broaderindustry. Are there any other uses for
(32:06):
that industry level those industry level analyticsthat you've seen. Definitely. So we
were just coming off of our annualInsight symposium. It was last week,
and we do this every May,and it's a big deal for us because
we're sharing with the industry. Youknow, a lot of these benchmarks,
and I do it as a stateof align analysis and report that we provide
(32:30):
every year. And so that's,like I said, this is one of
the places where I have a lotof passion and it comes out on a
stage and we talk about it.But even more importantly dom is we're giving
information that's relevant to the industry,and that means we're looking at current events
(32:52):
and emerging issues. So not onlyare we looking at like overall results and
frequency numbers and severity numbers, butthis particular year. Last week we shared
information about how extreme weather is impactingor comp because we all know that extreme
(33:13):
weather is creating catastrophes property and youknow lots of property pain points in the
industry, but it's also creating alittle bit of pain and workers comp It's
not catastrophic by any stretch of theimagination, but it is catastrophic to certain
workers who are exposed to extreme temperatures. And even on both sides. So
(33:36):
when things are cold and wet,right when there's wet precipitation, we all
know ice happens, and it's interestingthat there is an increased frequency of an
injured of worker injury when it's coldand wet in the thirty five to thirty
to thirty five temperature range. Isthere, it is increased frequency. And
(34:00):
on the heat side, it seemsto be very linear, and it's an
increase a step wise and increase asthe temperature gets hotter. And of course
there's definitely workers who are exposed outsidewhen the temperature changes. That's a key
contributor to the risk. But it'salso believe it or not, happens for
(34:27):
clerical So we did some analysis byindustry as well. So that's just one
topic that we looked at this year. Another example is mental health. Another
example is medical fee schedules. Weare looking at how effective they are.
So there's lots of different really specificangles we can go down because we have
(34:52):
really rich data set. Yeah,so coming back speaking of data, coming
back to the validation is as someonewho I imagine many actuaries might be curious
about this as well as as you'redoing the validation, what are the most
common things that you're seeing that youhave to address some to make, you
know, to maintain the integrity ofthe data. I think it's how I
(35:14):
would characterize that is the continuity fromone year to the next. Right,
Like we get data, there's financialwe have different data calls. So financial
data comes to us once a year, and then units stat data, which
is more detailed, granular data getsmore it's a regular data feed to us
(35:35):
on monthly basis, and it's that'stypically reported to us like eighteen months after
the end of the policy period,so there's a little bit of a lag
in the delay. And then there'sa different kind of data that we now
have that's medical data transactions and indemnitydata transactions, So those come to us
(35:58):
on a quarterly basis, which givesus a little fresher look at what's happening
in the industry, So there's awhole different All of these different data sources
have different types of validation that wedo, so it's hard to describe what
are the things we see. II do expect that, you know,
(36:19):
we're exploring the idea of how dowe help how do we use AI tools
to help identify things, and we'reon the and we're on the verge of
looking at that differently. But thenaked eye sees so much. We have
straight people who have been doing thisa long time and see and really understand
what they're looking for. So that'swhat I trust. I was thinking that
(36:42):
there might have been something like uh, you know, like in I think
catastrophe data sometimes is like using uhdollars instead of thousands or something. But
soons like it's a combination of differentthings. It's a combinations clean counts,
claim closing patterns, there's all thosewhole host of different things that we could
uncover. And lastly, i'm theservicing of residual markets. I'm curious to
(37:06):
know which I think you might havementioned in one or two examples earlier,
but which classes of business are mostlikely to be or which situations are most
likely to put an organization in aresidual markets, it's when you're not in
business very long, so you don'treally necessarily have a track record or or
a lot of construction on small contractors, So the size of the policies they
(37:30):
are not typically that big. Sothe average policy size in the residual market
is probably under five thousand dollars orsomewhere in the neighborhood recent stat that I
saw. Okay, now let's takea step back, because you know,
we spent some time articulating on,you know, on what NCCI is,
what some of your functions are there. I wanted to go a little bit
(37:52):
deeper on the first thing that youmentioned, the caught the lost cost on
the rate analysis, because I knowthat's really instrumental to what you're doing,
one of your primary deliverables. Sowhat are the key outputs when we think
of the analysis itself. It's obviouslyan important a broader analysis, Like what
are the actual key outputs of theanalysis itself? The output is the you
(38:13):
know the fact that we're establishing losscosts at the state level, and then
we're distributing that down to the classlevel. So for each and every class
there's over four hundred, five hundred, six hundred classes. You know,
we have to do that analysis todistribute an overall impact change. In many
(38:35):
cases, we've been taking loss costsdown. So we've had a recent twenty
twenty three, for example, wasan average of minus seven and a half
across all of our states. Sothat might be the effect in one state
at the state level, but atthe class level, some classes will be
going down fifteen, some classes willbe not going down much, maybe even
(39:00):
have a potential small increase, andthat's how it will be distributed. So
that's the output of it. Butthe very traditional rate making assumptions that actualies
are working with is what we do. We are developing losses to ultimate right,
so you're the mid level stuff.You are also trending that to current
(39:23):
cost levels. But in workers compensationyou actually have a different kind of trend
too, where you're trending it trendingit for benefit levels. So if the
benefits change over time, you haveto make sure that you're contemplating the current
benefit level, so you have tobring your past experience up to current levels.
(39:45):
So there's the very traditional assumptions thatare used in rate making are used
everywhere in CCI, there's something elseI have to ask about, just as
someone I did come very briefly,not like maybe not as much detail.
