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Workers’ Compensation Insurance Rating Bureau of California®

Workers’ Compensation Insurance Rating Bureau of California

Report on Retail Dry Cleaning or Laun-dries, Commercial Laundries and Dry Cleaning or Dyeing

Excerpt from the WCIRB Classification and Rating Committee Minutes June 14, 2013

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 www.wcirb.com.

2013 Workers’ Compensation Insurance Rating Bureau of California. All rights reserved.

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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.

WCIRB Ca l i f o rn ia

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Report on Retail Dry Cleaning or Laundries, Commercial Laundries and Dry Cleaning or Dyeing

2589, Dry Cleaning or Laundry — retail — including repairing or pressing, and cash and carry departments on premises

2585, Laundries — N.O.C. — all employees — including cash and carry departments on plant premises

2586(1), Dry Cleaning or Dyeing — N.O.C. — including repairing or pressing, and cash and carry departments on plant premises

2586(2), Yarn or Thread Dyeing or Finishing — no yarn or thread manufacturing 2586(3), Hide or Fur Cleaning, Processing or Preserving

Executive Summary Objectives This study addresses two objectives:

1. Review dry cleaning and laundry operations currently assigned to Classifications 2589, Dry Cleaning or Laundry — retail, and 2586(1), Dry Cleaning or Dyeing — N.O.C., to determine (a) the line of demarcation between these two classifications, and (b) depending on the findings, whether Classification 2589 should be revised to accurately describe the operations assignable to this classification.

2. In view of the lack of full statistical credibility for Classification 2586, review the operations assigned to this classification to determine if the classification should be eliminated and its constituents be reassigned to one or more classifications.

Findings Based on its review, the WCIRB has determined that:

1. The dry cleaning of garments and similar articles is performed in the same manner (i.e., same types of machinery and processes) irrespective of whether performed for (a) the general public (Classification 2589), or (b) commercial customers, such as hotels, restaurants and retail “cash and carry” (drop off) stores (Classification 2586);

2. The laundering of garments and similar articles that are owned by the general public is performed in the same manner (i.e., same types of machinery and processes) irrespective of whether performed by (a) firms that operate store front laundry facilities where garments are received by walk-in trade, or (b) firms that operate laundry facilities that are located in commercial or industrial locations where garments are brought to the facilities by route drivers;

3. The primary operations assigned to Classification 2586 consist of dyeing garments, yarn or

thread. The machinery, equipment and processes involved in these operations are comparable to those associated with commercial laundries, which are assigned to Classification 2585;

4. Classification 2586 also includes firms engaged in hide or fur cleaning, processing or preserving.

The WCIRB is aware of two companies that process hides in California. If Classification 2586 is eliminated, these operations shall be assigned by analogy to another classification most representative of the process and hazard on a case by case basis.

Recommendation In view of the above, the WCIRB recommends the following actions:

1. Eliminate Classifications 2586(1), 2586(2) and 2586(3);

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Released: June 26, 2013


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2. Amend Classification 2589 to reflect its applicability to locations at which more than 50% of gross

receipts is derived from the dry cleaning or laundering of garments, linens and other household items that are owned by the general public;

3. Establish Classification 2589 (2) as an alternate wording to Classification 2589 for employers

engaged in dry cleaning that is not otherwise classified; 4. Establish Classification 2585 (2) as an alternate wording to Classification 2585 for employers

engaged in dyeing; and

5. Assign employers engaged in hide or fur cleaning, processing or preserving by analogy to classifications most representative of the process and hazard.

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Introduction At its meeting on July 31, 2012, the Classification and Rating (C & R) Committee decided that (1) Classifications 2586(1), Dry Cleaning or Dyeing — N.O.C., and 2589, Dry Cleaning or Laundry — retail, should be separated for ratemaking purposes so that each classification could develop unique advisory pure premium rates; and (2) Classification 2586(1) should be amended to remove the qualifying term “walk-in” since retail dry cleaning and laundering services are often provided for the general public who do not enter dry cleaning and laundering establishments. These changes were made effective January 1, 2013. Additionally, the C & R Committee directed the WCIRB to (1) study dry cleaning and laundry operations currently assigned to Classifications 2589 and 2586(1) to determine (a) the line of demarcation between retail and commercial dry cleaning and laundry operations, and (b) depending on the findings, whether Classification 2589 should be revised to accurately describe the operations assignable to this classification; and (2) in view of the lack of full statistical credibility for Classification 2586, review the operations assigned to this classification to determine if the classification should be eliminated and its constituents be assigned to one or more classifications. Classification History The history of Classifications 2585, 2586(1), 2586(2), 2586(3) and 2589 is provided in the report on Commercial Dry Cleaning or Dyeing and Retail Dry Cleaning or Laundry, Underwriting Working Group meeting held on April 11, 2012, attached as Appendix 1. Description of Operations Following are the classification phraseologies, footnotes and relevant summaries of operations currently assigned to Classifications 2589, Dry Cleaning or Laundry — retail, 2585, Laundries — N.O.C., 2586(1), Dry Cleaning or Dyeing — N.O.C., 2586(2), Yarn or Thread Dyeing or Finishing — no yarn or thread manufacturing, and 2586(3), Hide or Fur Cleaning, Processing or Preserving.

DRY CLEANING OR LAUNDRY — retail — including repairing or pressing, and cash and carry departments on premises

2589

This classification applies to those retail establishments engaged primarily (in excess of 50% of gross receipts) in the dry cleaning or laundering of garments, linens and other household items for the general public. This classification also applies to coin-operated laundries that retain attendants to perform “fluff and fold” activities.

Cash and carry facilities, situated away from the dry cleaning or laundry location, that solely engage in the receipt and distribution of items to be cleaned shall be classified as 8017(1), Stores — retail — N.O.C.

This classification does not apply to diaper service companies or uniform and linen rental or service companies. Such firms shall be classified as 2585, Laundries, or 2586(1), Dry Cleaning or Dyeing.

Retail dry cleaning or laundry firms operate in two general manners: (a) firms that operate store front dry cleaning and laundry facilities where garments and linens are received by the walk-in trade and cleaned, and (b) firms that operate dry cleaning and laundry facilities that are located in commercial or industrial locations and the garments are brought to the facilities by the firm’s route drivers for cleaning. In either case, the cleaning operations are the same. The garments and linens are individually tagged, sorted and spot cleaned as needed. Soiled items to be dry cleaned are placed into dry cleaning machines along with solvents. Soiled items to be laundered are placed into industrial washing machines along with detergents. Cleaned items are removed from the machines and placed into industrial dryers. Cleaned items are removed from the dryers, inspected and pressed. As needed, items are repaired or altered. Cleaned items are individually hung, covered with plastic and set aside for customer pick-up or delivery. Some employers operate “cash and carry” or drop off store locations where garments and linen are received from the walk-in trade; however, no cleaning is performed. The garments are transferred to the

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cleaning facility, cleaned and returned to the store by route drivers. Cash and carry store locations are assignable to Classification 8017(1), Stores — retail — N.O.C.

LAUNDRIES — N.O.C. — all employees — including cash and carry departments on plant premises

2585

Retail dry cleaning and laundering establishments engaged primarily (in excess of 50% of gross receipts) in the cleaning of garments, linens and other household items for the general public shall be classified as 2589, Dry Cleaning or Laundry — retail.

