1. MITIGATING THE FINANCIAL IMPACT OF THE CALIFORNIA WORKERS’ COMPENSATION MARKET FEBRUARY 13, 2013 Steve Flynn Managing Director Marc Urias Senior Vice President

2. MARSH 1 June 23, 2016 Mitigating The Financial Impact of the California Workers Today’s agenda –What’s driving California Workers’ Compensation cost increases? –Tactical considerations to mitigate cost –How do you best position your company to mitigate these costs? –Utilize analytics for better decision making –Optional program structures: Do they make sense for your company?

3. MARSH 2 June 23, 2016 What’s Driving California Workers’ Compensation Cost Increase Costs Going Up Cost to Deliver Medical Treatment to Injured Workers (Comparison from 2005 to 2009) –Pharmaceuticals & Durable Medical Equipment - up 106.5% –Direct treatment – up 48.9% Cost of Indemnity (lost wages) and medical combined up 43% between 2005 and 2009. Regulators Recommendations –November 2011 recommend 37% rate increase to be eff. Jan 2012 –May 30 2012 recommend 45% rate increase for July 2012 –September 2012 Recommend 12.6% rate increase eff. January 2013

4. MARSH 3 June 23, 2016 Declining Insurer Profitability

5. MARSH 4 June 23, 2016 Legislators Response to the Problem SB 863 (California) effective January 1, 2013 –Establishes $120 Million “Return to Work Fund” –Introduces independent medical review –Seeks to improve medical provider networks –Makes changes in fee schedules and agreed medical evaluators –Increases benefits for permanently disabled injured workers. NO BENEFIT DECREASES

6. MARSH 5 June 23, 2016 Insurers Response to the Problem Underwriting Scrutiny Rate Increases Reduce “schedule credits” Limited writing of Workers’ Compensation without supporting lines More rigorous premium audits / classification review Reducing Schedule Credits to offset improving experience modifications

7. MARSH 6 June 23, 2016 How is Premium Determined? Basics of Guaranteed Cost Premium: projected payroll x base x experience x schedule + taxes & = estimated premium 100 rate modification credit surcharges *Bold designates controllable expense factors Other Cost Factors ControllableNon-Controllable Payroll Accident Frequency (safety program) Statutory Benefit Levels Market Cycles Accident Severity (post loss)Workers’ Compensation User Fees Risk Transfer Methods Cost of Collateral Cost to Administer Claims

8. MARSH 7 June 23, 2016 How Do You Best Position Your Company to Mitigate These Costs? Optimizing Total Cost of Risk (TCOR)

9. MARSH 8 June 23, 2016 Utilize Analytics for Better Decision Making

10. MARSH 9 June 23, 2016 Utilize Analytics for Better Decision Making

11. MARSH 10 June 23, 2016 Utilize Analytics for Better Decision Making 20082009201020112012

12. MARSH 11 June 23, 2016 Utilize Analytics for Better Decision Making

13. MARSH 12 June 23, 2016 Strategic Levers to Reduce Cost Loss CostsClaims Mgmt. CostsPremium and Admin CostsCollateral CostsAdditional Considerations Global Benchmarking Portal Retention Analysis Loss Projection Modeling Collateral Tracking / Negotiation Contract Review Program Peer Review Post Injury Response Protocols Medical Provider Networks Return to Work Medical Case Mgmt. Client Service Instructions Claim Audit Reviews Claim Advocacy

14. MARSH 13 June 23, 2016 Strategic Levers to Reduce Cost Loss Costs Claims Mgmt. CostsPremium and Admin CostsCollateral CostsAdditional Considerations Global Benchmarking Portal Retention Analysis Loss Projection Modeling Collateral Tracking / Negotiation Contract Review Program Peer Review Post Injury Response Protocols Medical Provider Networks Return to Work Medical Case Mgmt. Client Service Instructions Claim Audit Reviews Claim Advocacy