Some of that a lines of business. What emods are something that you know
is using the industry, so youknow, outside of just a pure loss
(40:07):
costs, can you talk about thingslike emods and any anything else that you
may produce. So EMODS is anexperienced mod. So it basically is what
the result of an effort to doindividual risk grading. So for and there's
(40:28):
an eligibility curve, right, Sothere's an eligibility basically if I'm big enough,
I can earn myself an individual riskgrading. And then so think of
that as assessing the specific risks characteristicsof a specific employer. And so if
they've been in business long enough andthey have a significant size, they can
(40:52):
earn a credit or a debit,right, you know, good or bad
based on their loss experience. Sosome cases that would be So it basically
allows us to have a more specificrating for each employer that's out there that
qualifies, so you can get customizedrates, perhaps more accurate. It includes
(41:17):
the claim history and and so that'sthe EMOD component, and then any other
underwriting aspects is also thinking about thesafety measures that are employed at that carrier,
and that results in losses or nolosses. Right, So if you
(41:38):
have really strong safety precautions on yourfactory workplace you have, that is going
to impact how many losses that youincur. So it's a direct result.
Does that help? Yeah, thatdoes help a lot. And I have
a question on applications, so thinkingof some of the systems that connect that
(42:02):
employers will connect to and also somethingthat you produce. I know, I
think it used to be called tableM, but no, it's done differently.
Is aggregate loss factors on demand.Can we talk a little bit about
those and purpose of those. Oh, it's therefore the largest of the large
carriers that are either self insured,and when you're writing excess coverage and workers
(42:24):
compensation, there's a it gets veryunique. But we have basically a layer
excess layer analysis. So that's whathappens in table M used to happen in
table M. I just want topoint to that that's something that I think
NCCI does. I promulgated the tableM and we also do the I've got
(42:46):
experts working on that. Excellent,excellent, Yes, And in terms of
how uh you know the results ofthe lost costs on the right analysis.
Of course, pricing is obvious,the quick simplants are clearly they're going to
be using those for pricing, andwe did talk about earlier about you know,
using putting their expenses on top ofthat using We may not have talked
(43:07):
there as much about company deviations,but you know, deviations potentially emods.
Is there you know any other Othat I'm just like basic pricing, anything
else they're using it for? Therewere those are analysis. I think the
one of the things I would whatwe've been doing in the last couple of
(43:28):
years is turning the data into atool set for carriers. So we talked
a little bit about benchmarking. Butif you can actually see, like if
I if I'm travelers and I'm writingI industries like manufacturers or construction contractors or
(43:53):
retail for that matter, any typeof industry. We have all of that
data that we give back to theindustry so that they can look at how
their books of business compare from afrequency standpoint, but meaning the frequency of
an incident. Does this employer havemore frequent incidents than the others? And
(44:16):
they can do a comparison point tothat they can see how their book compares.
We are also doing that with medicalthe medical data that we're collecting as
well as the indemnity data that we'recollecting. So the goodness to me,
I think, is us serving thatback to the industry to say you can
do your own analysis. You don'thave to wait for us to tell you
(44:37):
what the data is telling you,but you can take a look at it
as well and compare your own carrierto the industry benchmarks, typically at the
state level. So I could sayyou could compare one carrier to how does
their Florida book compared to this Floridathis Florida book. There's lots of nuances
(45:00):
to that, but I think it'sI think that's a stronger, even stronger
application than they aggregate loss factors,much more useful to the industry. Yeah,
there's one one bonus ide which isjust related to what we just mentioned.
It just wanting because I think Ifeel like this is the one thing
we may not have to touch on, is the company company mods or deviations.
How would you explain that concept tosomeone who's not familiar with, you
(45:22):
know, with workers come that's agood one too. So I think of
it as this way. You know, we are setting. We're setting like
the water level, right and anythingthat any What carriers will do with a
(45:42):
deviation that's lower than the water levelis they will try to underwrite and put
their best book of best business.If they're doing risk selection, they're going
to put their best business in somethingthat's lower than the average lost cost and
vice versa. Uh. If it'ssomething that's really risky or has challenging loss
(46:02):
experience, they might debit that andput it in a deviated company that's higher.
So typically what happens in workers' compensationis carriers will use writing companies that
have different expense levels that are thatare considered a deviation, and so they
(46:25):
do that by filing what's called thelost cost multiplier. And in some cases
those are less than the result isless than the bureau loss costs. Sometimes
it's higher. Mm hmm. Doesthat help? Yeah, that does help.
I think ya. Everybody us equipmentwith all the deviations. We talked
(46:47):
about the loss costs of deviations andmods. So I think, you know,
this is a pretty good review ofworkers' compensation for our first line of
business episode so I have to directeverybody to NCCI dot com because that is
where we publish a lot of allof our thought leadership, all of our
benchmarks, all of our tools.If you're part of a member company,
(47:12):
and anybody who's writing workers compensation ismember companies, you have access to a
lot of this information. And guesswhat, you just gave me some practice
because NCCI is doing our own podcastlater this year. So we're getting into
the podcast business. So we're gonnawe do some of our work in webinars.
(47:37):
We have do it in what wecall inside. We do some spotlights.
I'm going to call them on NCCIdot com with some video spotlights of
our work. And now here weare, we're gonna we're gonna start some
podcasts next. Sure are you goingto get down to the state level,
like different episodes for different states orI think that might be interesting. I
(47:58):
could be interesting. But I'll keepyou, I'll keep in touch with you,
I'll let you know. You knowthat could that could be a lot
of work. Thirty eight stays wegot well better to have more to work
with them and less. And we'rein a place though that like you know,
you do it for one state.You got to do it for all
the states. They're all our kids, so we got to do do it
for one. You got to dofor all, so we can't pick and
(48:20):
choose. Well, I look forwardto it does have a name yet,
the podcast or no, I don'tthink so, not yet. I don't
think so. But I'll keep youinformed. And so thank you for reaching
out to me. It's been apleasure reconnecting with you. It has and
I learned so much and you know, I know the community will as well.
