Report on Commercial and Residential Carpentry and Steel Framing

Transcription

1 Workers Compensation Insurance Rating Bureau of California Workers Compensation Insurance Rating Bureau of California Report on Commercial and Residential Carpentry and Steel Framing Excerpt from the WCIRB Classification and Rating Committee Minutes July 25, 2011 About this Report The WCIRB prepares and presents reports to the WCIRB s Classification and Rating Committee to assist in the formulation of proposed changes to the Insurance Commissioner s regulations. Once adopted by the Classification and Rating Committee, the recommendations contained in the report are provided to the WCIRB Governing Committee and may be included in a WCIRB regulatory filing that is submitted to the Insurance Commissioner for approval. About the WCIRB The WCIRB is California's trusted, objective provider of actuarially-based information and research, advisory pure premium rates, and educational services integral to a healthy workers' compensation system. Learn more at

2 Notice This Report was developed by the Workers Compensation Insurance Rating Bureau of California (WCIRB) to assist in the formulation of proposed changes to the Insurance Commissioner s regulations. The WCIRB has made reasonable efforts to ensure the accuracy of this Report. You must make an independent assessment regarding the use of this Report based upon your particular facts and circumstances Workers Compensation Insurance Rating Bureau of California. All rights reserved. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including, without limitation, photocopying and recording, or by any information storage or retrieval system without the prior written permission of the Workers Compensation Insurance Rating Bureau of California (WCIRB), unless such copying is expressly permitted in this copyright notice or by federal copyright law. Each WCIRB member company, including any registered third-party entities, (Company) and agents and brokers licensed to transact workers compensation insurance in the state of California are authorized to reproduce any part of this work solely for the purpose of transacting workers compensation insurance and for no other purpose. This reproduction right does not include the right to make any part of this work available on any Website or on any form of social media. Workers Compensation Insurance Rating Bureau of California, WCIRB, WCIRB California, WCIRB Online, X-Mod Direct, escad and the WCIRB California logo (WCIRB Marks) are registered trademarks or service marks of the WCIRB. WCIRB Marks may not be displayed or used in any manner without the WCIRB s prior written permission. Any permitted copying of this work must maintain any and all trademarks and/or service marks on all copies. To seek permission to use any of the WCIRB Marks or any copyrighted material, please contact the Workers Compensation Insurance Rating Bureau of California, 525 Market Street, Suite 800, San Francisco, California

3 Report on Commercial and Residential Carpentry and Steel Framing 5403, Carpentry less than $ , Carpentry equals or exceeds $ , Steel Framing light gauge residential less than $ , Steel Framing light gauge residential equals or exceeds $ , Steel Framing light gauge commercial less than $ , Steel Framing light gauge commercial equals or exceeds $ (1), Carpentry detached private residences for 1 or 2 families less than $ (2), Carpentry dwellings not exceeding 3 stories less than (1), Carpentry detached private residences for 1 or 2 families equals or exceeds $ (2), Carpentry dwellings not exceeding 3 stories equals or exceeds $26.00 Executive Summary Objective The classifications applicable to commercial carpentry, residential carpentry, commercial steel framing and residential steel framing 1 have been combined for ratemaking purposes since The Classification and Rating Committee (Committee) requested that the practice of combining these classifications for ratemaking purposes be reviewed. Findings Based on its review, WCIRB staff has determined: 1. Although the commercial and residential carpentry construction and steel framing classifications are well defined, the promulgation of separate pure premium rates may result in (a) additional burdens in payroll reporting for small employers that have common crews that work on commercial and residential jobs; (b) inaccurate job bidding; and (c) opportunities for premium fraud. 2. A year-to-year comparison of loss to payroll ratios for commercial carpentry/steel framing and residential carpentry/steel framing does not present a compelling argument that separate pure premium rates should be promulgated. 3. To help ensure proper underwriting and data reporting, the Standard Classification System should be amended to provide one pair of dual wage classifications for carpentry and one pair of dual wage classifications for steel framing. Recommendation WCIRB staff recommends that: 1 For purposes of this report, commercial carpentry is described by Classifications 5403, Carpentry less than $26.00, and 5432, Carpentry equals or exceeds $26.00; residential carpentry is described by Classifications 5645(1), Carpentry detached private residences for 1 or 2 families less than $26.00, 5645(2), Carpentry dwellings not exceeding 3 stories less than 26.00, 5697(1), Carpentry detached private residences for 1 or 2 families equals or exceeds $26.00, and 5697(2), Carpentry dwellings not exceeding 3 stories equals or exceeds $26.00; commercial steel framing is described by Classifications 5632, Steel Framing light gauge commercial less than $26.00, and 5633, Steel Framing light gauge commercial equals or exceeds $26.00; and residential steel framing is described by Classifications 5630, Steel Framing light gauge residential less than $26.00, and 5631, Steel Framing light gauge residential equals or exceeds $

