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 2025 and FY 2026 premiums shown for comparison.

Actual FY 2025 Premium: $58,530,151
Actual FY 2026 Premium: $63,676,185

Actual FY 2025 Premium Plus WCA Repayment: $61,838,613
Actual FY 2026 Premium Plus WCA Repayment: $66,393,233

Recommended FY 2027 Premium: $70,302,233
Recommended FY 2028 Premium: $71,520,424

Recommended FY 2027 Premium Plus WCA Repayment: $72,821,514
Recommended FY 2028 Premium Plus WCA Repayment: $73,528,781

• The statewide experience modification factor rose from .92 to .99. The formula and calculations used are referenced in exhibit B of this report.

• The required statewide premium calculated for FY 2027 increased 10.4% from FY 2026 premiums ($6,626,048 before settlement repayment) following an increase of 8.8% for FY 2025 premiums.

• The updated estimated undiscounted reserve is calculated to be $11.5 million higher than last year’s calculation.

SETTLEMENTS – SECTION 2

Third Party Settlements

Fourteen Workers’ Compensation claims involved in third party suits settled during Fiscal Year 2025, avoiding $1,774,679.93 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): $2,582,679.93
Total Settlement Amounts: $ 808,000.00
Cost Avoidance due to Settlements $1,774,679.93

Working Capital Advance Settlements

In FY 2025, the Department of Human Resource Management

• Completed settlements on 14 workers’ compensation claims under the Working Capital Advance authorized in Chapter 725, 2025 Virginia Acts of Assembly, Item 74, F.3.
• Produced $3.7 million in cost avoidance due to accelerated closure of the claims.
• We will 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. Historically, the Working Capital Advance settlement program has proven to be a significant contributor to many years of lower-than-expected incurred loss development during the fiscal year and the reduction in the undiscounted reserve for many years can be at least partially attributed to these settlements from when the initiative was launched.

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 295 claims have already produced documented cost avoidance of $75.15 million.

LOSS CONTROL PROGRAM – SECTION 3

The program’s actuary, Oliver Wyman produced an updated actuarial report entitled 2025 Workers’ Compensation Experience Statistics by Agency based on reported losses as of June 30, 2025 (Exhibit E).

Agencies with the most adverse loss history identified in the 2025 report are:

• Department of Motor Vehicles
• Virginia State Police
• Department of Corrections
• Virginia Alcoholic Beverage Control Authority
• Department of Juvenile Justice
• Department of Behavioral Health and Developmental Services
o Mental Health Treatment Centers
o Intellectual Disabilities Training Centers
• Department of Veterans Services
• University of Virginia Medical Center

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 2025 with the previously identified agencies; and

• Reward high performing agencies with premium credits and encourage struggling agencies with premium debits.
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(*1) The settlements contained in this section do not include the settlements made under the Working Capital Advance authorized in Chapter 725, 2025 Virginia Acts of Assembly, Item 74, F.3 to settle certain workers’ compensation claims in FY 2024. Those settlements are reported in Section 2, Working Capital Advance Settlements.