So thanks again, don, Ireally enjoyed this conversation and as always,
(48:42):
it's keep in touch absolutely. Thankyou. Take care, take care,
Welcome to episode ninety of Live withthe Maverick. My name is Dominic Lee,
founder of Maverick Actuary. We area content community. Our mission is
to maximize the impact and value ofQUAN professionals on a global scale. The
goal of this series is to educateour community on the most relevant themes in
(00:23):
actuarial science, risk management, andanalytics. The theme of today's discussion is
workers' compensation and we are very excitedto have with us our guest for today's
episode, Donna Glenn. Donna ischief actuary at the National Council and Compensation
Insurance and CCI. Welcome Donna,thank you, thank you. It's a
(00:46):
mouthful a CCI, you know,saying it all out, It's quite a
mouthful. Yeah. And before Ieven start, Donna and I we are
colleagues at a former company, sofun fact there. Yes, yeah,
I'd love to give you an opportunityto introduce yourself. Donna. Excellent,
So thank you for having me.So I'm delighted to share my experiences with
(01:08):
this with your audience. And I'vebeen watching your podcast so that's been kind
of cool. So I'm the chiefactuary here at NCCI. I've been in
this role since twenty twenty, Soright before COVID I took a new job,
and right after COVID, right afterstarting that job, I kind of
(01:32):
went into lockdown, into you know, with a new organization. So quite
an experience. So three decades beforejoining en CCI, I have experience with
carriers, mostly in the Northeast.I'm going to ask your audience to guess
which ones those are by cluing youin for Connecticut companies, both Travelers and
(01:57):
Harvard and the Boston company Liberty Mutual. But what's interesting, I would say
is fun fact, is the lasttwo roles that I've had in my career,
both of them I've kind of coinedas midlife adventures. So the last
one before NCCI was midlife adventure inthe city. So working at Liberty Mutual
(02:20):
gave me a great opportunity to livein the city and be in the city
of Boston and I saw three,count them, three parades in the Boston
area, two for the Patriots andone for the Red Sox. So fun
fact, I'm a New England fan, so that was a joy to be
(02:40):
part of that midlife adventure and nowliving out another midlife adventure of in the
at the beach. So NCCI isheadquartered in Boca Raton, Florida, and
I happen to love the beach.So that's a little bit about my background.
Book Yah, BOOKA is really nice. You know, I have lots
(03:00):
of family in Florida, and Ihave some friends and some family also in
Boca so so really nice place.I'd recommend to anyone visiting Florida. And
I almost forgot about your role atLiberty. I forgot that you were at
Buston. So I just want tobegrudgingly say congrats to the Celtics fans on
getting to the Eastern Conference finals asa Lakers fan, but congratulations all the
(03:23):
same. Yeah, I happen tonot be so much of the basketball fans.
I like college basketball, but theBruins and the Patriots and the Red
Sox are all my favorite teams.Excellent. Yeah. So one of the
things I noticed about your background,something that we certainly haven't common for you,
you know, your career is obviouslymore mature than mine, is that
(03:46):
you know you've you've previously held nontraditional roles. So what were some of
your most notable non traditional roles.It's an interesting question, and as I
was thinking about that question my wholecareer. I've been looking for new challenges.
So I want to go back andactually talk about like the first decade
(04:09):
of my career and as an actuarialstudent, and what I was trying to
do there was get as many differentversatile experiences, experiences that kind of created
some versatility in me as an actuary. So think about it as pricing,
(04:30):
reserving, predictive modeling, and personallines, commercial lines, and just getting
as much experience as I could.And then from there, what I learned
was that what was really in demandwas anybody with analytical skills, anyone with
quantitative skills and technical skills. Andso that's when I decided to open myself
(04:56):
up to some non traditional roles.And the when I think about some of
those roles, it was how doyou complement actuarial analytical skills with underwriting or
business skills? And I thought atthat point I would benefit from getting seeing
how other functions worked, be itunderwriting, be it risk control. So
(05:19):
the non traditional roles that I wasmost attracted to was things like product management,
and product management took me closer tothe frontline than some of the actuarial
roles. So you could be pricingproducts, but you really want to know
how competitive your pricing is in themarketplace. So the product management aspect took
(05:46):
me to the frontline and took meto better understand how business was transacted transacted.
So that was a specific role,was product management for personal line companies
and they would give me a stateassignment so you could do personal lines for
the state of Texas. That wasmy very first one, and for homeowners
(06:10):
and auto and back then it washow do you figure out the mold crisis?
So that was back in the turnof the century two thousand and two
thousand and two ish two thousand andone, two thousand and two, when
there was a big litigation case aboutmold in a home and the big question
for insurance carriers were was it covered. That's not usually the question that actuaries
(06:36):
get, and actuaries are going toget the question of how much is it
going to cost? But should iteven be covered? And how do you
exclude it from the policy? Thatwas my tasket at this product management role.
