New Orleans, LA, September 12, 2013

1. Workers’ Compensation: National Trends Promoting Your Company Impact of Formula Change on Experience Mods S. Guenther, ALCM, ARM, CIC, CRM Sr. Vice President, Willis of Colorado New Orleans, LA, September 12, 2013

2. Come up and see me if you want to see how your state stacks up for most or least expensive in the nation for workers’ comp. rates. Work Comp Cost Drivers: Rates Source:NCCIRegula./Legis. Trends Workshop: May, 2013

3. Cost Drivers: Avg. Wage Benefit vs Days to Heal Longest Duration by Age Group to Heal: 41-50 = 130 days Shortest Duration by Age Group to Heal: 31 and under – 83 days Source:NCCI: TTD Duration Brief Aug, 2013 Based on 2009 Injuries at a 36 month analysis (2012)

4. Work Comp Cost Drivers and National Trends Increased Use of Pain Killers Rx drugs make up 18% of total WC med. costs Top Drugs Prescribed (Source:NCCIRegula./Legis. Trends Workshop: May, 2013) Oxycontin/Oxycodone HCL (47% of narcotic costs), Lydoderm, Lyrica, Celebrex, Gabapentin, Cymbalta Opana HCL/ER, Meloxicam, Tramadol HCL, Two are anti-inflammatories One is for depression All the rest are for PAIN Opiate-derivatives/developed for cancer patients Controls: blood tests, pill-counting, Docs Rx less-addictive meds

5. Work Comp Cost Drivers and National Trends Physician Repackaging of Prescription Medicines Purchase in volume Repackaging allows for set own price on meds Outside the Average Wholesale Price States have enacted legislation to regulate States have banned the practice, completely States have limited costs of drugs through state workers’ comp. fee schedules

6. NCCI: National Council on Compensation Insurance One of Several Rating Bureaus Independent Bureaus: CA, DE, HI*, IN*, MI, MN*, NC*, NJ, NY*, PA, TX* * State shares data with NCCI Monopolistic States: “NOWW” ND, OH, WA, WY NCCI: State Administrator for Work. Comp. in 37 States/Jurisdictions Gather statistical data Detailed claims data Detailed payroll data >700 insurance carriers report to NCCI

7. The Experience Modification Factor Introduced in the 1970’s All Employers Paid Same Premium Rate for WC Some employers had > injuries than others Needed a Remedy to Reduce Socialization of Costs Employers with Injuries < Avg= Credit Modifier < 1.00 – produces a premium credit Employers with Injuries > Avg= Debit Modifier > 1.00- produces a premium debit Designed to Properly Assess/Apply WC Premiums Was never intended to reflect safety

8. The Experience Modification Factor - Formulas NCCI’s Formula Changes to the Mod Factor The Out of Balance Theory NAIC The Importance of 1.00 Avg. State Mod Experience Rating Adjustment Plan (1997) 22 States for 16 Years Removes 70% of $ for all med-only clms. These $ eliminated from mod calculation Split Point Formula Change Initiated in 2013 Adopted Different Dates in Each State Impact to Interstate Businesses

9. The Experience Modification Factor What is the Split Point? Every Injury/Claim USED in the Mod Factor Has Two Components Primary Portion (Prior to 2013: was $5k) Excess Portion (Prior to 2013: all $ > $5k) Primary Losses Weighted Heaviest in Mod Calculation Go right to the “bottom line” of the mod factor Smaller, “frequency” losses Theory: Frequent losses = severe losses Five claims at $5k > impact to mod factor than one claim at $25k.

10. The Experience Modification Factor What is the Split Point? Excess Losses – Have weights/ballasts placed against it in mod factor calculation Dollars are lowered in the mod calculation Excess loss portion receives less weighting “Cushions the impact” of larger, more severe or catastrophic losses on the experience mod factor This is the “Split Point” – Amt. of Primary vs Excess Loss Dollars Used in the Mod Calculation For 20 Years $5,000 Was the Split Point

11. The Experience Modification Factor Why Did the Split Point Change? NCCI: ►The Cost of Workers’ Compensation Claims Have Tripled in the Past 20 Years ► Mods Will Be More Responsive to Loss ► Mod factors Will Be More Credible ► Employers Will Have More Incentive to Operate Safely But Will They Report Their Injuries? Fines and Penalties for Failure to Report Beware of Paying Your Own Claims Be sure your state permits it

12. The Experience Modification Factor How Did the Split Point Change? In 2013: Split Point Will Be Changed as Each State Completes its Annual Filing with NCCI Example: Your Policy Renewed on Jan. 1, 2013 Oregon: Jan. 1, 2013 $10k of Each Claim Colorado: Jan. 1, 2013 $10k of Each Claim Idaho: Jan. 1, 2013 $10k of Each Claim Nevada: Mar. 1, 2013 $5k of Each Claim Louisiana: May. 1, 2013 $5k of Each Claim

13. The Experience Modification Factor How is the Split Point Being Adopted? 2013: Split Point Doubled from the First $5k of Each Claim to the First $10k of Each Claim 2014: NCCI Proposing a Split Point of $13,500 2015: NCCI Projects a Split Point of $15k+ Index 2016: Split Point Will be Indexed, Annually by NCCI CA: Indep. Rating Bureau 2011 - $5k to $7k Only MO: Change Will Begin in 2014 - $5k to $7k