4 1. The experience of commercial carpentry, residential carpentry, commercial steel framing and residential steel framing classifications continue to be combined for ratemaking purposes; and 2. The classifications for the carpentry and steel framing industries be reduced to one pair of dual wage classifications for carpentry and one pair of dual wage classifications for steel framing. Introduction In 2010, the Committee directed the WCIRB to study all classifications that are combined for ratemaking purposes. This report focuses on the combination of the classifications applicable to commercial and residential carpentry and commercial and residential steel framing for ratemaking purposes. Consideration is given to combining the experience of classifications for ratemaking purposes for the following reasons: 1. Similarity in Scope The proper classification assignment is often difficult to determine due to an overlap in scope or in the operations described by two or more classifications, i.e., there is no clear the line of demarcation between classifications. 2. Low Statistical Credibility A classification lacks statistical credibility. Although the classification may be clearly defined, its experience may be combined with another classification that is similar in industry type and operations in order to increase the statistical credibility. 3. Temporary Anomaly in Experience There is a temporary anomaly in the relative experience of two related classifications that results in a relationship between the relativities for the classifications that is not expected to continue into the future. Classification History In the 1980s, the WCIRB completed a study that resulted in the establishment of dual wage classifications for the carpentry construction industry effective January 1, At the time of the study, it was noted that the indicated rate level for residential carpentry was higher than that of commercial carpentry, which was contrary to historical rate levels for this industry. As a result, it was decided that the experience of commercial and residential carpentry should be combined for ratemaking purposes. In 1996, dual wage classifications were established for commercial and residential steel framing. Due to a lack of statistical credibility, residential steel framing experience was combined with residential carpentry experience and commercial steel framing experience was combined with commercial carpentry experience for ratemaking purposes. Description of Operations Following are the classification phraseologies, footnotes and respective summaries of operations currently assigned to commercial carpentry, residential carpentry, commercial steel framing and residential steel framing: 2 A total of six (6) dual wage construction classifications were established effective January 1,

5 Commercial Carpentry CARPENTRY including the installation of interior trim, builders finish, doors and cabinet work in connection therewith employees whose regular hourly wage does not equal or exceed $26.00 per hour N.O.C. employer who performs the carpentry work in constructing new buildings or additions to existing buildings at the same job or location. All other roofing shall be separately classified. CARPENTRY including the installation of interior trim, builders finish, doors and cabinet work in connection therewith employees whose regular hourly wage equals or exceeds $26.00 per hour N.O.C. Assignment of this classification is subject to verification at the time of final audit that the employee s regular hourly wage equals or exceeds $26.00 per hour. The payroll of an employee whose regular hourly wage is not shown to equal or exceed $26.00 per hour shall be classified as 5403, Carpentry. employer who performs the carpentry work in constructing new buildings or additions to existing buildings at the same job or location. All other roofing shall be separately classified Classifications 5403/5432 contemplate rough or a combination of rough and finish carpentry operations in connection with the new construction, alteration or remodeling of commercial use buildings and other types of buildings not otherwise described by another carpentry construction classification. Rough carpentry activities include receiving rough and finished lumber that is measured, cut to size and assembled together with nails and builders hardware to produce sub-flooring, wall framework, roof trusses, door jambs, window jambs, joists and similar building framework. Roof trusses are raised into position and secured. Plywood or fiberboard sheeting is cut to size and secured to roof supports to form sub-roofing. Finish carpentry involves the installation of builders trim, doors, cabinetry and similar items. Remodeling operations are similar to those described above. Residential Carpentry CARPENTRY construction or remodeling of detached private residences for occupancy by one or two families including the construction of private garages and the installation of interior trim, builders finish, doors and cabinet work in connection with such structures employees whose regular hourly wage does not equal or exceed $26.00 per hour employer who performs the carpentry work in constructing or remodeling private residences at the same job or location. All other roofing shall be separately classified. 5645(1) 3