So it took me to places whereI wasn't really prepared. Your training
(06:58):
as an actuary doesn't try you inthat regard you kind of have to think
differently. That's just one example.Yeah, no, that well, I
was just going to say that I'mglad that you mentioned I was actually going
to ask you, but it soundslike you're very intentional. I was going
to ask if you know you wereintentionally in choosing these rules or if it
was an opportunity that came out.But it sounds like you intentionally were seeking
(07:19):
out versatility. You understood that whatwas in demand at a time from a
skills perspective. You got an opportunityto be close to the business and see
how some of that actuarial work productwas being used. And I was fortunate
too, because I was tapped onthe shoulder. I think people saw something
(07:40):
in me in like I was interestedand I was engaged, highly engaged,
and then I was tapped on theshoulder and to do that job. And
they said, we need someone tokind of come in. And the Texas
situation was one where there was someprofitability concerns and it was how do we
adjust those concern and they wanted somebodywho could get underneath the surface of the
(08:05):
analytics to understand what was happening.So that's why I think they tapped me,
but once I was tapped, Iwas kind of like drinking some kool
aid. Yeah, I can certainlyrelate. I had. I really only
had one business unit role when Iwas you know, or by my first
company, and what the underwriters,I could say, really appreciate when you
(08:28):
have someone who can, like yousaid, dig into the numbers, but
not only look at the numbers andanalyze them and report back on them,
but who can understand what that meanswithin the context of the business. So
I remember in that role getting closeto things like policy forms. I think,
you know you're hinting at some ofthat when it comes to some of
those the mold claims and yeah,so that's something that would highly recommend or
(08:48):
encourage anyone if they have an opportunityor if there's a chance to seek that
out, and those those are someof the most fun out of unbiased.
I like the business side. Youknow, I know some actuaries prefer the
computational side, the mechanically technical side, but I definitely think when you can
blend those that with the business,you know that that gets really exciting.
Absolutely. I think I've always describedmyself as an applied actuary, not the
(09:13):
theoretical or even a mathematician. Right, So my degree is math and computer
science. But I was always like, I'm not a theoretical mathematician. I'm
an applied math sure. But Ithink in addition to what we just talked
about, there was there's also,you know, you look at in the
product management space, there was complianceand a lot of regulations. Understanding how
(09:37):
regulations would impact your profitability or impactyour ability to write new business or ability
to cancel business. So you understanda little bit more of those dynamics and
the ideas of risk control and howthat is influences commercial lines. It's not
(10:00):
necessarily something that's in personal line,but I was tapped and I think once
I was tapped in the personal linesmarket, I was then again tapped and
several years later in small commercial andsaid hey, we want to charge something
in small commercial. And that wasat Travelers and they were introducing new products
(10:22):
more quote to issue, fast,efficient underwriting, and they wanted to create
a regional pricing organization, which morphedinto a product organization. I think I
think you're painting this picture really wellbecause I was going to ask you,
you know, how if some ofthese experiences helped the shape or helped you
(10:43):
to get to where you are today, which sounds just like between the combination
of the versatility working with the businesspartners and you mentioned then you mentioned the
regulatory piece, the commercial piece,it sounds like you've nottgrown tdo very nicely
for where you are today. Butis there anything else you want to add
on that. I think when Ilook back to and it wasn't purposeful at
(11:09):
the time, but I look backand I see the benefit of One of
the things that these roles did forme is and I have a very long
career, so it wasn't like Iwas doing something for two or three years.
There was like five to seven yearsof product management in the personal line
(11:30):
space, another five years in smallcommercial, and then I did five years
in commercial auto product management before comingback into an actuarial role. And even
you know, broader casualty and libertyhad all casualty lines of business, so
(11:50):
all of those things. When Ilook back, there were times when I
went deep and got into one lineof business, and then there were other
times where I had responsibilities where Icould see the breath of the business and
it was more like all select insmall commercial or all of casualty lines.
(12:13):
So it kind of helped me buildthe skills, the business skills to see
larger parts of the organization, butalso given me the ability to go deep
when you need to. So Ithink that's that's another key benefit of some
of the roles that I've had inmy journey. I think that positioned me
(12:35):
for this guy for this one.Yeah, that sounds very dynamic. You
have some depth and you have breathas well, which are bringing out different
skills. So that's interesting. No, something that I'm very excited about for
today's episode. This is really thefirst episode where we're able to get deep
on a one a single line ofbusiness. So I'm very excited about that.
And you know, the FEO today'squestion is workers' compensation. So we
(12:58):
have a great opportunity to educate peoplenot just in the US who may be
somewhat familiar with that, but peopleare in the world who may either call
it something else or may not happyin that exact shape or form. So
what is workers compensation and why isit unique to the United States? Workers
compensation? You know, I'll takeyou back just one one more anecdote from
(13:20):
the past. I was in backas an actuarial student. I was advised
by I think it was my secondrotation, and I was advised to look
at workers' compensation and if you haveworkers comp in your background, you're going
to do great. And I said, okay, sign me up. That
(13:41):
was when it started, and that'swhen I first got my interest in workers'
compensation. But what it is isan line of insurance that basically covers the
workers and employers. So employers arerequired to have workers compensation coverage so that
if any of their employees get injuredon the job, that they will be
(14:05):
covered and compensated for the injury thatoccurs, but also for their time away
from work. So there's two componentsto any worker's compensation loss, an indemnity
or wage replacement, and workers compensationbasically gives you back, in most cases,
about two thirds of your pay ifyou're injured on the job, so
(14:28):
you don't get full pay when you'reout on the disability from an injury,
and then all of the medical thatyou incur is covered by workers compensations.
It's considered like this grand bargain thatthe employees are covered, but what in
return the employees can't sue the employer. So it's very different and it's very
(14:52):
governed by regulations in the United States, and it originally starts did and if
you really go back in time intothe early nineteen hundreds, there were really
poor working conditions, so really andthere was a lot of immigrants into the
country, so people that were workingfor in factories and meat packing plants.
