LETTER OF TRANSMITTAL CARSON CITY, NEVADA, January, 1919. HON. EMMET D. BOYLE, Governor of Nevada and Chairman of the Nevada Industrial Commission Board, Carson City, Nevada. DEAR SIR: We have the honor to submit herewith for your consideration and for the information of the Nevada Industrial Commission Board, a review of the administration of the Nevada Industrial Insurance Act for the period of the fourth and fifth fiscal years, July 1, 1916, to June 30, 1918, inclusive. Respectfully, GEO. D. SMITH, Chairman, Nevada Industrial Commission. REPORT OF NEVADA INDUSTRIAL COMMISSION INTRODUCTORY The period including the fourth and fifth fiscal years of the State Insurance Fund has been marked by a greatly increased volume of business, exceeding in amount that of the first three years' operations under the Nevada Industrial Insurance Act, and reflecting in a large measure, the stimulation of the metal-mining industry in Nevada occasioned by the abnormal prices offered for minerals during the war. The developments of these two years may be briefly indicated by comparison of a few figures from the detailed exhibits of the condition of the fund which appear elsewhere in this report with corresponding facts of prior experience. Premiums earned from July 1, 1916, to June 30, 1918, amounted to $864,289.48, a gain of 16 per cent over the premium income of the first three years; audited pay-rolls for the respective periods were $37,749,246.24 and $38,567,664.98; 2,592 claims for compensation developed, an increase of 18.5 per cent, involving compensation in the sum of $629,280.02, as compared with 2,187 compensation claims totaling $651,150.38 incurred to June 30, 1916; the amount of investments increased from $109,445 as of June 30, 1916, to $629,750.12 two years later, yielding in interest $18,682.84 for the fifth fiscal year, $7,085.19 during the fourth fiscal year, and $1,745.42 prior thereto. The increase in premium income, unaccompanied by a corresponding increase in pay-roll exposure and compensation benefits, resulted from three factors: First, the application of premium rates to the entire pay-roll, effective January 1, 1917, instead of pay-rolls from which wages in excess of $120 per month had been first deducted, as was permitted at the inception of the fund; second, increased premium rates, effective January 1, 1917, for mining operations of Class 1, and milling operations of Class 2; and, finally, higher wages and the addition of many new contributors, due to the impetus given the metal-mining industry during the war. The significance of any material change in mining and milling rates is immediately apparent when it is noted that Classes 1 and 2 alone contribute two-thirds of the entire income of the fund. The surplus of assets over liabilities has been needlessly strengthened by the increase in contributions. The growth of gross excess of assets over known, developed liabilities, from $11,398.08 on June 30, 1916, to $246,613.67, on June 30, 1918, represents the amount collected from contributors in the course of five years business in excess of the cost of furnishing the benefits of the Nevada Industrial Insurance Act-an average excess of 15.37 cents on each dollar collected. Upon referring to the audited statements of the experience of the fund by classes at the close of business June 30, 1916 and 1918, it will be observed that credit for the creation of this increase in surplus within the two-year period is due to Classes 1 and 5, which are shown to have surpluses of $76,343.86 and $17,094.09, respectively, in 1918, as compared with deficits in 1916 of $41,677.67 and $527.81, respectively. The condition of the other classes remains practically unchanged in the two statements with the exception of Class 6, in which the earlier surplus of $15,943.33 decreased to $6,944.35 as of June 30, 1918. REVISION OF RATES When it became apparent in 1917, after an actuarial analysis of the benefits of the amended Nevada Industrial Insurance Act, effective July 1, 1917, and of the four years' experience of the several classifications of the contributors to the fund, that the prevailing rates would continue to provide more income than required even with the increased benefits, the first general revision of the initial rates of the fund was undertaken. To obtain the relative degree of hazard of the occupations grouped in Classes 4, 5, 6, and 7, which could not be accurately determined, from the limited experience in Nevada, reliance was placed in the basic manual of the National Workmen's Compensation Service Bureau, the basic rates of which are computed from extensive national compensation experience. By the application of a multiplier, derived from actuarial consideration of the benefits of the amended Nevada statute, and the compensation experience of the several classes of the fund, to the basic rates, equality and adequacy of rates to meet current compensation cost of Classes 4, 5, 6, and 7 were secured. The new schedule became effective January 1, 1918, and with few exceptions. resulted in a considerable reduction in rates. Effective the same date. an