RD698 - Report on Recommended Workers’ Compensation Premiums for FY 26 - FY 27; Status and Recommendations of the Loss Control Program; and Number, Amount and Impact on Reserves of Settlements in FY 24 – October 30, 2024
Executive Summary: WORKERS’ COMPENSATION PREMIUMS – SECTION 1 The Department of Human Resource Management (DHRM) recommends workers’ compensation premiums equal to the cash flow needs of the program. Actual FY 2024 and FY 2025 premiums shown for comparison. Actual FY 2024 Premium: $63,716,657 • The statewide experience modification factor rose from .84 to .92. The formula and calculations used are referenced in exhibit B of this report (section 3, Methodology). • The required statewide premium calculated for FY 2026 increased 8.8% from FY 2025 premiums ($5,146,034 before settlement repayment) following a decrease of 8.1% for FY 2024 premiums. • Workers’ Compensation premiums are based on 3 factors; headcount, payroll, and the experience modification factor, which is based on the frequency and the severity of claims. As stated above, the statewide experience modification factor rose by .8%, this coupled with the statewide payroll increases over the last two years (total of 6%) has made an impact on the premium recommendations for FY26. In addition to this, claims from 2020 are no longer part of the formula of the experience modification factor calculation. • The updated estimated undiscounted reserve is calculated to be $24.7 million lower than last year’s calculation. • The Working Capital Advance settlement program is proving to be a contributor to the lower-than-expected incurred loss development during the fiscal year and the reduction in the undiscounted reserve can be at least partially attributed to these settlements. • Other contributing factors to the lower-than-expected incurred loss development are the increased engagement of OWC’s loss control team with the agencies in our program, and the early assignment of field nurse case management on lost time claims. In addition, our Agency Relation Representatives are working more closely with our agencies to ensure that claims are filed timely and investigated thoroughly. They are also working to ensure that agencies have up to date return-to-work plans, and effective medical panels, while keeping the agencies updated on their loss trends. SETTLEMENTS – SECTION 2 Third Party Settlements Sixteen Workers’ Compensation claims involved in third party suits settled during Fiscal 2024, avoiding $1,099,097.72 in expected future costs. Exhibit C provides a list of all settlements reached during the course of third-party settlements(*1). Cost avoidance is calculated as follows: Total Case Reserves (Future Exposure): $1,797,424.10 Cost Avoidance due to Settlements $1,099,097.72 Working Capital Advance Settlements In FY 2024, the Department of Human Resource Management • Completed settlements on 8 workers’ compensation claims under the Working Capital Advance authorized in Chapter 2, 2024 Virginia Acts of Assembly, Special Session I, Item 74, F.3 • Produced $1.5 million in cost avoidance due to accelerated closure of the claims • We continue to evaluate claims for accelerated closure. Recommendation The Department of Human Resource Management recommends continuing a budget provision for the Working Capital Advance to support accelerated closure of certain claims. The Working Capital Advance settlement program has proved to be a significant contributor to the lower-than-expected incurred loss development during the fiscal year and the reduction in the undiscounted reserve can be at least partially attributed to these settlements. The joint effort by the Department of Human Resource Management staff who suggested cost containment through settlements and the Department of Planning and Budget staff who developed the Working Capital Advance vehicle to make the idea possible has produced positive results for the program: • Actual results achieved by settling 281 claims have already produced documented cost avoidance of $71.49 million. The required statewide premium calculated for FY 2026 increased 8.8% from FY 2025 premiums (approximately $5,146,034 before settlement repayment). • The updated estimated undiscounted reserve is calculated to be $24.7 million lower than last year’s calculation. LOSS CONTROL PROGRAM – SECTION 3 The program’s actuary, Oliver Wyman produced an updated actuarial report entitled 2024 Workers’ Compensation Experience Statistics by Agency based on reported losses as of June 30, 2024 (Exhibit E). Agencies with the most adverse loss history identified in the 2024 report are: • Department of Motor Vehicles Virginia Alcoholic Beverage Control Authority was added to the list for 2024; Department of Wildlife Resources was removed from the list. Recommendation The Department of Human Resource Management recommendation is to: • Continue development of agency-specific action plans and consulting work to reduce the frequency and severity of workers’ compensation claims; • Continue the loss control consulting work initiated in FY 2024 with the previously identified agencies; and • Reward high performing agencies with premium credits and encourage struggling agencies with premium debits. |
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