Commercial laundry firms provide laundry services to commercial concerns. Typically, route drivers pick up soiled items such as towels, sheets, table cloths, napkins and uniforms from commercial, industrial and institutional concerns and transport the soiled items to the laundry facility. Items are unloaded and sorted according to type. The items are not individually tagged as is done with items owned by the general public. The soiled items are spot cleaned and placed into large industrial washing machines along with detergents. Commercial launderers typically use tunnel washers that consist of a long metal cylinder with separate compartments. Laundry is moved from one compartment to another where they are rinsed or washed with varying detergents and chemicals. The washed items are removed from the tunnel washer or washing machines and placed into industrial dryers. Cleaned items are removed from the dryers, repaired or altered if necessary, pressed, folded, stacked, packaged in a bulk manner, set on pallets and made ready for delivery to the customer by route drivers.

DRY CLEANING OR DYEING — N.O.C. — including repairing or pressing, and cash and carry departments on plant premises

2586(1)


Dry Cleaning Commercial dry cleaning firms provide dry cleaning services for hotels, restaurants, spas, hospitals, janitorial companies and similar clients, as well as from “drop off” storefront locations operated by separate concerns. Typically, route drivers pick up soiled garments and linens from commercial locations and transport the soiled garments to the dry cleaning facility. Garments are unloaded, sorted and individually tagged. The garments are spot treated and loaded into industrial dry cleaning machines along with solvents. The cleaned garments are repaired or altered, if necessary, and pressed. The individual garments are hung on hangers, covered in plastic and delivered to customers. Dyeing Classification 2586(1) also contemplates the dyeing of garments for clothing manufacturers. Garments are received and sorted by size or sets consisting of large batches. Garments are bulk loaded into garment machines and fabrics are bulk loaded into jet dyeing machines along with water, chemicals, and dyes and submersed for a prescribed amount of time. Examples of garment machines include batch washers that can wash 800 pounds per hour; and washer-extractors that can wash 25 pounds to 700 pounds per hour. The items are pulled and placed into extraction systems such as hydroextractors to remove excess dye solution. Wet materials are placed in the extractor which has a wall of perforated metal, generally stainless steel, and the drum rotates at high speed throwing out the water contained in it. In some cases, garments such as denim jeans may be tumbled with pumice to soften and condition the fabric through “stone washing”. Sometimes a tenter frame is used to spread the fabric that is then dried in an oven. The dyed items are folded and packaged into a buggy or rolled up onto an A-frame and set aside for delivery.

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YARN OR THREAD DYEING OR FINISHING — no yarn or thread manufacturing 2586(2)

This classification shall not be used for division of payroll in connection with any other classification (other than the Standard Exceptions or General Exclusions) unless the operations described by Classification 2586(2) constitute a separate and distinct enterprise having no connection with the operations covered by any other applicable classification.

Firms that specialize in dyeing yarn and thread receive raw yarn and thread in skein form (wound on a reel) or loose. Loose yarn or thread is wrapped around a spool and referred to as a package. Each package typically weighs 2 to 3 pounds and is eight to ten inches wide. Operations involve stacking the skeins on a spindle, bleaching or mercerizing the yarn or thread in order to strengthen the fibers and make the yarn or thread more receptive to dyes. Packages are secured to perforated tubes. Water, chemicals and dyes are added and the yarn or thread is submersed for a prescribed amount of time. After dyeing, the yarn or thread is placed into a hydroextractor to remove excess dye solution. Infrared dryers, continuous dryers or heated rooms are used to dry the yarn or thread. The dyed yarn or thread is packaged and set aside for delivery.

HIDE OR FUR CLEANING, PROCESSING OR PRESERVING 2586(3)

Hide processing involves receiving raw animal hides, typically purchased from slaughterhouses. Hides are graded by size and color and washed to remove loose blood and soil. The hides are placed into a salt solution or brine, which acts as a preservative, for a prescribed amount of time. The brined hides are removed from the brine tanks and placed into fleshing machines that remove excess flesh and fats from the hides. The processed hides are folded, stacked and compressed to remove moisture. The hides are transferred to a climate-controlled area where they are stored pending shipment to tanneries. Fur processing involves sorting pelts by animal type and size, removing excess flesh and placing them in tumblers to soak in a mild acid solution that softens the skin. Pelts are also soaked in preservative chemicals for a prescribed amount of time. Some pelts are oiled to further soften and condition the skin. The oiled pelts are placed into tumblers along with sawdust to remove the excess oil. The furs are groomed and sheared for uniformity. A heated press is used to stretch the fur and the skin is buffed smooth. The processed furs are transferred to a climate-controlled area where they are stored pending shipment. Classification Analysis Laundries The line of demarcation between retail and commercial laundering of garments and linens is the nature of the items and the manner in which the items are cleaned and processed, which in most cases is determined by the owner of the items. Items owned by the general public are typically garments that are individually processed. Items owned by commercial concerns typically are linens such as towels, sheets, table cloths and napkins that are processed in bulk. In most cases, Classification 2589 (retail laundries) and Classification 2585 (commercial laundries) are administered in this manner. However, Classification 2589 should be amended to clarify that this classification applies to employers that launder garments, linens and other household items that primarily are owned by the general public. Dry Cleaning Currently, the commercial dry cleaning of garments and linens (Classification 2586(1)) and the retail dry cleaning of garments and similar items (Classification 2589) are separately classified based on whether the insured is engaged primarily in the dry cleaning of such items for commercial accounts, such as retail “drop off” stores operated by other concerns, or the general public. However, this study has found that the dry cleaning of garments – whether assigned to Classification 2589 or 2586 – is performed in the same manner (i.e., same types of machinery and processes). That is, in most cases, the garments are owned by the general public and, in all cases, the garments are cleaned and individually processed in the same manner. Therefore, consideration should be given to assigning all dry cleaning operations to

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Classification 2589. It is noted that according to the WCIRB’s library of inspection reports, there are less than 20 commercial dry cleaners in California. Dyeing The dyeing of garments and linens (Classification 2586(1)) involves the use of large washing machines and laundry equipment such as batch washers and washer-extractors, extraction systems and dryers of the types that are used by commercial laundries, which are assigned to Classification 2585. Dry cleaning machinery is not used. The dyeing process includes the use of water, detergents and chemicals. Garments are typically dyed in large batches and are not processed individually. Accordingly, dyeing operations are similar to commercial laundry operations. That is, each operation is a wet process that employs the same type of washing and drying machinery to wash or dye and otherwise process large batches of garments and linens on a commercial basis. Therefore, consideration should be given to assigning the dyeing of garments and linens and commercial laundries to Classification 2585. Yarn or Thread Dyeing Classification 2586(2) contemplates yarn or thread dyeing operations. These operations are a wet process that employs large batch machinery that is similar to that used by commercial laundries. Accordingly, consideration should be given to reassigning the dyeing of yarn or thread to Classification 2585. Hide or Fur Cleaning or Processing Classification 2586(3) contemplates a broad range of operations including cleaning, processing and preserving of animal hide or fur. These are unique operations that involve the use of conveyor systems, fleshing machines or tumblers. The WCIRB is aware of two companies that perform these operations in California. The first employer receives green cattle hides from slaughter houses, removes tails and ears, processes them in fleshing machines, soaks them in salt water tanks and presses them to remove all moisture. This employer operates similarly to that of a leather goods manufacturer, which is assignable to Classification 2688, Leather Goods Mfg. — N.O.C. The second employer receives animal pelts from customers which have already had excess flesh removed and been dried and salted. The pelts are soaked in oil and/or chemicals, placed in tumblers, stretching machines and cleaned for taxidermists, museums and universities. This employer operates similarly to that of a taxidermist, which is assignable to Classification 4038(2), Taxidermist. The WCIRB recommends all hide or fur cleaning or processing operations be assigned by analogy to the classification most comparable based on hazard and risk to the business of the employer. Operational Analysis Summary The determination of the laundry classification (2589 – retail vs. 2585 – commercial) should be based on the ownership of the items to be cleaned.