6 CARPENTRY construction or remodeling of detached private residences for occupancy by one or two families including the construction of private garages and the installation of interior trim, builders finish, doors and cabinet work in connection with such structures employees whose regular hourly wage equals or exceeds $26.00 per hour Assignment of this classification is subject to verification at the time of final audit that the employee s regular hourly wage equals or exceeds $26.00 per hour. The payroll of an employee whose regular hourly wage is not shown to equal or exceed $26.00 per hour shall be classified as 5645(1), Carpentry. employer who performs the carpentry work in constructing or remodeling private residences at the same job or location. All other roofing shall be separately classified. CARPENTRY construction or remodeling of dwellings not exceeding three stories in height including the construction of private garages and the installation of interior trim, builders finish, doors and cabinet work in connection with such structures employees whose regular hourly wage does not equal or exceed $26.00 per hour This classification shall apply only to structures designed primarily as family dwellings. It also shall apply to the installation of shingle roofing and the installation or application of insulation materials in buildings or within building walls, but only if installed by the same employer who performs the carpentry work in constructing dwellings not exceeding three stories in height at the same job or location. All other roofing shall be separately classified. Carpentry in connection with the construction or remodeling of detached private residences for occupancy by one or two families shall be separately classified as 5645(1), Carpentry, or 5697(1), Carpentry. CARPENTRY construction or remodeling of dwellings not exceeding three stories in height including the construction of private garages and the installation of interior trim, builders finish, doors and cabinet work in connection with such structures employees whose regular hourly wage equals or exceeds $26.00 per hour Assignment of this classification is subject to verification at the time of final audit that the employee s regular hourly wage equals or exceeds $26.00 per hour. The payroll of an employee whose regular hourly wage is not shown to equal or exceed $26.00 per hour shall be classified as 5645(2), Carpentry. This classification shall apply only to structures designed primarily as family dwellings. It also applies to the installation of shingle roofing and the installation or application of insulation materials in buildings or within building walls, but only if installed by the same employer who performs the carpentry work in constructing dwellings not exceeding three stories in height at the same job or location. All other roofing shall be separately classified. Carpentry in connection with the construction or remodeling of detached private residences for occupancy by one or two families shall be separately classified as 5645(1), Carpentry, or 5697(1), Carpentry. 5697(1) 5645(2) 5697(2) Classifications 5645(1)/5697(1) contemplate rough or a combination of rough and finish carpentry operations in connection with the new construction, alteration or remodeling of detached private residences that are intended to be occupied by one or two households. Classifications 5645(2)/5697(2) contemplate rough or a combination of rough and finish carpentry operations in connection with the new construction, alteration or remodeling of apartments or condominiums that are not more than three stories in height and that contain at least three living units. 4

7 Residential carpentry operations are similar, if not identical, to commercial carpentry operations described above. Commercial Steel Framing STEEL FRAMING light gauge commercial or industrial including the installation of interior trim, builders finish, doors and cabinet work in connection therewith employees whose regular hourly wage does not equal or exceed $26.00 per hour N.O.C. This classification shall apply to the structural framing of buildings using cold formed, light gauge steel studs and joists that are not more than 0.06 inch thick (#15 gauge or lighter). employer who performs light gauge steel framing in constructing new buildings or additions to existing buildings at the same job or location. All other roofing shall be separately classified. The assembly of light gauge steel building components, including wall panels and trusses, at a permanent shop or yard location shall be classified as 3066(1), Sheet Metal Products Mfg. N.O.C. STEEL FRAMING light gauge commercial or industrial including the installation of interior trim, builders finish, doors and cabinet work in connection therewith employees whose regular hourly wage equals or exceeds $26.00 per hour N.O.C. Assignment of this classification is subject to verification at the time of final audit that the employee s regular hourly wage equals or exceeds $26.00 per hour. The payroll of an employee whose regular hourly wage is not shown to equal or exceed $26.00 per hour shall be classified as 5632, Steel Framing light gauge commercial or industrial. This classification shall apply to the structural framing of buildings using cold formed, light gauge steel studs and joists that are not more than 0.06 inch thick (15 # or lighter). employer who performs light gauge steel framing in constructing new buildings or additions to existing buildings at the same job or location. All other roofing shall be separately classified. The assembly of light gauge steel building components, including wall panels and trusses, at a permanent shop or yard location shall be classified as 3066(1), Sheet Metal Products Mfg. N.O.C Classifications 5632/5633 contemplate the framing of commercial buildings using light gauge galvanized steel. Light gauge steel framing involves the use of galvanized steel studs, which are cold formed into C shaped components. Typically, 80% of the steel used is #20 to #25 gauge for non-load bearing studs and 20% is #16 to #18 gauge for load bearing joists, studs, headers and roof framing. Steel framing operations are performed in one of two ways: (1) on a stick-by stick basis wherein steel studs are either received pre-cut or cut to size at the job site using hand snips and blade chop saws, or (2) on a panelized basis wherein the wall and truss sections are assembled at a shop location prior to being transported to the job site. The operations in the stick-by stick process include laying out components that are assembled with screws to form wall sections and trusses that are lifted and secured into position using lag bolts, metal connectors, brackets and sheet metal screws. Panelizing operations at the job site are limited to manually lifting and securing wall sections and trusses that are manufactured at a shop location. Residential Steel Framing 5