15. MARSH 14 June 23, 2016 Strategic Levers to Reduce Cost Loss Costs Claims Mgmt. Costs Premium and Admin CostsCollateral CostsAdditional Considerations Global Benchmarking Portal Retention Analysis Loss Projection Modeling Collateral Tracking / Negotiation Contract Review Program Peer Review Post Injury Response Protocols Medical Provider Networks Return to Work Medical Case Mgmt. Client Service Instructions Claim Audit Reviews Claim Advocacy

16. MARSH 15 June 23, 2016 Strategic Levers to Reduce Cost Loss CostsClaims Mgmt. Costs Premium and Admin Costs Collateral CostsAdditional Considerations Global Benchmarking Portal Retention Analysis Loss Projection Modeling Collateral Tracking / Negotiation Contract Review Program Peer Review Post Injury Response Protocols Medical Provider Networks Return to Work Medical Case Mgmt. Client Service Instructions Claim Audit Reviews Claim Advocacy

17. MARSH 16 June 23, 2016 Strategic Levers to Reduce Cost Loss CostsClaims Mgmt. CostsPremium and Admin Costs Collateral Costs Additional Considerations Global Benchmarking Portal Retention Analysis Loss Projection Modeling Collateral Tracking / Negotiation Contract Review Program Peer Review Post Injury Response Protocols Medical Provider Networks Return to Work Medical Case Mgmt. Client Service Instructions Claim Audit Reviews Claim Advocacy

18. MARSH 17 June 23, 2016 Strategic Levers to Reduce Cost Loss CostsClaims Mgmt. CostsPremium and Admin CostsCollateral Costs Additional Considerations Global Benchmarking Portal Retention Analysis Loss Projection Modeling Collateral Tracking / Negotiation Contract Review Program Peer Review Post Injury Response Protocols Medical Provider Networks Return to Work Medical Case Mgmt. Client Service Instructions Claim Audit Reviews Claim Advocacy

19. MARSH 18 June 23, 2016 Heat Map Potential Solutions Relative Risk Indicators

20. MARSH 19 June 23, 2016 Quantify Potential Solutions $750 $700 $650 $600 $550 $500 201120122013201420152016 ($200,000) ($500,000)

21. MARSH 20 June 23, 2016 Consider Alternative Programs – Design

22. MARSH 21 June 23, 2016 Optimal Program Structures: Do They Make Sense For Your Company? Collateral Reduction

23. MARSH 22 June 23, 2016 Casualty Cost of Risk (CCOR) Optimizing Total Cost of Risk (TCOR) Loss Costs Claims Mgmt. Costs Premium and Admin Costs Collateral Costs Additional Considerations Global Benchmarking Portal Retention Analysis Loss Projection Modeling Collateral Tracking / Negotiation Contract Review Program Peer Review Post Injury Response Protocols Medical Provider Networks Return to Work Medical Case Mgmt. Client Service Instructions Claim Audit Reviews Claim Advocacy

24. MARSH 23 June 23, 2016 Tactical Consideration to Mitigate Cost Consolidate off-cycle Workers’ Compensation to common date – Buying Power Get started early. Renewal Strategy meetings should occur 120 days in front of renewal date Pro-active approach toward safety Be able to articulate safety and injured worker protocol to underwriters Manage collateral proactively by developing relationships with insurer’s credit officers Implement claim handling instructions so insurers handle claims in a manor that meets your goals Control medical costs by implementation of Medical Provider Network (CA)

25. MARSH 24 June 23, 2016 Conclusions Challenging macro environment Understand your cost drivers Implement strategy to “pull the levers” Design program to meet current needs/environment Execute identified strategy to improve NOI

26. MARSH 25 June 23, 2016 Contact Us Steve Flynn Managing Director (949) 399-5808 stephen.j.flynn@marsh.com Marc Urias, Senior Vice President (949) 399-5830 marc.f.urias@marsh.com