All dry cleaning operations currently assigned to Classification 2586(1) should be assigned to Classification 2589; and

The dyeing of garments, linens, yarn and thread that is currently assigned to Classifications 2586(1) and 2586(2) should be assigned to Classification 2585.

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Statistical Analysis The following tables present classification relativity data at policy year 2013 level. Table 1 presents the classification relativity data for all cleaning and dyeing operations currently assignable to Classifications 2586(1), 2586(2) and 2586(3) (Exhibit 2).

Table 1: All of Classification 2586

Year Number of Employers

Payroll Losses Loss to Payroll Ratio

2005 260 52,864,606 2,385,198 4.512 2006 229 43,289,406 2,373,625 5.483 2007 233 45,045,733 2,334,142 5.182 2008 235 56,239,244 3,773,517 6.710 2009 197 55,723,036 3,588,702 6.440 Total 253,162,025 14,455,184

Selected (Unlimited) Loss to Payroll Ratio 7.329

Credibility1

Indemnity Medical

0.72 0.75 Table 2 presents the classification relativity data for dry cleaning operations currently assignable to Classification 2586(1) (Exhibit 3).

Table 2: Dry Cleaning Operations (Subset of Classification 2586(1))



2005 16 6,413,727 168,086 2.621 2006 17 5,893,193 323,922 5.497 2007 19 6,192,298 64,164 1.036 2008 17 5,840,234 106,169 1.818 2009 17 5,319,773 27,773 0.522 Total 29,659,225 690,114


Credibility

Indemnity Medical

0.31 0.32

1 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 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 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, which mean 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).

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Table 3 presents the classification relativity data for all dry cleaning and retail laundry operations currently assignable to Classification 2589 (Exhibit 4).




2006 1,916 172,761,256 4,618,441 2.673 2007 2,010 178,023,467 5,021,729 2.821 2008 2,118 178,255,877 4,403,675 2.470 2009 2,099 164,196,160 5,251,493 3.198 Total 693,236,760 19,295,338


Credibility

Indemnity Medical

1.00 1.00 Table 4 presents the classification relativity data for Dry Cleaning assigned to Classification 2586(1) combined with Classification 2589, Dry Cleaning or Laundry — retail (Exhibit 5).

Table 4: Dry Cleaning (Subset of Classification 2586(1)) Combined with Classification 2589

Year Number of

Employers Payroll Losses Loss to Payroll

Ratio 2006 1,933 178,654,449 4,970,723 2.782 2007 2,029 184,215,765 5,111,548 2.775 2008 2,135 184,096,111 4,509,027 2.449 2009 2,116 169,515,933 5,278,540 3.114 Total 716,482,258 19,869,838


Credibility

Indemnity Medical

1.00 1.00

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Table 5 presents the classification relativity data for garment dyeing operations assignable to Classification 2586(1) and yarn and thread dyeing operations assignable to Classification 2586(2) (Exhibit 6).

Table 5: Garment Dyeing (Classification 2586(1)) and Yarn or Thread Dyeing (Classification 2586(2))

Year Number of


Ratio 2005 41 24,502,247 1,111,648 4.537 2006 39 20,789,922 1,180,446 5.678 2007 43 26,323,525 1,534,871 5.831 2008 45 34,673,150 2,652,198 7.649 2009 41 37,801,585 2,802,224 7.413 Total 144,090,429 9,281,387


Credibility

Indemnity Medical

0.58 0.60 Table 6 presents the classification relativity data for Classification 2585 (commercial laundering operations, Exhibit 7).




2008 175 427,259,940 26,491,915 6.200 2009 170 406,110,176 24,302,749 5.984 Total 833,370,116 50,794,664


Credibility

Indemnity Medical

1.00 1.00

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Table 7 presents the classification relativity data for the garment, yarn and thread dyeing operations combined with Classification 2585, Laundries — N.O.C. operations (Exhibit 8).

Table 7: Garment Dyeing (Classification 2586(1)) and Yarn or Thread Dyeing

(Classification 2586(2)) Combined with Classification 2585



2008 220 461,933,090 29,407,989 6.366 2009 211 443,911,761 27,498,743 6.195 Total 905,844,851 56,906,732


Credibility

Indemnity Medical

1.00 1.00 Impact Analysis The following tables present classification relativity data at policy year 2013 level. Table 8 depicts the impact on Classification 2589 if the experience of dry cleaners that are currently assigned to Classification 2586 is combined with Classification 2589.

Table 8: Dry Cleaning Operations (Classification 2586) Combined with Classification 2589 vs. Classification 2589

Classification 2589 Classification 2589

and 2586 Dry Cleaning Operations

Difference

3.883 3.873 -0.01 (.26%)

Table 9 depicts the impact on Classification 2585 if the experience of employers engaged in the dyeing of garments, yarn and thread is combined with Classification 2585.

Table 9: Dyeing (Classifications 2586(1) and 2586(2))

Combined with Classification 2585 vs. Classification 2585 Comparison of Selected (Unlimited) Loss to Payroll Ratios at Policy Year 2013 Level

Classification 2585

Classification 2585 and Dyeing Operations

Difference

8.226 8.484 +0.258 (3.14%)

As shown above, the combination of the experience of (1) dry cleaners (subset of Classification 2586) with Classification 2589 has little (-0.26%) impact on Classification 2589, and (2) the experience of employers engaged in the dyeing of garments, yarn and thread with Classification 2585 has a +3.14% impact on Classification 2585.

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Table 10 depicts the impact on Dry Cleaning Operations that are currently assigned to Classification 2586(1) if such employers are reassigned to Classification 2589.

Table 10: Dry Cleaning Operations (Classification 2586) Combined with Classification 2589 vs. Classification 2586


and 2586 Dry Cleaning Operations

Difference

7.329 3.873 -3.456 (-47.16%)

As shown in Table 10, the Selected (Unlimited) Loss to Payroll Ratio for dry cleaners (subset of Classification 2586) Classification 2589 combined is 47.16% less than that of Classification 2586. Table 11 depicts the impact on Dyeing Operations currently assigned to Classifications 2586(1) and 2586(2) if such employers are reassigned to Classification 2585.

Table 11: Dyeing Operations (Classification 2586) Combined with Classification 2585 vs. Classification 2585


and 2586 Dyeing Operations

Difference

7.329 8.484 +1.155 (15.76%)

As shown in Table 11, the Selected (Unlimited) Loss to Payroll Ratio for dyeing operations (subset of Classification 2586) and Classification 2585 combined is 15.76% greater than that of Classification 2586. Findings and Conclusions Based on its review of Classifications 2589, 2586(1), 2586(2), 2586(3) and 2585, the WCIRB finds that:

1. The dry cleaning of garments and similar articles is performed in the same manner irrespective of whether the customers are the general public or commercial customers;

2. The laundry of garments and similar articles that are owned by the general public is performed in

the same manner (i.e., same types of machinery and processes) as that performed by (a) firms that operate store front laundry facilities where garments are received by walk-in trade, and (b) firms that operate laundry facilities that are located in commercial or industrial locations where garments are brought to the facilities by route drivers;

3. In addition to dry cleaning, firms assigned to Classification 2586 engage in the dyeing of

garments, yarn or thread. The machinery, equipment and processes involved in these operations are comparable to those associated with commercial laundries, which are assigned to Classification 2585;

4. Classification 2586 also includes firms engaged in hide or fur cleaning, processing or preserving.

The WCIRB is aware of two companies that process hides in California. If Classification 2586 is eliminated, these operations shall be assigned by analogy to another classification most representative of the process and hazard on a case by case basis.