8 STEEL FRAMING light gauge residential construction of dwellings not exceeding three stories in height including the installation of wood floor and roof sheathing, the construction of private garages and the installation of interior trim, builders finish, doors and cabinet work in connection with such structures employees whose regular hourly wage does not equal or exceed $26.00 per hour This classification shall apply to the structural framing of dwellings using cold formed, light gauge steel studs and joists that are not more than 0.06 inch thick (#15 gauge or lighter). employer who performs light gauge steel framing in constructing or remodeling private residences at the same job or location. All other roofing shall be separately classified. The assembly of light gauge steel building components, including wall panels and trusses, at a permanent shop or yard location shall be classified as 3066(1), Sheet Metal Products Mfg. N.O.C. STEEL FRAMING light gauge residential construction of dwellings not exceeding three stories in height including the installation of wood floor and roof sheathing, the construction of private garages and the installation of interior trim, builders finish, doors and cabinet work in connection with such structures employees whose regular hourly wage equals or exceeds $26.00 per hour Assignment of this classification is subject to verification at the time of final audit that the employee s regular hourly wage equals or exceeds $26.00 per hour. The payroll of an employee whose regular hourly wage is not shown to equal or exceed $26.00 per hour shall be classified as 5630, Steel Framing light gauge residential. This classification shall apply to the structural framing of dwellings using cold formed, light gauge steel studs and joists that are not more than 0.06 inch thick (#15 gauge or lighter). employer who performs light gauge steel framing in constructing or remodeling private residences at the same job or location. All other roofing shall be separately classified. The assembly of light gauge steel building components, including wall panels and trusses, at a permanent shop or yard location shall be classified as 3066(1), Sheet Metal Products Mfg. N.O.C Classifications 5630/5631 contemplate the framing of residential buildings using light gauge galvanized steel. Residential steel framing operations are similar, if not identical, to commercial steel framing operations. Classification Analysis Construction classifications are assigned based on the nature of the job or project, location and type of work performed. The proper classification for carpentry construction or steel framing work is determined by whether the structure being built is for commercial or residential use, as carpentry operations are otherwise similar, if not identical, to each other. The same is true for commercial and residential steel framing operations. Construction work is typically performed pursuant to contracts that describe the location and nature of the project, specific requirements for the job, payment terms, arbitration rights, etc. Contractors typically retain records that track various construction costs, including labor, by project. Such records typically include labor cost detail to the employee level, which enable 6

9 employers to produce verifiable payroll summaries by type of work performed, e.g., commercial carpentry versus residential carpentry. Historically, the WCIRB is aware of very few disputes involving the allocation of payroll and losses among the carpentry construction and steel framing classifications. Prior to 1986, when the carpentry classifications developed separate rates, the Committee received only two employer disputes regarding the assignment of the appropriate carpentry classification. Since 1986, no such appeals were made to either the Committee or to the California Department of Insurance. Current and past results under the WCIRB s Test Audit Program (payroll and claims audits) affirm that insurers do not experience difficultly in assigning payroll and losses to the appropriate carpentry classification. Accordingly, the carpentry construction and steel framing classifications appear well defined and provide for allocation of payroll and losses among the applicable classifications. To obtain industry input on the matter, WCIRB staff contacted several employer associations including the Associated General Contractors of California, the California Professional Association of Specialty Contractors, the Construction Employer s Association and the Southern California Contractors Association. 3 The employer associations expressed general agreement that commercial and residential carpentry represent two separate industries. While the operations performed within the two industries are similar, the associations believed that the exposures to hazard vary with the types of buildings constructed. As examples, it was stated that most residential carpentry includes the construction of tract homes and on such projects the homes are similar in design, structure and layout. These jobs are production based and require employees to perform repetitive tasks. Commercial carpentry is less repetitive and employees are exposed to a different environment since much of the work is performed in a high rise setting. Further, most commercial jobs require greater safety controls than that which is required on residential jobs. The associations estimated that approximately 70% of employers in the carpentry industry perform only one trade, i.e., an employer either performs exclusively commercial carpentry work or exclusively residential carpentry work. A review of the WCIRB s inspection reports confirms this estimate. WCIRB staff asked the associations whether having different rates for commercial and residential carpentry would require additional recordkeeping. The associations believed that payroll is currently allocated to the proper classifications for most employers. For the 30% of employers that perform both trades, the associations believe that larger employers have the appropriate recordkeeping procedures to assure proper payroll reporting; however, it might be more of a challenge for small employers that have common crews that work on commercial and residential jobs. The associations confirmed that contractors keep daily records of employees hours by job location to properly allocate costs to clients. However, such records may not be used to create workers compensation payroll reports and summaries. Time cards typically are the source documents that are used to create workers compensation payroll summaries that are reviewed during an insurer audit, and time cards may not specify the number of hours worked on a commercial or residential carpentry job during a given pay period. In addition, concerns were expressed regarding job bidding and premium fraud. Given that workers compensation insurance is typically a contractor s third largest cost, separate carpentry rates would require additional care to assure that bids are properly calculated. Regarding premium fraud, associations are concerned that employers may misrepresent their operations to an insurer to take advantage of the lower carpentry rate. 3 The WCIRB also attempted to contact the California Building and Construction Trades Council, but was unable to speak with a representative of this association. 7