14. The EMR Split Point Formula Change Impact NCCI is Offsetting the Impact with ELR & D Factors If They Did Not, Estimates Show the Average Mod Factor Increasing by +11 Points NCCI Estimates: .1% of Employers= Change of >15% to EMR 11.9% of Employers= Change of 5% to 15% to EMR 76% of Employers= +/- 5% to EMR 11.3% of Employers = + 5% to +15% Change to EMR .7% of Employers = Increase of > 15% to EMR Source: NCCI Annual Symposium exhibit page 59

15. What Creates a Debit Mod? Increased Injuries/Severity Culture? Aging Workforce? Comorbidities? Poor Management of Claims Wrap Up Projects Contingent Mods Shift Payroll to Cheaper Classes Mod Factors With Errors Shifting Policy Period Eff. Dates > 90 Days Reduction of Payrolls/Shifting Payrolls to Jt. Ventures Buying a Company with a Debit Mod

16. Other Ways to Influence an EMR Small Deductible Plans Fourteen (14) States Have “Net Reporting” All dollars under the deductible are removed from the mod factor calculation Net Reporting States (* States with $10k Ded. Max.) Alabama Kansas* Colorado* Kentucky* Florida Maine Georgia Missouri Hawaii New Mexico* Idaho Oklahoma Iowa Oregon Source: NCCI Basic Manual, 2012

17. Claims Management and the Mod Impact Embrace Injuries and Communicate Learn from, talk about, train from your injuries Fraud and Strategic Surveillance/Holidays Subrogation- Veh. NAF Acc=4 Employees Injured Engage Carrier and Agent Partners Choose Quality Medical Provider (Where an Option) Invoke Statutes and Penalties Know State Laws/Culture Before You Bid Crucial Periods for Claim Reviews 8 mos. pre-renl. (stats to NCCI @ 6 mos) 3 mos. pre-renl

18. Credit EMR Through Return-to-Work Keeps $ Out of the Experience Mod Pay employee wages once – taxable Wages in mod – impacts prems. for 3 yrs! Keeps Employee Productive Makes a contribution Avoids muscle atrophy Could lower their permanency rating Social interaction helps avoid depression Light Duty is NOT for everyone! Positive Drug Tests or Threats to Co-Workers Temporary Progressive Be Committed

20. The Most Common Errors in the Experience Modsheet Not the Employee of the Policyholder Not Net of Deductibles (in net reporting states) Claims Reported in the Wrong State Dollars Never Removed With 3rd Party Recovery Data is for Wrong Employer Data blended for unrelated employers Payrolls are Estimated Payrolls/Policy Years Missing Completely (contingent) Payrolls in Wrong Class Code Work with Agent/Carrier to Correct Stats NCCI will revise within days customer_service@ncci.com

21. Debit Mod Factors – A Poor Gauge of Safety State Rate Changes Ann. Change in ELR & D Factors Mod Formula Changes Split Point Change Avg. mod is +11 pts. unless ELR/D adjust. Experience Rating Adjustment Plan Removes 70% of all $ for med-only clms. Out of Balance Theory – State Administrators Employee Injured by Third Party’s Negligence Maximum Caps on Severe Claims Data Has High Error Ratio / Contingent Mods

22. Debit Mod Factors – A Poor Gauge of Safety EMR’s (Experience Mod Rates/Factors) Used in Bidding Process Energy and construction industries Disqualified for >1.00, >.90, >80 mods Discourage this practice Larger payroll = lower mods Small/mid-sized employers = higher mods Pre-Qual letters from agent/carrier Reliability/credibility of mod factors

23. Some Pre-Qual. Requirements Are Changing Generals/Owners/Energy Companies Are Listening Moving to 1.10 EMR to Bid Asking to Review the NCCI Modsheet Asking to Review Safety Policies/Procedures Asking for Actual Work. Comp. Loss Documents/Loss Runs Less Weighting Assigned to the EMR in the Pre-Qual. Assessment Factors Meeting with Subs. Who Have Debit EMRs

24. Change the Focus Away from a Number • Recent State/Industry/Association Safety Awards • Compare Incident Rate to Industry • Lowered Lost-Time Injuries • Reduced Frequency of Losses • # of Days Without An Injury • Mod Impacted by 3rd Party Negligence? • Frequency of Safety Training • Frequency of JSA’s • Return to Work Commitment • Full-Time Loss Prevention Specialist(s) • Certifications/Designations of LP Spec(s) • Engage Outside Firms in Loss Prevention • Train from Your Injuries? • Behavioral Modeling Programs • Standards for Inj Reporting 8hr/12hr/Same Shift • Compliance/Disciplinary Programs in Place • Pre-Hire Integrity Testing • DART Rates • Letters from External Loss Prevention Specialists – Carrier/Agent • New Safety Programs Implemented in the past year • Buddy Systems for New Hires • Post Accident Investigations • Near-Miss Investigations • Certifications by Employees • Safety Committees • Drug/Alcohol Policies • Pre-Employment Fit-For-Duty Physicals • Citation Free?