(15:20):
I think there's a there's a bookcalled The Jungle written by Upton Sinclair,
and that book is actually a reallyinteresting one but kind of scary, and
about the working conditions of immigrant workers, and it explored the problem. It
exposed the problem. But I thinkwhat even was worse in nineteen eleven,
(15:46):
what's very well known is the TriangleShirt Factory. It was a factory in
New York City. I'm getting thename wrong, but it was the first
name Triangle shirt factory. And therewas a fire in the factory and there
was a lot like one hundred andforty some odd workers were killed in this
(16:07):
factory fire, and the employer,the managers on the on site wouldn't let
the people out of the building,couldn't let them get to safety. So
it kind of created all of thereasons in the United States about how do
we make sure that we have safeworkplaces? So that was the impetus way
(16:30):
back in the early nineteen hundred andworkers' compensation is actually about one hundred and
ten years old now, more thanone hundred and fourteen years old, I
think, and in fact NCCI isone hundred and one so we've been around
almost as long as workers come.Now. Regarding the market, that was
(16:51):
a good description of the coverage,you know, was the history the backgrown
what the line of business itself coversregards how does the market work, because
I know it's so within a fewto and ways in the US. So
what are like the main ways thatworkers comp is sold. That's a great
question. The private carriers are writingworkers compensation business and their work. And
(17:11):
if you think about businesses that needworkers compensation, it's every business is required
to have it by regulation. Sosome will get it from the private markets.
Some will actually get it self insurethemselves themselves. If they're large enough,
they could say, hey, we'regoing to self insure this, or
take on a lot of the riskthemselves, or for the most risky types
(17:34):
of business. And think of aroofer, perhaps roof for somebody who's just
getting into the roofing business doesn't reallyhave a great track record of their how
they keep their business safe. Theywill find coverage in a residual market or
an assigned risk. So there's there'sthree different mechanisms. Typically, and if
(17:56):
you're self insured, you would typicallyuse a third party in claims administrator to
handle the claim activity so regard soyou're not necessarily an employer like Amazon,
and Amazon is an employer, andthey wouldn't necessarily have to have all of
the claims handling done in house.They would use a vendor for that.
(18:19):
I had one quick follow up onthat because I know the companies part like
you said, they can purchase froma private carrier. But I know that
there are some states where you haveI think you have an exclusive state fund
where that's the only way that theycan purchase. Is that correct? That
is correct. So it is regulatedby every state. So that's another interesting
(18:40):
fact about the history of workers compensationis some of it is at the state
level, some of it is atthe federal level. So if you think
about the railroad workers at the time, they were crossing state lines, so
there had to be some federal rulesabout those types of workers the versus people
who were like an employer that waslicensed in a particular state to operate.
(19:03):
So there is a little different dimensionson the federal side of things as well
as the state dimension. But thesestates then have different rules. So some
states are actually monopolistic where there isbasically a state fund and one the state
is actually functioning to cover the workerscompensation. In most states in the United
(19:26):
States, it is a competitive marketand it's become a very competitive market.
And NCCI actually handles thirty eight states, so you just could saying what happens
with the other states. So ifyou think of the bigger states like California
and New York, they have independentbureaus and we're considered a rating bureau and
(19:49):
CCI is, and so they willhave an independent state bureau that does the
same work that NCCI does for thatstate. Okay, that's very hopeful.
Now speaking of NCCI, your currentrole is chief Factuary at NCCI. It's
repeat it one more time, NationalCoast and Compensation Insurance for those who may
(20:10):
not know. So what's the purposeof the NCCI. So we are a
service organization and we literally serve theworkers compensation industry. And the purpose is
we were created and established by thestates to be a rating organization to provide
(20:34):
services to each of the states.So but then those services that we originally
did were basically helping to set therates that we needed to be applied in
each of our states. So it'sdone at the state level. So you
analyze all of the data for thestate and the aggregate and you find out
(20:56):
what the state level indication is.So if you know basic rate making state
level indication and then it's distributed downto the class level. And the class
level for workers' compensation is the differencebetween a roofer and a clerical worker,
and that's how it gets distributed.So the purpose of NCCI is basically to
(21:19):
do that primary function. But inorder to do that, we become a
data collector. We aggregate data fromthe industry, and the industry is required
to give us their data because ofthe regulations. And that data collection has
(21:40):
been perfected over time, and wehave quality standards that are significant and the
carriers have to abide by that andwe're looking at it always for the credibility
of the data, integrity of thedata. So there is a lot of
trust in what we do, andwe operate like a not for profit.
(22:03):
But technically NCCI is owned by themember companies that write workers compensation mm hm,
and they are they're sess to feeand that fee is used to provide
our service. Okay, okay,I wasn't familiar with the feed part.
That's good to know. Yeah.Ye, you're tests based on how much
(22:26):
writing and work writings you have ina particular state, and then that gets
transition transferred to us, and thenwe create an operating budget to produce these
services. It's a definitely interest differentmodel than what I've always been in a
for profit insurance carrier. So there'sa very different role type of very interesting.
(22:49):
So, yeah, you articulated everyon the purpose as an aggregator,
you know, for the different states. Now specifically, what are the key
writers? What are your key responsestabilities in this world? Oh? There's
many? Are you ready? Yeah? Ready? No, ready for this?