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5. If the experience pertaining to dry cleaning (subset of Classification 2586) is reassigned to Classification 2589, (1) the Selected (Unlimited) Loss to Payroll Ratio for Classification 2589 would decrease by 0.26%, and (2) the Selected (Unlimited) Loss to Payroll Ratio for dry cleaners and Classification 2589 combined would be 47.16% less than that of Classification 2586; and

6. If the experience pertaining to dyeing of garments, yarn or thread (subset of Classification 2586)

is reassigned to Classification 2585, (1) the Selected (Unlimited) Loss to Payroll Ratio for Classification 2585 would increase by 3.14%, and (2) the Selected (Unlimited) Loss to Payroll Ratio for dyeing and Classification 2585 combined would be 15.76% greater than that of Classification 2586.

Recommendation In view of the above, the WCIRB recommends the following actions:

1. Eliminate Classifications 2586(1), 2586(2) and 2586(3);

2. Amend Classification 2589 to reflect its applicability to locations at which more than 50% of gross receipts is derived from the dry cleaning or laundering of garments, linens and other household items that are owned by the general public;

3. Establish Classification 2589(2) as an alternate wording to Classification 2589 for employers

engaged in dry cleaning that is not otherwise classified; 4. Establish Classification 2585 (2) as an alternate wording to Classification 2585 for employers

engaged in dyeing of garments; and

5. Assign employers engaged in hide or fur cleaning, processing or preserving by analogy to classifications most representative of the process and hazard.

These amendments are recommended to be included in the WCIRB’s January 1, 2014 Regulatory Filing.

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Proposed Revisions to the California Workers’ Compensation Uniform Statistical Reporting Plan—1995 Recommendation Amend Classification 2589, Dry Cleaning or Laundry — retail — including repairing or pressing, and cash and carry departments on premises, to add a suffix and remove the reference to Classification 2586(1), Dry Cleaning or Dyeing, for consistency with changes made elsewhere in this Section, and provide that this classification applies to those locations at which more than 50% of gross receipts is derived from the dry cleaning or laundering of garments, linens and other household items that are owned by the general public.

PROPOSED


2589(1)

This classification applies to those retail establishments engaged primarily (in excess oflocations at which more than 50% of gross receipts) in is derived from the dry cleaning or laundering of garments, linens and other household items forthat are owned by the general public. This classification also applies to coin-operated laundries that retain attendants to perform “fluff and fold” activities.


This classification does not apply to diaper service companies or uniform and linen rental or service companies. Such firms shall be classified as 2585, Laundries — N.O.C, or 2586(1), Dry Cleaning or Dyeing.

* * * * * Recommendation Eliminate Classification 2586(1), Dry Cleaning or Dyeing — N.O.C. — including repairing or pressing, and cash and carry departments on plant premises, and reassign dry cleaning operations to proposed Classifications 2589(1), Dry Cleaning or Laundry — retail — including repairing or pressing, cash and carry departments on plant premises, and 2589(2), Dry Cleaning — N.O.C. — including repairing or pressing, cash and carry departments on plant premises; and assign dyeing operations to proposed Classification 2585(2), Dyeing — including yarn or thread dyeing or finishing — no yarn or thread manufacturing.

PROPOSED


2586(1)


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* * * * * Recommendation Establish Classification 2589(2), Dry Cleaning — N.O.C. — including repairing or pressing, cash and carry departments on plant premises, to apply to employers engaged in dry cleaning that are not otherwise classified.

PROPOSED

DRY CLEANING — N.O.C. — including repairing or pressing, and cash and carry departments on plant premises

2589(2)

Commercial laundry operations, including the rental and laundering of towels, linens, diapers and similar items shall be classified as 2585(1), Laundries — N.O.C.

* * * * * Recommendation Eliminate Classification 2586(2), Yarn or Thread Dyeing or Finishing — no yarn or thread manufacturing, and reassign employers engaged in dyeing yarn or thread to proposed Classification 2585(2), Dyeing — including yarn or thread dyeing or finishing — no yarn or thread manufacturing.

PROPOSED

YARN OR THREAD DYEING OR FINISHING — no yarn or thread manufacturing 2586(2)


* * * * * Recommendation Establish Classification 2585(2), Dyeing — including yarn or thread dyeing or finishing — no yarn or thread manufacturing, to apply to employers engaged in dyeing.

PROPOSED

DYEING – including yarn or thread dyeing or finishing — no yarn or thread manufacturing 2585(2)


Dyeing of textile fabrics, not finished garments, shall be classified as 2413, Textiles — bleaching, dyeing, mercerizing, finishing — new goods — not cleaning and dyeing of garments.

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* * * * *

Recommendation Eliminate Classification 2586(3), Hide or Fur Cleaning, Processing or Preserving, and reassign employers engaged in hide or fur cleaning, processing or preserving to classifications most representative of the process and hazard.

PROPOSED

HIDE OR FUR CLEANING, PROCESSING OR PRESERVING 2586(3)

* * * * * Recommendation Amend Classification 2585, Laundries — N.O.C. — all employees — including cash and carry departments on plan premises, to add a suffix; provide that locations at which more than 50% of gross receipts are derived from the cleaning or laundering of garments, linens and other household items that are owned by the general public be classified as 2589(1), Dry Cleaning or Laundry — retail; and provide that the dyeing of textile fabrics, not finished garments, be classified as 2413, Textiles — bleaching, dyeing, mercerizing, finishing — new goods — not cleaning and dyeing of garments.

PROPOSED

LAUNDRIES— N.O.C. — all employees — including cash and carry departments on plant premises

2585(1)

Retail dry cleaning and laundering establishments engaged primarily (in excess ofLocations at which more than 50% of gross receipts) are derived from in the cleaning or laundering of garments, linens and other household items forthat are owned by the general public shall be classified as 2589(1), Dry Cleaning or Laundry — retail.

Dyeing of textile fabrics, not finished garments, shall be classified as 2413, Textiles — bleaching, dyeing, mercerizing, finishing — new goods — not cleaning and dyeing of garments.

* * * * *

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WCIRB Ca l i f o rn ia ®

Item CR12-06-04 Report on Commercial Dry Cleaning or Dyeing and Retail Dry Cleaning or Laundry


2586(2), Yarn or Thread Dyeing or Finishing — no yarn or thread manufacturing 2586(3), Hide or Fur Cleaning, Processing or Preserving 2589, Dry Cleaning or Laundry — retail — including repairing or pressing, and cash and

carry departments on premises 2585, Laundries — N.O.C. — all employees — including cash and carry departments on