10 Statistical Analysis Current Approach Classification Relativities Presented below is the classification relativity data for the current approach for carpentry/steel framing classifications. Table 1 presents the data for low wage employees and Table 2 presents the data for high wage employees. Year Table 1: Carpentry and Steel Framing Construction Low Wage Loss to Payroll Ratio at Policy Year 2011 Level Number of Reports Payroll Losses Loss to Payroll Ratio , ,160,154 72,273, , ,804,479 70,766, Total 1,774,964, ,040, Credibility 4 Indemnity Medical Year Table 2: Carpentry and Steel Framing Construction High Wage Loss to Payroll Ratio at Policy Year 2011 Level Number of Reports Payroll Losses Loss to Payroll Ratio ,903 2,447,167,647 85,542, ,771 2,139,692,158 68,657, Total 4,586,859, ,199, Credibility Indemnity Medical Commercial and Residential Steel Framing Staff separated the classification relativity data for (1) commercial and residential carpentry and (2) commercial and residential steel framing for comparison with the current approach 4 The relativity for each classification in the upcoming policy year is determined based on a comparison of that classification s actual losses per $100 of payroll and the ratio of losses per $100 of payroll underlying the current advisory pure premium rate. The credibilities assigned to a classification are the statistical weights assigned to that classification s experience as a predictor of future claim experience relative to the loss per $100 of payroll underlying the classification s current advisory pure premium rate. The predictability or credibilities assigned to a classification s recent historical experience depends on the volume of indemnity and medical claims incurred during the experience period. The WCIRB strives to have classifications that are fully, or 100%, statistically credible based on historical experience over five or fewer years. This means that the classification s relativity in the upcoming policy year can be best estimated using only the loss per $100 of payroll experience from the latest two-, three-, four- or five-year periods. The WCIRB generally will not recommend the establishment of a new classification if the credibility factors are less than one-half (< 0.50). 8

11 classification relativity data for carpentry and steel framing construction, shown above. It was determined that commercial and residential steel framing does not develop sufficient data to produce statistically credible pure premium rates (see Exhibit 1). Therefore, WCIRB staff recommends that (1) the experience of commercial steel framing and commercial carpentry, and (2) the experience of residential steel framing and residential carpentry, respectively, continue to be combined for ratemaking purposes. Commercial Carpentry/Steel Framing and Residential Carpentry/Steel Framing Separate classification relativity data were prepared for (1) commercial carpentry/steel framing; and (2) residential carpentry/steel framing, which are shown in Exhibit 2. The relativity data shows that there is sufficient data for both groups to be statistically credible. Table 3 below compares the loss to payroll ratios for the current approach with the decombined loss to payroll ratios for commercial carpentry/steel framing, and residential carpentry/steel framing. Table 3: Loss to Payroll Ratio Comparison at Policy Year 2011 Level Wage Threshold Current Approach Commercial Carpentry and Steel Framing Residential Carpentry and Steel Framing High Wage Difference (-4.7%) (+3.6%) Low Wage Difference (+6.3%) (-2.0%) High Wage For high wage employees, when commercial carpentry/steel framing is separated from residential carpentry/steel framing, the commercial carpentry/steel framing loss to payroll ratio is 4.7% lower than the combined loss to payroll ratio and the residential carpentry/steel framing loss to payroll ratio is 3.6% higher than the combined loss to payroll ratio. Low Wage For low wage employees, when commercial carpentry/steel framing is separated from residential carpentry/steel framing, the loss to payroll ratio for commercial carpentry/steel framing is 6.3% higher than the combined loss to payroll ratio and the residential carpentry/steel framing loss to payroll ratio is 2.0% lower than the combined loss to payroll ratio. Table 4 below compares the loss to payroll ratios for (1) commercial carpentry/steel framing combined and (2) residential carpentry/steel framing combined. Table 4: Loss to Payroll Ratio Comparison at Policy Year 2011 Level Wage Threshold Commercial Carpentry and Steel Framing Residential Carpentry and Steel Framing Difference High Wage (-8.7%) Low Wage (+8.9%) High Wage For high wage employees, the loss to payroll ratio for commercial carpentry/steel framing is 8.7% lower than the loss to payroll ratio for residential carpentry/steel framing. 9

12 Low Wage For low wage employees, the loss to payroll ratio for commercial carpentry/steel framing is 8.9% higher than the loss to payroll ratio for residential carpentry/steel framing. Analysis The 2011 loss to payroll ratio for residential carpentry/steel framing is higher than the loss to payroll ratio for commercial carpentry/steel framing for high wage employees. As noted above, in 1986 the experience of commercial and residential carpentry was combined for ratemaking purposes since the indicated rate level for residential carpentry was higher than that of commercial carpentry, which was contrary to historical rate levels up to that time for this industry. Table 5 below compares the commercial and residential carpentry rates 5 for several years prior to Table 5: Commercial and Residential Carpentry Rates Comparison Year Commercial Carpentry Residential Carpentry Difference (+0.63%) (+8.88%) (+18.74%) (+17.95%) (+14.08%) (+19.49%) (+27.40%) (+31.94%) (+56.58%) Between 1977 and 1983, the percentage difference in rates varied from 18.74% to 56.58% with an average rate difference of 26.60% (not shown); however, this trend abruptly shifted after To determine whether the 2011 indicated rate relationship between high wage residential carpentry/steel framing and commercial carpentry/steel framing is anomalous, staff developed unadjusted loss to payroll ratios for commercial and residential carpentry/steel framing for five (5) years, 2003 to 2007, which are shown in Table 6. 5 The rates shown in Table 5 are the premium rates approved by the Insurance Commissioner pursuant to the Minimum Rate Law. 10