So first and foremost it's it's settingthe loss costs and the rates and
(23:12):
there do you know the difference betweenlost costs and rates? Yes? Yes,
one doesn't have expenses, right,and I think exactly exactly lost costs
basically cover the loss component, andthen what carriers do with that is then
they add their own expenses on thetop right, and then they have the
ability to compete using the difference oftheir expenses or deviations around our lost costs
(23:41):
rate. We also set the ratesin some states where we actually do that
expense provision as well, and insome cases states can deviate around that with
some parameters, and in other statesit's a little bit more restrictive. So
we do that's our first and foremostthat's what we do. Secondly, we
do legislative analysis. So this isvery interesting too because it's a how do
(24:06):
you interpret the rules? Because it'shighly regulated, the state regulators are changing
those rules and making adjustments to thecoverage of workers' compensation. When they make
that change. Let's for an example, would be the wage replacement. If
I had mentioned earlier that there waslike a two thirds of your pay is
(24:30):
covered, Well, let's say thestate decides they think we're going to go
to seventy percent of pay. Thatchange in that differential of the benefit is
something we will price. So wewill take all the data that we have
and tell the industry back and sayswell, that's going to cost the industry,
it's going to create losses that arefour percent more than they used to
(24:53):
be, or whatever that analysis woulddetermine. So we do slate of analysis
for any benefit level change that's evenproposed, so that we're giving back the
industry some information before it's actually enacted, so that they understand how much it's
going to cost the industry. Andanother side of the house is medical and
(25:19):
the way medical is managed in workers'compensation is very interesting too, because there
is a lot of medical fee schedulesthat doctors and facilities have to adhere to,
and it's a whole system that's setup similar to the way it's set
up for Medicare to control the priceson medical services. Workers compensation has a
(25:41):
similar process to have to control themedical costs. So when those things change,
we also make them do some dataanalysis to just determine what's changed more
(26:02):
keep going. So the other thing, which one of the things that I
have a passion for, is industryresults. So what we since we have
all the data, we look atit and we are telling we give it
back to the industry to say,here's what the data told us, and
we serve it back as benchmarks.So in aggregate, this is what the
(26:25):
combined ratio looks like for the entireWORKOMP industry, and we do analysis of
ani C data that come is alsorequired. Right, carriers have to report
to n a i C schedule Pan. Most actuaries know what schedule P
is, and so I get theopportunity to review schedule P and come up
(26:51):
with our own independent analysis of whataccident your results look like across the industry.
We give it back to the industryso that you, as an individual
carrier can say, hey, atmy carrier, we're you know, either
higher or lower, and how dowe compare and perhaps why do we why
do we have those differences? SoI help companies understand what they look like
(27:17):
relative to industry benchmarks. There's twomore, Yeah, there's two more you
mentioned we previously spoke, which Iwant to have follow ups, by the
way, on those, A coupleof more I want to talk about.
First, as you mentioned, dataautidation and then servicing residual markets. Oh,
those they're good ones too, Sofirst and foremost, before and before
(27:37):
we can do any of the analysis. The data validation is a huge part
of our work. And it's importantbecause NCCI wants to be the source that's
trusted in the industry. So inorder to do that, it requires us
to have some really high confidence levelsand integrity levels of the data. So
(27:57):
we call that the data valid NCCIhas a huge data team. Kudos to
the team. If anyone's listening,kudos to everyone. But even my team
will get in there and look atyear over year comparisons such that we're understanding
if there's any even any significant shiftin the way it's reported, and we
(28:18):
can detect those types of things andunderstand what the impact might be to our
results. But also we could goback to the carrier and ask some questions
and say like that was that reallywhat you intended to send us? And
oftentimes there's we identify problems, wego back to the carrier and get those
(28:38):
corrected such that we have better data. So that's data validation. Residual market
is another interesting one because NCCI hasa responsibility in administering the residual market plans
and the pools. So what happensis each state might have a plan residual
(28:59):
market plan, and of course sinceit's all done by state, you have
you know, thirty fifty different flavorsof residual markets. Well, they also
have a pool mechanism where all ofthe loss activity is pooled together and then
carriers are assessed a piece of that. So NCCI has a role by understanding
(29:26):
what the reserves need to be forthese entire residual market pools. So my
team has a reserving function as wellas a pricing function. So I get
as a chief actually and I getthe best of both worlds. Excellent.
So yeah, I have there's four. I'm going to recap the four items
you mentioned because I have follow upson all of them. The first one
(29:48):
I heard was legislative pricing at thestate level, the second was industry level
analytics, the third was data validation, and the fourth was servicing the residual
markets. The first question have onthe legislative pricing is I can imagine when
you're working with state legislators there couldpotentially be an inherent conflict or a balance
(30:08):
I guess between political motivations perhaps,but then also affordability. So for instance,
if they want to increase the benefit, but at the same time,
in turn, that could actually increasedoverall costed industry. So it sounds like
that those are those might be somevery interesting conversations to have with the legislators.
(30:30):
And it's interesting because you know what, we're not in the We are
not lobbyists. We are not inin that position of lobbyists. What we
will do is objectively say this isthe what you've asked us to price,
this is the implication, and wemight say, well, here are the
(30:51):
down the pitfalls like because it's anunintended consequence of what you perhaps the words
that were included in the legislative change, and we might say, hey,
if this is if we clarify this, the impact of that would be very
significantly different. And so we sometimesgive a lot of consultation in that way,
(31:18):
but we do not have a sayin what gets enacted, so we
don't have a really skin in thatgame, but we are definitely in more
responsive to process. Interesting and theone that you mentioned is go ahead,
go ahead. I was going tosay, there's other people that do get
involved in that, right, there'sother trade groups, trade associations and carrier
(31:41):
groups that we'll get in there andsay hey, this isn't good for the
carrier community. And that's just notour role in CCI okay one. The
second one you mentioned that you arepassionate about is the industry level analytics,
and you mentioned one application of thatbeing benchmarking, so companies are able to
benchmark their company compared to the broaderindustry. Are there any other uses for
(32:06):
that industry level those industry level analyticsthat you've seen. Definitely. So we
were just coming off of our annualInsight symposium. It was last week,
and we do this every May,and it's a big deal for us because
we're sharing with the industry. Youknow, a lot of these benchmarks,
and I do it as a stateof align analysis and report that we provide
(32:30):
every year. And so that's,like I said, this is one of
the places where I have a lotof passion and it comes out on a
stage and we talk about it.But even more importantly dom is we're giving
information that's relevant to the industry,and that means we're looking at current events
(32:52):
and emerging issues. So not onlyare we looking at like overall results and
frequency numbers and severity numbers, butthis particular year. Last week we shared
information about how extreme weather is impactingor comp because we all know that extreme
(33:13):
weather is creating catastrophes property and youknow lots of property pain points in the
industry, but it's also creating alittle bit of pain and workers comp It's
not catastrophic by any stretch of theimagination, but it is catastrophic to certain
workers who are exposed to extreme temperatures. And even on both sides. So
(33:36):
when things are cold and wet,right when there's wet precipitation, we all
know ice happens, and it's interestingthat there is an increased frequency of an
injured of worker injury when it's coldand wet in the thirty five to thirty
to thirty five temperature range. Isthere, it is increased frequency. And
(34:00):
on the heat side, it seemsto be very linear, and it's an
increase a step wise and increase asthe temperature gets hotter. And of course
there's definitely workers who are exposed outsidewhen the temperature changes. That's a key
contributor to the risk. But it'salso believe it or not, happens for
(34:27):
clerical So we did some analysis byindustry as well. So that's just one
topic that we looked at this year. Another example is mental health. Another
example is medical fee schedules. Weare looking at how effective they are.