plant premises The Classification and Rating Committee reviewed a draft WCIRB report on the procedure of combining, for ratemaking purposes, the experience of Classification 2586(1), Dry Cleaning or Dyeing — N.O.C. — including repairing or pressing, and cash and carry departments on plant premises, and Classification 2589, Dry Cleaning or Laundry — retail — including repairing or pressing, and cash and carry departments on premises. In attendance were two representatives of the California Cleaners Association (CCA), a trade group that represents dry cleaners in California. The Committee was informed that Classifications 2586(1) and 2589 were combined for ratemaking purposes in 1997 following a study of the classification procedure for retail dry cleaning establishments that also perform laundering activities. To determine whether the current ratemaking procedure should be continued, WCIRB staff reviewed the operations and the classification experience (payroll and losses) pertaining to each classification. The review determined that Classifications 2586(1) and 2589 are clearly defined and apply to separate groups of employers and each classification develops sufficient payroll and losses to produce advisory pure premium rates; however the statistical credibility of Classification 2586(1), while adequate for ratemaking purposes, is less than 100%. In view of the fact that Classification 2586(1) does not develop sufficient data to achieve full statistical credibility, the operations and classification experience of Classification 2586(1) (commercial dry cleaners) were compared to those of Classification 2585, Laundries — N.O.C. (commercial laundries) to determine if these classifications should be combined for ratemaking purposes. The comparison revealed a similarity in operations of firms assigned to Classifications 2586(1) and 2585; however, the classification experience for each classification was not similar. That is, if Classifications 2586(1) and 2585 were combined, the advisory pure premium rate for Classification 2586(1) would increase significantly. Accordingly, the WCIRB recommended that Classifications 2586(1) and 2585 not be combined for ratemaking purposes and that separate advisory pure premium rates be developed for Classifications 2586(1) and 2589 effective January 1, 2013. Staff noted that Classification 2586(1) would be reviewed periodically and appropriate action would be taken if the statistical credibility of the classification fell below acceptable standards. The representatives of the CCA expressed their support of the WCIRB’s recommendations; however, the CCA asked that the footnote to Classification 2586(1), Dry Cleaning or Dyeing, which defines retail dry cleaning and laundering establishments, be amended to remove the qualifying term “walk-in” since dry cleaning and laundering services are often provided to the general public who do not enter the dry cleaning and laundering premises. An example was cited of firms that employ route drivers who pick up and deliver articles that are cleaned for the general public. The Committee was informed that, if it agreed with the amendment proposed by the CCA, the same change should be made to classifications 2589 and 2585 for consistency.

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mgualderama

Typewritten Text

WCIRB Ca l i f o rn ia ®

After reviewing the WCIRB’s report and considering the CCA’s request, the Committee voted unanimously to approve the recommendation that Classifications 2586(1) and 2589 be permitted to develop their own advisory pure premium rates effective January 1, 2013, and that the proposed revisions (deletion of “walk-in”) to Classifications 2586(1), 2589 and 2585 be included in the WCIRB’s January 1, 2013 Pure Premium Rate Filing.

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Item CR12-06-04 Report on Commercial Dry Cleaning or Dyeing and Retail Dry Cleaning or Laundry


2586(2), Yarn or Thread Dyeing or Finishing — no yarn or thread manufacturing 2586(3), Hide or Fur Cleaning, Processing or Preserving 2589, Dry Cleaning or Laundry — retail — including repairing or pressing, and cash and carry

departments on premises 2585, Laundries — N.O.C. — all employees — including cash and carry departments on plant

premises Executive Summary Objective The WCIRB reviewed the procedure of combining, for ratemaking purposes, the experience of Classification 2586(1), Dry Cleaning or Dyeing — N.O.C. — including repairing or pressing, and cash and carry departments on plant premises, and Classification 2589, Dry Cleaning or Laundry — retail — including repairing or pressing, and cash and carry departments on premises. Findings Based on its review, the WCIRB has determined that:

1. The operations contemplated by Classification 2586 are separate, distinct and easily identifiable from those contemplated by Classification 2589;

2. Classification 2589 develops sufficient data to produce a fully credible advisory pure premium rate;

3. Classification 2586 develops sufficient data to produce an advisory pure premium rate; however, the classification relativity data is not fully credible;

4. Based on experience at the 2012 policy year level, Classification 2586 has a Selected (Limited) Loss to Payroll Ratio that is 33.1% greater, and an Indicated (Unlimited) Loss to Payroll Ratio that is 44.7% greater, than the current Selected (Unlimited) Loss to Payroll Ratio for Classifications 2586 and 2589 combined;

5. Based on experience at the 2012 policy year level, Classification 2589 has a Selected (Unlimited) Loss to Payroll Ratio that is 18.8% less than the current Selected (Unlimited) Loss to Payroll Ratio for Classifications 2586 and 2589 combined;

6. In view of the fact that Classification 2586 lacks full statistical credibility, the operations and statistical data for Classifications 2586, Dry Cleaning or Dyeing — N.O.C., were compared with those of Classification 2585, Laundries — N.O.C., to determine if these classifications should be combined for ratemaking purposes. The review found that:

a. The operations performed by employers assigned to Classifications 2586 and 2585 are similar;

b. The summaries of Unit Statistical Reports (USR) and inspection reports reveal that commercial laundry operations (Classification 2585) and commercial dry cleaning (Classification 2586) are not usually performed by the same employer; and

c. The Selected (Unlimited) Loss to Payroll Ratio for Classifications 2585 and 2586 combined is 77.1% greater than the current Loss to Payroll Ratio for Classification 2586, and

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7. The footnotes to Classifications 2586(1), 2589 and 2585 include the qualifying term “walk-in” that is not needed and could be subject to misinterpretation.

Recommendation The WCIRB does not recommend that Classifications 2586 and 2585 be combined for ratemaking purposes for the following reasons: (1) such action would have a substantial impact on firms (commercial dry cleaners) currently assigned to Classification 2586; (2) although Classification 2586 does not develop enough data to produce a fully credible (100% indemnity and medical) advisory pure premium rate, sufficient data exists to produce an advisory pure premium rate that is not considered to be low credibility by WCIRB actuarial standards; and (3) recent year to year (2006 – 2008) payrolls and losses for commercial dry cleaners are increasing. In view of the lack of full statistical credibility, the WCIRB will periodically review the ratemaking data developed by commercial dry cleaners and recommend appropriate action if the statistical credibility of Classification 2586 falls below acceptable levels. The WCIRB recommends that separate advisory pure premium rates be developed for Classifications 2586(1) and 2589 effective January 1, 2013, and that Classifications 2586(1), 2589 and 2585 be amended to delete the conditional term “walk-in”.

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Report on Commercial Dry Cleaning or Dyeing and Retail Dry Cleaning or Laundry


2586(2), Yarn or Thread Dyeing or Finishing — no yarn or thread manufacturing 2586(3), Hide or Fur Cleaning, Processing or Preserving 2589, Dry Cleaning or Laundry — retail — including repairing or pressing, and cash and carry

departments on premises 2585, Laundries — N.O.C. — all employees — including cash and carry departments on plant

premises Introduction The WCIRB has reviewed the procedure of combining, for ratemaking purposes, the experience of Classification 2586(1), Dry Cleaning or Dyeing — N.O.C., and Classification 2589, Dry Cleaning or Laundry — retail. Typically, classifications are combined for ratemaking purposes for the following reasons:

1. Similarity in Operations Classifications are combined for ratemaking purposes when the proper classification may be difficult to determine due to a significant similarity in operations, for example, a clear line of delineation does not exist between the two classifications.

2. Low Statistical Credibility The experience of two or more classifications is combined for ratemaking purposes when one or more of the classifications lack statistical credibility. Although the classifications may be clearly defined, due to insufficient statistical credibility, the classifications are combined based on similarity in industry type and operations.

3. Temporary Variance in Experience There is a temporary dissimilarity 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 Following is the history of Classifications 2586 and 2589:

1915: Classification 2583, Cleaning and Dyeing, was established to contemplate cleaning or dyeing of garments and linens for customers on a fee basis.

1949: Classification 2583 was eliminated and Classification 2586(1), Cleaning and Dyeing —

including repairing or cash and carry departments on plant premises, was established.

1970: Classification 2416, Yarn or Thread Dyeing, was eliminated and Classification 2586(2), Yarn or Thread Dyeing, was established as a cross reference to Classification 2586(1).