13 Table 6: Unadjusted Loss to Payroll Ratio 6 Comparison High Wage Commercial and Residential Carpentry/Steel Framing Year Commercial Carpentry and Steel Framing Residential Carpentry and Steel Framing Difference (-21.25%) (+25.33%) (-29.43%) (+5.79%) (-0.68%) Table 6 shows that while there were fluctuations from year-to-year caused in part by the impact of large claims, the unadjusted loss to payroll ratios for high wage residential carpentry/steel framing and commercial carpentry/steel framing indicate that the 2011 indicated rate relationship between high wage residential carpentry/steel framing and commercial carpentry/steel framing is not an anomaly. Further, the year-to-year difference in loss to payroll ratios for commercial and residential carpentry/steel framing does not present a compelling argument that separate pure premium rates should be promulgated. Based on the concerns of the carpentry industry and the analysis of the loss to payroll ratios for commercial and residential carpentry/steel framing, WCIRB staff recommends that the experience of the subject classifications continue to be combined for ratemaking purposes. For ease of underwriting, it is recommended that the Standard Classification System be revised to provide one pair of dual wage classifications for carpentry and one pair of dual wage classifications for steel framing. To effect this change, the classifications applicable to residential carpentry and residential steel framing should be deleted and the classification applicable to commercial carpentry should be amended to encompass all carpentry and the classification applicable to steel framing should be amended to encompass all steel framing. Conclusion Based on its review of the ratemaking procedure for commercial carpentry/steel framing and residential carpentry/steel framing, WCIRB staff reached the following conclusions: 1. Although the commercial and residential carpentry construction and steel framing classifications are well defined, the promulgation of separate pure premium rates might result in (a) additional burdens in payroll reporting for small employers that have common crews that work on commercial and residential jobs; (b) inaccurate job bidding; and (c) opportunities for premium fraud. 2. A year-to-year comparison of loss to payroll ratios for commercial carpentry/steel framing and residential carpentry/steel framing does not present a compelling argument that separate pure premium rates should be promulgated. 3. To help ensure proper underwriting and data reporting, the Standard Classification System should be amended to provide for one pair of dual wage classifications for carpentry and one pair of dual wage classifications for steel framing. 6 The Unadjusted Loss to Payroll Ratios for 2006 and 2007 shown in Table 6 differ from the Adjusted Loss to Payroll Ratios shown in Exhibit 2 due to factors including, but not limited to, the limiting of large claims, differing loss development adjustments and differing limit factors to adjust loss to payroll ratios in the classification relativity process to an unlimited basis. 11

14 Recommendation WCIRB staff recommends that: 1. The experience of commercial and residential carpentry/steel framing classifications continue to be combined for ratemaking purposes. 2. Classifications 5645(1), Carpentry detached private residences for 1 or 2 families less than $26.00, 5697(1), Carpentry detached private residences for 1 or 2 families equals or exceeds $26.00, 5645(2), Carpentry dwellings not exceeding 3 stories less than 26.00, 5897(2), Carpentry dwellings not exceeding 3 stories equals or exceeds $26.00, 5630, Steel Framing light gauge residential less than $26.00, and 5631, Steel Framing light gauge residential equals or exceeds $26.00, be deleted. 3. Classifications 5403, Carpentry less than $26.00, and 5432, Carpentry equals or exceeds $26.00, are amended to encompass all carpentry construction operations. 4. Classifications 5632, Steel Framing light gauge commercial less than $26.00, and 5633, Steel Framing light gauge commercial equals or exceeds $26.00, are amended to encompass all steel framing construction operations. 12

15 Exhibit 1 Residential Steel Framing Low Wage Classifications 5630 Statistical Credibility at Policy Year 2011 Level Credibility Indemnity Medical Residential Steel Framing High Wage Classification 5631 Statistical Credibility at Policy Year 2011 Level Credibility Indemnity Medical Commercial Steel Framing Low Wage Classifications 5632 Statistical Credibility at Policy Year 2011 Level Credibility Indemnity Medical Commercial Steel Framing High Wage Classification 5633 Statistical Credibility at Policy Year 2011 Level Credibility Indemnity Medical Commercial and Residential Steel Framing Combined Low Wage Classifications 5632 and 5630 Credibility at Policy Year 2011 Level Credibility Indemnity Medical Commercial and Residential Steel Framing Combined High Wage Classification 5633 and 5631 Credibility at Policy Year 2011 Level Credibility Indemnity Medical