So there's lots of different really specificangles we can go down because we have
(34:52):
really rich data set. Yeah,so coming back speaking of data, coming
back to the validation is as someonewho I imagine many actuaries might be curious
about this as well as as you'redoing the validation, what are the most
common things that you're seeing that youhave to address some to make, you
know, to maintain the integrity ofthe data. I think it's how I
(35:14):
would characterize that is the continuity fromone year to the next. Right,
Like we get data, there's financialwe have different data calls. So financial
data comes to us once a year, and then units stat data, which
is more detailed, granular data getsmore it's a regular data feed to us
(35:35):
on monthly basis, and it's that'stypically reported to us like eighteen months after
the end of the policy period,so there's a little bit of a lag
in the delay. And then there'sa different kind of data that we now
have that's medical data transactions and indemnitydata transactions, So those come to us
(35:58):
on a quarterly basis, which givesus a little fresher look at what's happening
in the industry, So there's awhole different All of these different data sources
have different types of validation that wedo, so it's hard to describe what
are the things we see. II do expect that, you know,
(36:19):
we're exploring the idea of how dowe help how do we use AI tools
to help identify things, and we'reon the and we're on the verge of
looking at that differently. But thenaked eye sees so much. We have
straight people who have been doing thisa long time and see and really understand
what they're looking for. So that'swhat I trust. I was thinking that
(36:42):
there might have been something like uh, you know, like in I think
catastrophe data sometimes is like using uhdollars instead of thousands or something. But
soons like it's a combination of differentthings. It's a combinations clean counts,
claim closing patterns, there's all thosewhole host of different things that we could
uncover. And lastly, i'm theservicing of residual markets. I'm curious to
(37:06):
know which I think you might havementioned in one or two examples earlier,
but which classes of business are mostlikely to be or which situations are most
likely to put an organization in aresidual markets, it's when you're not in
business very long, so you don'treally necessarily have a track record or or
a lot of construction on small contractors, So the size of the policies they
(37:30):
are not typically that big. Sothe average policy size in the residual market
is probably under five thousand dollars orsomewhere in the neighborhood recent stat that I
saw. Okay, now let's takea step back, because you know,
we spent some time articulating on,you know, on what NCCI is,
what some of your functions are there. I wanted to go a little bit
(37:52):
deeper on the first thing that youmentioned, the caught the lost cost on
the rate analysis, because I knowthat's really instrumental to what you're doing,
one of your primary deliverables. Sowhat are the key outputs when we think
of the analysis itself. It's obviouslyan important a broader analysis, Like what
are the actual key outputs of theanalysis itself? The output is the you
(38:13):
know the fact that we're establishing losscosts at the state level, and then
we're distributing that down to the classlevel. So for each and every class
there's over four hundred, five hundred, six hundred classes. You know,
we have to do that analysis todistribute an overall impact change. In many
(38:35):
cases, we've been taking loss costsdown. So we've had a recent twenty
twenty three, for example, wasan average of minus seven and a half
across all of our states. Sothat might be the effect in one state
at the state level, but atthe class level, some classes will be
going down fifteen, some classes willbe not going down much, maybe even
(39:00):
have a potential small increase, andthat's how it will be distributed. So
that's the output of it. Butthe very traditional rate making assumptions that actualies
are working with is what we do. We are developing losses to ultimate right,
so you're the mid level stuff.You are also trending that to current
(39:23):
cost levels. But in workers compensationyou actually have a different kind of trend
too, where you're trending it trendingit for benefit levels. So if the
benefits change over time, you haveto make sure that you're contemplating the current
benefit level, so you have tobring your past experience up to current levels.
(39:45):
So there's the very traditional assumptions thatare used in rate making are used
everywhere in CCI, there's something elseI have to ask about, just as
someone I did come very briefly,not like maybe not as much detail.
