Posted Date: March 12, 2019

Executive Summary

NCCI’s annual update of frequency and severity results is based on data reported to NCCI on the Calendar-Accident Year Financial Data Call. The results are provided by individual jurisdiction, based on data valued as of Year-End 2017. The countrywide results are for all jurisdictions where NCCI provides ratemaking services.

In each chart below, a circle represents data for an individual jurisdiction. Frequency for most jurisdictions declined in the most recent year, while severity generally increased.

The following charts illustrate the average annual changes in frequency and severity observed between 2013 and 2017 by individual jurisdiction.

Declines in average annual lost-time claim frequency per $1M of pure premium were observed in all jurisdictions and ranged from –1.0% to –7.4%. The countrywide average annual frequency change was –4.9%.

Indemnity and medical severities have generally increased over the most recent five years.

Hawaii had the largest average annual indemnity severity increase (+9.0%) and Oklahoma had the largest decrease (–4.5%). The average annual indemnity severity change across all jurisdictions was +1.7%.

With respect to medical severity, the District of Columbia had the largest average annual medical severity increase (+11.3%) over this time period and Alaska had the largest decrease (–3.2%). The average annual medical severity change across all jurisdictions was +2.8%.

Results by State

The following graphs show each state’s frequency and severity values along with the corresponding countrywide values (in gray) for the most recent five years.

Image for Alabama was not found

Note that states with high severities generally have low frequencies (as measured by claims per premium) and vice versa. This is not unexpected since, all else equal, higher severity translates to higher premium, and in turn, lower frequency per premium.

Appendix

Comparison to Rate/Loss Cost Filings

The following table summarizes the differences in methodology between this frequency and severity report and the state-specific analyses performed as part of the rate filing review process.

Methodology Frequency and Severity Results by State Frequency and Severity Rate/Loss Cost Filings
Experience Base Calendar-Accident Year Policy Year
Loss Limitation Applied No Yes
Losses on Current Benefit Level No Yes
Severities Adjusted to Current Wage Level No Yes; thus the resulting changes in severity are in excess of wage growth
Medical-Only Losses Included No Yes

Method of Calculation

The following calculations are applied to the Calendar-Accident Year Financial Call data by individual jurisdiction.

Frequency

  1. Indemnity (lost-time) claim counts are developed to an ultimate report
  2. Calendar year premium is adjusted to the current rate/loss cost level
  3. Expense-related premium, including expense constant premium, is excluded to adjust the current-level premium to a pure premium basis
  4. The pure premium is brought to the current wage level by multiplying by the ratio of current-to-historical average weekly wages
  5. Frequency is the result of dividing the ultimate claim counts by the wage-adjusted, on-leveled pure premium in millions of dollars

Severity

  1. Paid and/or paid plus case losses are separately developed to an ultimate report
  2. Indemnity (lost-time) claim counts are developed to an ultimate report
  3. A factor to remove medical-only loss amounts by jurisdiction is estimated using Statistical Plan data and applied to ultimate medical losses
  4. Severity represents ultimate losses divided by ultimate lost-time claims

Countrywide results are determined by summing the data from each individual NCCI jurisdiction. Each jurisdiction’s premium, claim counts, and losses are developed using a methodology consistent with the approach used in the most recent rate/loss cost filing.

Caveats

From one accident year to another, results at a state level may be volatile due to:

  • Small volume of data

  • Actual versus estimated loss development

  • Changes in reserve adequacy

  • Closure of claims without indemnity payment (reducing claim counts)

For large losses that have a significant impact on the state results, the reported paid plus case amount is used as the best estimate of the claim’s ultimate value. Claims of this magnitude are not frequent, and this adjustment is only made for the valuation in which the predetermined impact threshold is reached.

While reviewing the state-specific results included in this report, there are some limitations to be aware of, which may include:

  • The mix of carriers that are included in the experience may change from one data valuation to the next, which may lead to varying results over time

  • These results are based on a mechanical process and neither indicate nor apply to any type of rate adequacy analysis