16 Exhibit 2 Commercial Carpentry/Steel Framing Low Wage Classifications 5403 and 5632 Loss to Payroll Ratio at Policy Year 2011 Level Year Number of Reports Payroll Losses Loss to Payroll Ratio , ,664,206 19,560, , ,173,211 17,680, Total 434,837,417 37,240, Credibility Indemnity Medical Commercial Carpentry/Steel Framing High Wage Classification 5432 and 5633 Loss to Payroll Ratio at Policy Year 2011 Level Year Number of Reports Payroll Losses Loss to Payroll Ratio , ,545,008 34,742, , ,394,728 29,137, Total 1,993,939,736 63,879, Credibility Indemnity Medical Residential Carpentry/Steel Framing Low Wage Classifications 5645 and 5630 Loss to Payroll Ratio at Policy Year 2011 Level Year Number of Reports Payroll Losses Loss to Payroll Ratio , ,495,948 52,713, , ,631,268 53,086, Total 1,340,127, ,799, Credibility Indemnity Medical

17 Exhibit 2 Residential Carpentry/Steel Framing High Wage Classification 5697 and 5631 Loss to Payroll Ratio at Policy Year 2011 Level Year Number of Reports Payroll Losses Loss to Payroll Ratio ,724 1,452,622,639 50,799, ,568 1,140,297,430 39,519, Total 2,592,920,069 90,319, Credibility Indemnity Medical

18 Proposed Changes to the California Workers Compensation Uniform Statistical Reporting Plan , Carpentry less than $ , Carpentry equals or exceeds $ , Steel Framing light gauge residential less than $ , Steel Framing light gauge residential equals or exceeds $ , Steel Framing light gauge commercial less than $ , Steel Framing light gauge commercial equals or exceeds $ (1), Carpentry detached private residences for 1 or 2 families less than $ (2), Carpentry dwellings not exceeding 3 stories less than (1), Carpentry detached private residences for 1 or 2 families equals or exceeds $ (2), Carpentry dwellings not exceeding 3 stories equals or exceeds $26.00 Recommendation Eliminate Classifications 5645(1), Carpentry detached private residences for 1 or 2 families less than $26.00, 5697(1), Carpentry detached private residences for 1 or 2 families equals or exceeds $26.00, 5645(2), Carpentry dwellings not exceeding 3 stories less than 26.00, and 5697(2), Carpentry dwellings not exceeding 3 stories equals or exceeds $26.00, as all carpentry construction operations shall be assigned to Classifications 5403, Carpentry less than $26.00, and 5432, Carpentry equals or exceeds $ PROPOSED CARPENTRY construction or remodeling of detached private residences for occupancy by one or two families including the construction of private garages and the installation of interior trim, builders finish, doors and cabinet work in connection with such structures employees whose regular hourly wage does not equal or exceed $26.00 per hour employer who performs the carpentry work in constructing or remodeling private residences at the same job or location. All other roofing shall be separately classified. CARPENTRY construction or remodeling of detached private residences for occupancy by one or two families including the construction of private garages and the installation of interior trim, builders finish, doors and cabinet work in connection with such structures employees whose regular hourly wage equals or exceeds $26.00 per hour Assignment of this classification is subject to verification at the time of final audit that the employee s regular hourly wage equals or exceeds $26.00 per hour. The payroll of an employee whose regular hourly wage is not shown to equal or exceed $26.00 per hour shall be classified as 5645(1), Carpentry. employer who performs the carpentry work in constructing or remodeling private residences at the same job or location. All other roofing shall be separately classified. 5645(1) 5697(1) 16

19 CARPENTRY construction or remodeling of dwellings not exceeding three stories in height including the construction of private garages and the installation of interior trim, builders finish, doors and cabinet work in connection with such structures employees whose regular hourly wage does not equal or exceed $26.00 per hour This classification shall apply only to structures designed primarily as family dwellings. It also shall apply to the installation of shingle roofing and the installation or application of insulation materials in buildings or within building walls, but only if installed by the same employer who performs the carpentry work in constructing dwellings not exceeding three stories in height at the same job or location. All other roofing shall be separately classified. Carpentry in connection with the construction or remodeling of detached private residences for occupancy by one or two families shall be separately classified as 5645(1), Carpentry, or 5697(1), Carpentry. CARPENTRY construction or remodeling of dwellings not exceeding three stories in height including the construction of private garages and the installation of interior trim, builders finish, doors and cabinet work in connection with such structures employees whose regular hourly wage equals or exceeds $26.00 per hour Assignment of this classification is subject to verification at the time of final audit that the employee s regular hourly wage equals or exceeds $26.00 per hour. The payroll of an employee whose regular hourly wage is not shown to equal or exceed $26.00 per hour shall be classified as 5645(2), Carpentry. This classification shall apply only to structures designed primarily as family dwellings. It also applies to the installation of shingle roofing and the installation or application of insulation materials in buildings or within building walls, but only if installed by the same employer who performs the carpentry work in constructing dwellings not exceeding three stories in height at the same job or location. All other roofing shall be separately classified. Carpentry in connection with the construction or remodeling of detached private residences for occupancy by one or two families shall be separately classified as 5645(1), Carpentry, or 5697(1), Carpentry. 5645(2) 5697(2) * * * * * * * 17