Some of that a lines of business. What emods are something that you know
is using the industry, so youknow, outside of just a pure loss
(40:07):
costs, can you talk about thingslike emods and any anything else that you
may produce. So EMODS is anexperienced mod. So it basically is what
the result of an effort to doindividual risk grading. So for and there's
(40:28):
an eligibility curve, right, Sothere's an eligibility basically if I'm big enough,
I can earn myself an individual riskgrading. And then so think of
that as assessing the specific risks characteristicsof a specific employer. And so if
they've been in business long enough andthey have a significant size, they can
(40:52):
earn a credit or a debit,right, you know, good or bad
based on their loss experience. Sosome cases that would be So it basically
allows us to have a more specificrating for each employer that's out there that
qualifies, so you can get customizedrates, perhaps more accurate. It includes
(41:17):
the claim history and and so that'sthe EMOD component, and then any other
underwriting aspects is also thinking about thesafety measures that are employed at that carrier,
and that results in losses or nolosses. Right, So if you
(41:38):
have really strong safety precautions on yourfactory workplace you have, that is going
to impact how many losses that youincur. So it's a direct result.
Does that help? Yeah, thatdoes help a lot. And I have
a question on applications, so thinkingof some of the systems that connect that
(42:02):
employers will connect to and also somethingthat you produce. I know, I
think it used to be called tableM, but no, it's done differently.
Is aggregate loss factors on demand.Can we talk a little bit about
those and purpose of those. Oh, it's therefore the largest of the large
carriers that are either self insured,and when you're writing excess coverage and workers
(42:24):
compensation, there's a it gets veryunique. But we have basically a layer
excess layer analysis. So that's whathappens in table M used to happen in
table M. I just want topoint to that that's something that I think
NCCI does. I promulgated the tableM and we also do the I've got
(42:46):
experts working on that. Excellent,excellent, Yes, And in terms of
how uh you know the results ofthe lost costs on the right analysis.
Of course, pricing is obvious,the quick simplants are clearly they're going to
be using those for pricing, andwe did talk about earlier about you know,
using putting their expenses on top ofthat using We may not have talked
(43:07):
there as much about company deviations,but you know, deviations potentially emods.
Is there you know any other Othat I'm just like basic pricing, anything
else they're using it for? Therewere those are analysis. I think the
one of the things I would whatwe've been doing in the last couple of
(43:28):
years is turning the data into atool set for carriers. So we talked
a little bit about benchmarking. Butif you can actually see, like if
I if I'm travelers and I'm writingI industries like manufacturers or construction contractors or
(43:53):
retail for that matter, any typeof industry. We have all of that
data that we give back to theindustry so that they can look at how
their books of business compare from afrequency standpoint, but meaning the frequency of
an incident. Does this employer havemore frequent incidents than the others? And
(44:16):
they can do a comparison point tothat they can see how their book compares.
We are also doing that with medicalthe medical data that we're collecting as
well as the indemnity data that we'recollecting. So the goodness to me,
I think, is us serving thatback to the industry to say you can
do your own analysis. You don'thave to wait for us to tell you
(44:37):
what the data is telling you,but you can take a look at it
as well and compare your own carrierto the industry benchmarks, typically at the
state level. So I could sayyou could compare one carrier to how does
their Florida book compared to this Floridathis Florida book. There's lots of nuances
(45:00):
to that, but I think it'sI think that's a stronger, even stronger
application than they aggregate loss factors,much more useful to the industry. Yeah,
there's one one bonus ide which isjust related to what we just mentioned.
It just wanting because I think Ifeel like this is the one thing
we may not have to touch on, is the company company mods or deviations.
How would you explain that concept tosomeone who's not familiar with, you
(45:22):
know, with workers come that's agood one too. So I think of
it as this way. You know, we are setting. We're setting like
the water level, right and anythingthat any What carriers will do with a
(45:42):
deviation that's lower than the water levelis they will try to underwrite and put
their best book of best business.If they're doing risk selection, they're going
to put their best business in somethingthat's lower than the average lost cost and
vice versa. Uh. If it'ssomething that's really risky or has challenging loss
(46:02):
experience, they might debit that andput it in a deviated company that's higher.
So typically what happens in workers' compensationis carriers will use writing companies that
have different expense levels that are thatare considered a deviation, and so they
(46:25):
do that by filing what's called thelost cost multiplier. And in some cases
those are less than the result isless than the bureau loss costs. Sometimes
it's higher. Mm hmm. Doesthat help? Yeah, that does help.
I think ya. Everybody us equipmentwith all the deviations. We talked
(46:47):
about the loss costs of deviations andmods. So I think, you know,
this is a pretty good review ofworkers' compensation for our first line of
business episode so I have to directeverybody to NCCI dot com because that is
where we publish a lot of allof our thought leadership, all of our
benchmarks, all of our tools.If you're part of a member company,
(47:12):
and anybody who's writing workers compensation ismember companies, you have access to a
lot of this information. And guesswhat, you just gave me some practice
because NCCI is doing our own podcastlater this year. So we're getting into
the podcast business. So we're gonnawe do some of our work in webinars.
(47:37):
We have do it in what wecall inside. We do some spotlights.
I'm going to call them on NCCIdot com with some video spotlights of
our work. And now here weare, we're gonna we're gonna start some
podcasts next. Sure are you goingto get down to the state level,
like different episodes for different states orI think that might be interesting. I
(47:58):
could be interesting. But I'll keepyou, I'll keep in touch with you,
I'll let you know. You knowthat could that could be a lot
of work. Thirty eight stays wegot well better to have more to work
with them and less. And we'rein a place though that like you know,
you do it for one state.You got to do it for all
the states. They're all our kids, so we got to do do it
for one. You got to dofor all, so we can't pick and
(48:20):
choose. Well, I look forwardto it does have a name yet,
the podcast or no, I don'tthink so, not yet. I don't
think so. But I'll keep youinformed. And so thank you for reaching
out to me. It's been apleasure reconnecting with you. It has and
I learned so much and you know, I know the community will as well.
So thanks again, don, Ireally enjoyed this conversation and as always,
(48:42):
it's keep in touch absolutely. Thankyou. Take care, take care,
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