1997: The Classification and Rating Committee (Committee) reviewed a study of the

classification procedure for retail dry cleaning establishments that also perform traditional laundering activities. This resulted in the establishment of Classification 2589, Dry Cleaning or Laundry — retail — including repairing or pressing, and cash and carry departments on plant premises, and Classification 2586 was amended to include the term “dry cleaning.” The removal of the “retail” businesses from Classification 2586 due to the establishment of Classification 2589 resulted in low statistical credibility for Classification 2586; therefore, Classifications 2586 and 2589 were combined for ratemaking purposes. This ratemaking procedure has not been reviewed since 1997.

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2009: Classifications 2623(1), Tanning; 2623(2), Fur Manufacturing, and 2623(3), Hide

Processing or Preserving, were eliminated due to low statistical credibility and Classification 2586(3), Hide or Fur Cleaning, Processing or Preserving, was established as a cross reference to Classification 2586.

Following is the history of Classification 2585, Laundries — N.O.C.:

Prior to 1918: There were three separate classifications for laundry operations: Classification 2580, Laundries — wet wash, no flat work, ironing or operating power ironing machinery; Classification 2581, Laundries — N.O.C., and Classification 2582, Laundries — no machinery.

1918: Classification 2580 was eliminated.

1937: Classification 2582 was eliminated.

1945: Classification 2581 was amended to read, Laundries — N.O.C — including cash and carry departments at laundry premises.

1947: Classification 2581 was amended to change the code number to conform with national standards and to change the phraseology to read as follows, Classification 2585, Laundries — all kinds — all employees — including cash and carry departments at laundry premises.

1949: Classification 2585 amended to read, Laundries — N.O.C — all employees — including cash and carry departments on plant premises.

Description of Operations Following are the classification phraseologies, footnotes and relevant summaries of operations for Classification 2586(1), Dry Cleaning or Dyeing — N.O.C. and Classification 2589, Dry Cleaning or Laundry — retail — including repairing or pressing, and cash and carry departments on premises.


2586(1)

Retail dry cleaning and laundering establishments engaged primarily (in excess of 50% of gross receipts) in the cleaning of garments, linens and other household items for the general walk-in public shall be classified as 2589, Dry Cleaning or Laundry — retail.

Commercial dry cleaning firms provide professional dry cleaning services for commercial concerns such as hotels, restaurants, spas, hospitals, janitorial companies and similar clients that utilize a high volume of linens and uniforms. Typically, route drivers pick up soiled linens from commercial concerns and transport the soiled linens to the commercial dry cleaning facility. Linens are unloaded and sorted according to item type. The linens are spot treated and loaded into large industrial dry cleaning machines along with chemical cleaning agents and solvents. The cleaned linens are repaired or altered if necessary before being pressed. The linens are then hung on hangers or folded, wrapped in plastic and delivered to customers. Classification 2586(1) also contemplates the dyeing of garments for clothing manufacturers. Garments are received and sorted by size or sets consisting of large batches. The items are loaded into dyeing machines along with water, chemicals, and dyes and submersed for a prescribed amount of time. The items are pulled, placed into hydroextractors to remove excess dye solution and placed into dryers. The dyed items are packaged and set aside for delivery.1 1 The cross-references to Classification 2586 include Classification 2586 (2), Yarn or Thread Dyeing or Finishing, and Classification 2586(3), Hide or Fur Cleaning, Processing or Preserving.

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2589

This classification applies to those retail establishments engaged primarily (in excess of 50% of gross receipts) in the dry cleaning or laundering of garments, linens and other household items for the general walk-in public. This classification also applies to coin-operated laundries that retain attendants to perform “fluff and fold” activities.



Retail dry cleaning or laundry firms provide laundry services to the general walk-in public. For dry cleaning operations, soiled garments or linens are received from customers, tagged, sorted and spot-cleaned as needed. The soiled items are placed into a dry cleaning machine along with dry cleaning solvents. Clean items are removed from the machine, pressed and then hung. The cleaned and pressed items are repaired or altered if necessary, wrapped in plastic and set aside for customer pick-up. Retail laundry operations involve the receipt of soiled garments and linens from customers. The soiled items are tagged, spot cleaned and placed into industrial washing machines along with detergents. The washed items are removed from the washing machines and placed into industrial dryers. Cleaned items are removed from the dryers, repaired or altered if necessary, pressed, folded, or hung and set aside pending customer pick-up. Classification Analysis – Classifications 2586 and 2589 Classification 2586 applies to firms that provide commercial or industrial dry cleaning and dyeing services, whereas Classification 2589 applies to firms that provide retail dry cleaning and laundry. The cross-reference classifications to 2586 apply to firms engaged in yarn or thread dyeing and hide or fur processing and preserving – operations that are significantly different from those contemplated by Classification 2589. Accordingly, the operations assignable to Classifications 2586 and 2589 are separate, distinct and clearly identifiable. Below is a summary of 2008 policy year Unit Statistical Reports (USR) that shows the number of employers for which payroll was reported in Classifications 2586 and 2589.

Table 1: 2008 USR Summary – Number of Employers

For Which Payroll Was Reported in Classifications 2586 and 2589

Classification

Employers with Payroll Reported

in Indicated Classification

Employers with Payroll Reported in Both Classifications

Percent – Payroll only Reported in

Indicated Classification

Percent – Payroll Reported in Both

Classifications

2586 230 4 98.3% 1.7%

2589 2,117 4 99.8% 0.2%

As shown above, 98.3% of the employers that reported payroll in Classification 2586 did not report payroll in Classification 2589. In addition, 99.8% of the employers that reported payroll in Classification 2589 did not report payroll in Classification 2586.

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Below is a summary of WCIRB inspection reports that assign Classifications 2586 and 2589.

Table 2: Number of Employers Assigned by the WCIRB to Classifications 2586 and 2589

Classification

Employers Assigned to


Employers Assigned to Both

Classifications

Percent – Employers

Assigned only to Indicated

Classification


Assigned to Both Classifications

2586 327 4 99.8% 0.2%

2589 686 4 99.4% 0.6%

As shown above, 99.8% of the employers assigned to Classification 2586 were not assigned to Classification 2589. In addition, 99.4% of the employers assigned to Classification 2589 were not assigned to Classification 2586. This information indicates that the two industries have little commonality in operations. Each classification is clearly defined and the potential for misclassification of payroll is low. Therefore, from a classification perspective, there appears to be no compelling reason to continue to combine Classifications 2586 and 2589 for ratemaking purposes. It is noted that the footnotes to Classifications 2586(1) and 2589 that describe retail dry cleaning and laundering establishments include the qualifying term “walk-in”. This term is not needed and may be subject to misinterpretation as dry cleaning and laundering services may be provided to the general public who do not enter the dry cleaning and laundering premises. That is, some firms employ route drivers who pick up and deliver articles that are cleaned for the general public. Statistical Analysis Table 5 presents the classification relativity data for Classifications 2586 and 2589 combined at policy 2012 level under the current procedure of combining Classifications 2586 and 2589:

Table 5: Commercial Dry Cleaning or Dyeing (2586) and Retail Dry Cleaning or Laundry (2589)

Classification Relativity Data at Policy Year 2012 Level



2005 2,125 224,900,609 6,157,383 2.738

2006 2,141 216,050,662 5,829,204 2.698

2007 2,238 223,074,855 6,396,943 2.868

2008 2,351 234,027,657 7,071,657 3.022

Total 8,855 898,053,783 25,455,186 2.834


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Credibility2

Indemnity Medical

1.00 1.00 Tables 6 and 7 present the classification relativity data at the policy year 2012 level for each classification independently:3

Table 6: Commercial Dry Cleaning or Dyeing (2586) Classification Relativity Data at Policy Year 2012 Level

Year Number of


Ratio

2004 278 50,264,078 1,831,673 3.644

2005 260 49,156,756 2,007,519 4.084

2006 229 43,289,406 2,208,211 5.101

2007 233 45,051,388 2,307,920 5.123

2008 234 55,559,647 3,095,556 5.572

Total 1,234 243,321,275 11,450,879 4.706

Indicated (Unlimited) Loss to Payroll Ratio 4.393 Selected Loss to Payroll Ratio (Restricted to 25% Change)4 4.041

Credibility

Indemnity Medical

0.60 0.74

2 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 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 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, which 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). 3 The Classification Relativities shown in Tables 6 and 7 each require five years of data to achieve statistical credibility; the Classification Relativity [combined] shown in Table 5 requires four years of data to achieve statistical credibility. 4 Classification relativity changes are limited to an annual increase or decrease of 25%. If Classification 2586 had not been combined with Classification 2589 for ratemaking purposes, its 2012 Selected Loss to Payroll Ratio would have been 4.041, not the indicated unlimited amount of 4.393.