20 Eliminate Classifications 5630, Steel Framing light gauge residential less than $26.00, and 5631, Steel Framing light gauge residential equals or exceeds $26.00, as all steel framing construction operations shall be assigned to Classifications 5632, Steel Framing light gauge less than $26.00, and 5633, Steel Framing light gauge equals or exceeds $ PROPOSED STEEL FRAMING light gauge residential construction of dwellings not exceeding three stories in height including the installation of wood floor and roof sheathing, the construction of private garages and the installation of interior trim, builders finish, doors and cabinet work in connection with such structures employees whose regular hourly wage does not equal or exceed $26.00 per hour This classification shall apply to the structural framing of dwellings using cold formed, light gauge steel studs and joists that are not more than 0.06 inch thick (#15 gauge or lighter). employer who performs light gauge steel framing in constructing or remodeling private residences at the same job or location. All other roofing shall be separately classified. The assembly of light gauge steel building components, including wall panels and trusses, at a permanent shop or yard location shall be classified as 3066(1), Sheet Metal Products Mfg. N.O.C. STEEL FRAMING light gauge residential construction of dwellings not exceeding three stories in height including the installation of wood floor and roof sheathing, the construction of private garages and the installation of interior trim, builders finish, doors and cabinet work in connection with such structures employees whose regular hourly wage equals or exceeds $26.00 per hour Assignment of this classification is subject to verification at the time of final audit that the employee s regular hourly wage equals or exceeds $26.00 per hour. The payroll of an employee whose regular hourly wage is not shown to equal or exceed $26.00 per hour shall be classified as 5630, Steel Framing light gauge residential. This classification shall apply to the structural framing of dwellings using cold formed, light gauge steel studs and joists that are not more than 0.06 inch thick (#15 gauge or lighter). employer who performs light gauge steel framing in constructing or remodeling private residences at the same job or location. All other roofing shall be separately classified. The assembly of light gauge steel building components, including wall panels and trusses, at a permanent shop or yard location shall be classified as 3066(1), Sheet Metal Products Mfg. N.O.C * * * * * * * 18

21 Recommendation Amend Classifications 5403, Carpentry less than $26.00, and 5432, Carpentry equals or exceeds $26.00, to remove the N.O.C. (not otherwise classified) abbreviation for consistency with other proposed changes. PROPOSED CARPENTRY including the installation of interior trim, builders finish, doors and cabinet work in connection therewith employees whose regular hourly wage does not equal or exceed $26.00 per hour N.O.C. employer who performs the carpentry work in constructing new buildings or additions to existing buildings at the same job or location. All other roofing shall be separately classified. CARPENTRY including the installation of interior trim, builders finish, doors and cabinet work in connection therewith employees whose regular hourly wage equals or exceeds $26.00 per hour N.O.C. Assignment of this classification is subject to verification at the time of final audit that the employee s regular hourly wage equals or exceeds $26.00 per hour. The payroll of an employee whose regular hourly wage is not shown to equal or exceed $26.00 per hour shall be classified as 5403, Carpentry. employer who performs the carpentry work in constructing new buildings or additions to existing buildings at the same job or location. All other roofing shall be separately classified * * * * * * * 19

22 Recommendation Amend Classifications 5632, Steel Framing light gauge commercial less than $26.00, and 5633, Steel Framing light gauge commercial equals or exceeds $26.00, to remove the commercial or industrial restriction and the N.O.C. abbreviation for consistency with other proposed changes. PROPOSED STEEL FRAMING light gauge commercial or industrial including the installation of interior trim, builders finish, doors and cabinet work in connection therewith employees whose regular hourly wage does not equal or exceed $26.00 per hour N.O.C. This classification shall apply to the structural framing of buildings using cold formed, light gauge steel studs and joists that are not more than 0.06 inch thick (#15 gauge or lighter). employer who performs light gauge steel framing in constructing new buildings or additions to existing buildings at the same job or location. All other roofing shall be separately classified. The assembly of light gauge steel building components, including wall panels and trusses, at a permanent shop or yard location shall be classified as 3066(1), Sheet Metal Products Mfg. N.O.C. STEEL FRAMING light gauge commercial or industrial including the installation of interior trim, builders finish, doors and cabinet work in connection therewith employees whose regular hourly wage equals or exceeds $26.00 per hour N.O.C. Assignment of this classification is subject to verification at the time of final audit that the employee s regular hourly wage equals or exceeds $26.00 per hour. The payroll of an employee whose regular hourly wage is not shown to equal or exceed $26.00 per hour shall be classified as 5632, Steel Framing light gauge commercial or industrial. This classification shall apply to the structural framing of buildings using cold formed, light gauge steel studs and joists that are not more than 0.06 inch thick (15 # or lighter). employer who performs light gauge steel framing in constructing new buildings or additions to existing buildings at the same job or location. All other roofing shall be separately classified. The assembly of light gauge steel building components, including wall panels and trusses, at a permanent shop or yard location shall be classified as 3066(1), Sheet Metal Products Mfg. N.O.C * * * * * * * 20