arbitrary reduction in the premium rate for mining operations of Classes 1 and 3, from 3 to 3 per cent was announced, followed by further reductions of one-quarter of one per cent on March 1, July 1, and October 1, when the initial mining rate of 23 per cent, which prevailed during 1913, 1914, and 1915, was reached. The rate of 24 per cent is believed to represent the actual cost of furnishing the compensation provided in the Act, for mining operations under the present scale of benefits and wage conditions. CATASTROPHE RESERVE Credits to the "catastrophe reserve fund" were discontinued on premium collections subsequent to July 1, 1917, at which time the reserve of $86,512.95, and earned interest of $8,816.63, constituted a surplus sufficiently large, in the opinion of the Commission, to guarantee a satisfactory insurance fund from year to year. The cost to the contributor of compensation insurance was thereby reduced, and by the further fact of a reduction in the ratio of administrative expense to premiums earned to 7.83 per cent in the fifth fiscal year, as compared with 9.06 per cent for the fourth, and 12.04 per cent for the first three years' operations. REFUND OF EXCESS PREMIUMS The principal consideration in the revision of rates was to equitably distribute current losses among current contributors without reference to the surplus which had developed from prior operations. The sugges tion that rates be reduced below current needs until the surplus, over and above a catastrophe reserve of $100,000, should be used up was considered inequitable and undesirable since it gives later contributors the benefit of a surplus taken from industries of an earlier period in the form of excessive rates before data for the close calculation of rates was available. The proper and just way to take care of this surplus, and whatever surplus accumulates from time to time, is to refund it, in the opinion of the Commission, pro rata by classes to those who contribute it. It is respectfully recommended that legislation be enacted definitely authorizing the disbursement in this manner of whatever excess above a sufficient sum for a catastrophe reserve exists at the close of each year's business. The Commission is moved to offer this suggestion in the belief that the object of the Legislature in creating a state fund, among other considerations, was to permit employers to obtain insurance at no more nor less than cost. In the statute of every State, with the exception of Nevada, in which a state fund has been created to insure liability for workmen's compensation, provision is made for the return to the contributor in the form either of a credit or cash dividend of whatever surplus results from the insurance feature of the Act. Premium rates must necessarily be announced in advance of operations. It is impossible to foretell with absolute accuracy the exact losses which will be experienced, for compensation losses are subject to considerable variation. Where authority exists for the refund of excess premium collections, rates may be made somewhat above the exact indicated cost, thereby providing a margin of safety against unforeseen and unfavorable experience. Favorable consideration of this recommendation will remove an administrative problem of considerable concern. COMPENSATION A marked increase in the frequency of accidents characterized the increased industrial activity of the period covered by this report. The average accident rate per 1,000 full-time workers (360-day basis of 8 hours each) for all industries was 148 and 152 for the fourth and fifth fiscal years, respectively, as compared with 122 for the first three years. Much of this increase is more apparent than real, resulting from the recent requirement that all accidents be reported to the Commission, whether followed by time loss or not. Although only those meeting the definition of a "tabulatable accident"-one causing a loss of time other than the remainder of the day on which the accident occurred—are tabulated in this report, the present practice gives the Commission knowledge of a great number of minor injuries which were formerly not reported. The fatality rate showed an unusual increase in 1917, 52 deaths being reported for the fourth fiscal year, greatly exceeding the previous three-year average of 36, and a total of 39 in the fifth fiscal year. Increased familiarity with benefits of the Act, and a close follow-up of reports of injuries by the Claim Department are responsible for a greater number of claims being filed for minor injuries, with a consequent decrease in the average compensation incurred per case, from $297.74 prior to June 30, 1916, to $279.40 and $252.41, respectively, for the fourth and fifth fiscal years. A considerable reduction in the average number of days lost per accident shown in the table of severity of accidents in the fifth fiscal year, as compared with the year prior, suggests another factor having a bearing on the decrease in average compensation costs, namely the desire of the men to return to work as soon as possible because of the prevailing high wages at this time. |