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Table 7: Retail Dry Cleaning or Laundry (2589) Classification Relativity Data at Policy Year 2012 Level

Year Number of


Ratio

2004 1,790 162,761,044 4,117,583 2.530

2005 1,878 175,743,853 4,149,864 2.361

2006 1,919 172,761,256 3,620,993 2.096

2007 2,013 178,023,467 4,089,023 2.297

2008 2,121 178,468,010 3,976,100 2.228

Total 9,721 867,757,630 19,953,564 2.299 Selected (Unlimited) Loss to Payroll Ratio 2.465

Credibility

Indemnity Medical

0.99 1.00 As shown above, Classification 2589 develops sufficient payroll and loss data to produce a fully credible advisory pure premium rate. Although its classification relativity data is not fully credible (Indemnity .60, Medical .74), Classification 2586 develops sufficient data to produce an advisory pure premium rate. Therefore, from a ratemaking perspective, there appears to be no compelling reason to continue to combine Classifications 2586 and 2589 for ratemaking purposes. Impact Analysis – Classifications 2586 and 2589 Table 8 depicts the first year impact on policyholders assigned to Classification 2586 if separate classification relativities – and thus advisory pure premium rates – are established for Classifications 2586 and 2589. In this table, the classification relativity for Classification 2586 is limited to a 25% increase.

Table 8: Classifications 2586 and 2589 Combined (Current Relativity) vs.

Classification 2586 (Limited) Comparison of Selected Loss to Payroll Ratios at Policy Year 2012 Level

Classifications 2586 and 2589

Classification 2586 – limited to 25% change

Difference

3.036 4.041 +1.005 (+33.1%)

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In Table 9, the classification relativity for Classification 2586 is not limited to a 25% increase. This comparison depicts the ultimate impact on policyholders assigned to Classification 2586.

Table 9: Classifications 2586 and 2589 Combined vs. Classification 2586 (Unlimited) Comparison of Indicated Loss to Payroll Ratios at Policy Year 2012 Level

Classifications 2586 and 2589

Classification 2586 – Unlimited

Difference

3.036 4.393 +1.357 (+44.7%)

Table 10 depicts the impact on policyholders assigned to Classification 2589 if separate classification relativities – and thus advisory pure premium rates – are established for Classifications 2586 and 2589.

Table 10: Classifications 2586 and 2589 Combined vs. Classification 2589 Comparison of Selected (Unlimited) Loss to Payroll Ratio at Policy Year 2012 Level

Classifications 2586 & 2589

Classification 2589 Difference

3.036 2.465 -0.571 (-18.8%)

As shown above, based on experience at the 2012 policy year level, Classification 2586 has a Selected (Limited) Loss to Payroll Ratio that is 33.1% greater, and an Indicated (Unlimited) Loss to Payroll Ratio that is 44.7% greater, than the Selected (Unlimited) Loss to Payroll Ratio for Classifications 2586 and 2589 combined; and Classification 2589 has a Selected (Unlimited) Loss to Payroll Ratio that is 18.8% less than the Selected (Unlimited) Loss to Payroll Ratio for Classifications 2586 and 2589 combined. Classification Analysis – Classifications 2586 and 2585 As noted above, Classification 2586(1), Dry Cleaning or Dyeing — N.O.C., lacks full statistical credibility (100% indemnity and medical). Since employers assigned to Classifications 2585, Laundries — N.O.C., and 2586 provide garment and linen cleaning services to the commercial trade, the operations and statistical data for these classifications were compared to determine if they should be combined for ratemaking purposes. Following is the phraseology for Classification 2585:


2585

Retail dry cleaning and laundering establishments engaged primarily (in excess of 50% of gross receipts) in the cleaning of garments, linens and other household items for the general walk-in public shall be classified as 2589, Dry Cleaning or Laundry — retail

Operations – Classification 2585 Commercial laundry firms provide professional laundry services to commercial concerns. Typically, route drivers pick up soiled garments and linens from commercial concerns and transport the soiled items to the commercial laundry facility. Items are unloaded and sorted according to item type. The soiled items are tagged, spot cleaned and placed into industrial washing machines along with detergents. The washed items are removed from the washing machines and placed into industrial dryers. Cleaned items are removed from the dryers, repaired or altered if necessary, pressed, folded or hung and set aside pending delivery to the customer by route drivers.

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It is noted that the footnote to Classification 2585 includes the qualifying term “walk-in”, which is not needed for the reasons described above. Operations – Classification 2586 Commercial dry cleaning firms provide professional dry cleaning services for commercial concerns such as hotels, restaurants, spas, hospitals, janitorial companies and similar clients that utilize a high volume of linens and uniforms. Typically, route drivers pick up soiled linens from commercial concerns and transport the soiled linens to the commercial dry cleaning facility. Linens are unloaded and sorted according to item type. The linens are spot treated and loaded into large industrial dry cleaning machines along with chemical cleaning agents and solvents. The cleaned linens are repaired or altered if necessary before being pressed. The linens are hung on hangers or folded, wrapped in plastic and delivered to customers. Although the operations performed by commercial laundry firms (Classification 2585) and commercial dry cleaners (Classification 2586) are similar, the two operations involve different cleaning agents and machinery. To determine whether commercial laundry and dry cleaning are commonly performed by the same employer, staff reviewed the 2008 policy year USR that show the number of employers for which payroll was reported in Classifications 2585 and 2586.

Table 11: 2008 USR Summary – Number of Employers

For Which Payroll Was Reported in Classifications 2585 and 2586

Classification

Employers with Payroll Reported

in Indicated Classification

Employers with Payroll Reported in Both Classifications

Percent – Payroll only Reported in


Percent – Payroll Reported in Both

Classifications

2585 142 34 76.1% 23.9%

2586 200 34 83% 17%

As shown above, 76.1% of the employers that reported payroll in Classification 2585 did not report payroll in Classification 2586. In addition, 83% of the employers that reported payroll in Classification 2586 did not report payroll in Classification 2585. In like manner, staff reviewed the number of inspection reports that assign Classifications 2585 and 2586.

Table 12: Number of Employers Assigned by the WCIRB to Classifications 2585 and 2586

Classification

Employers Assigned to


Employers Assigned to Both Classifications


Assigned only to Indicated

Classification

Percent – Employers Assigned to Both

Classifications

2585 376 34 91% 9.0%

2586 297 34 88.6% 11.4%

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As shown above, 91% of the employees assigned to Classification 2585 were not assigned to Classification 2586. In addition, 88.6% of the employers assigned to Classification 2586 were not assigned to Classification 2585. The summaries of USR reports and inspection reports indicate that commercial laundry operations (Classification 2585) do not normally prevail in the operations of commercial dry cleaners (Classification 2586). This observation was corroborated by a review of the 376 inspection reports that assigned Classification 2585 but did not assign Classification 2586. The review confirmed that operators of commercial laundries (Classification 2585) do not perform dry cleaning operations.5 While there may be similarities between the operations performed by commercial dry cleaners and commercial laundries, the USR and inspection report analysis demonstrates that the operations assignable to Classification 2585 and 2586 are separate, distinct, and clearly identifiable. Statistical Analysis Table 13 presents the classification relativity data for Classification 2585 at policy year 2012 level.

Table 13: Commercial Laundry (2585) Classification Relativity Data at Policy Year 2012 Level

Year Number of


Ratio

2007 208 432,861,252 22,453,877 5.187

2008 176 427,921,250 20,375,695 4.762

Total 384 860,782,502 42,829,572 4.976


Credibility

Indemnity Medical

1.00 1.00 Table 14 presents the classification relativity data for Classifications 2585 and 2586 combined at policy year 2012 level:

Table 14: Commercial Laundry (2585) and Commercial Dry Cleaning or Dyeing (2586) Classification Relativity Data at Policy Year 2012 Level

Year Number of


Ratio

2007 442 477,912,640 24,761,797 5.181

2008 410 483,480,897 23,471,251 4.855

Total 852 961,393,537 48,233,048 5.017


5 That is, the review ruled out the possibility that some commercial laundry operators also perform commercial dry cleaning and Classification 2586 could not be assigned due to the provisions of the Multiple Enterprises Rule.

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Credibility

Indemnity Medical

1.00 1.00 Impact Analysis – Classifications 2585 and 2586 In a similar manner as above, the WCIRB compared the statistical data for Classification 2585 and 2586. Table 15 compares the Selected (Unlimited) Loss to Payroll Ratio of Classification 2585 to the Selected (Limited) Loss to Payroll Ratio of Classification 2586.

Table 15: Classification 2585 vs. Classification 2586 (Limited)

Comparison of Selected Loss to Payroll Ratio at Policy Year 2012 Level

Classification 2585 (Laundry)

Classification 2586* (Dry Cleaning)

Difference

5.334 4.041 +1.293 (32.0%)

*Classification 2586 is limited to a 25% change Table 16 compares the Selected and Indicated (Unlimited) Loss to Payroll Ratios for Classifications 2585 and 2586.

Table 16: Classification 2585 vs. Classification 2586 Comparison of Indicated (Unlimited) Loss to Payroll Ratio at Policy Year 2012 Level

Classification 2585

(Laundry) Classification 2586

(Dry Cleaning) Difference

5.334 4.393 +0.941 (21.4%)

As shown above, based on experience at the 2012 policy year level, Classification 2585 has a Selected (Unlimited) Loss to Payroll Ratio that is 32% greater, than the Selected (Limited) Loss to Payroll Ratio for Classification 2586; and a Selected (Unlimited) Loss to Payroll Ratio that is 24% greater than the Selected (Unlimited) Loss to Payroll Ratio for Classification 2586. Table 17 displays the impact on affected policyholders if Classification 2586 (current procedure) was combined with Classification 2585 to produce a single classification relativity – and thus advisory pure premium rate.

Table 17: Classifications 2585 and 2586 Combined vs. Classification 2586 and 2589 Combined (Current Procedure)

Comparison of Selected (Unlimited) Loss to Payroll Ratio at Policy Year 2012 Level

Classifications 2585 & 2586

Classification 2586/2589 (Current Procedure)

Difference

5.378 3.036 +2.342 (77.1%)

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In a similar manner, Table 18 compares the 2012 advisory pure premium rates for Classifications 2585 and 2586.

Table 18: 2585 vs. 2586 Comparison of 2012 Advisory Pure Premium Rates

Classification 2585 Classification 2586 Difference

9.48 5.36 +4.12 (+76.9%)

As shown above, based on experience at the 2012 policy year level, Classification 2585 and 2586 combined has a Selected (Unlimited) Loss to Payroll Ratio that is 77.1% greater than the Selected (Unlimited) Loss to Payroll Ratio for Classification 2586 (current procedure) and the advisory pure premium rate for Classification 2585 is 76.9% greater, than the advisory pure premium rate for Classification 2586 (current procedure). Accordingly, the combination of Classifications 2585 and 2586 would substantially impact firms currently assigned to Classification 2586. In view of (1) the wide disparity between the Loss to Payroll Ratios for Classifications 2585 and 2586; (2) the fact that commercial dry cleaners (Classification 2586) develop sufficient data to produce an advisory pure premium rate that is not considered to be low credibility by WCIRB actuarial standards; and (3) recent year to year (2006 – 2008) payrolls and losses for commercial dry cleaners are increasing, the WCIRB does not recommend that Classifications 2585 and 2586 be combined for ratemaking. Nevertheless, in view of the lack of full statistical credibility, staff will periodically review the ratemaking data developed by commercial dry cleaners and will recommend appropriate action if the statistical credibility of Classification 2586 falls below acceptable levels. Conclusion Based on its review of the procedure of combining Classifications 2586 and 2589 for ratemaking purposes, the WCIRB finds that:

1. The operations contemplated by Classification 2586 are separate, distinct and easily identifiable from those contemplated by Classification 2589;

2. Classification 2589 develops sufficient data to produce a fully credible pure premium rate;

3. Although its relativity data is not fully credible, Classification 2586 develops sufficient data to

produce an advisory pure premium rate;

4. Based on experience at the 2012 policy year level, Classification 2586 has a Selected (Limited) Loss to Payroll Ratio that is 33.1% greater, and an Indicated (Unlimited) Loss to Payroll Ratio that is 44.7% greater, than the current Selected (Unlimited) Loss to Payroll Ratio for Classifications 2586 and 2589 combined;

5. Based on experience at the 2012 policy year level, Classification 2589 has a Selected (Unlimited)

Loss to Payroll Ratio that is 18.8% less than the current Selected (Unlimited) Loss to Payroll Ratio for Classifications 2586 and 2589 combined; and

6. In view of the fact that Classification 2586 lacks full statistical credibility, the operations and

statistical data for Classifications 2586, Dry Cleaning or Dyeing — N.O.C., were compared with those of Classification 2585, Laundries — N.O.C., to determine if these classifications should be combined for ratemaking purposes. The review found that

30



®

a. The operations performed by employers assigned to Classifications 2586 and 2585 are similar;

b. The summaries of USR reports and inspection reports reveal that commercial laundry operations (Classification 2585) and commercial dry cleaning (Classification 2586) usually are not performed by the same employer; and

c. Based on experience at the 2012 policy year level, the Selected (Unlimited) Loss to Payroll Ratio for Classification 2585 and 2586 combined is 77.1% greater than the current Loss to Payroll Ratio for Classification 2586.

7. The footnotes to Classifications 2586(1), 2589 and 2585 include the qualifying term “walk-in” that

is not needed and could be subject to misinterpretation. Recommendation The WCIRB recommends discontinuing the combination of the experience of Classifications 2586 and 2589 for ratemaking purposes and allowing each classification to develop its own advisory pure premium rate. The WCIRB does not recommend that Classifications 2586 and 2585 be combined for ratemaking purposes for the following reasons: (1) such action would have a substantial impact on firms (commercial dry cleaners) currently assigned to Classification 2586; (2) although the data for Classification 2586 does not develop enough data to produce a fully credible (100% indemnity and medical) advisory pure premium rate, sufficient data exists to produce an advisory pure premium rate that is not considered to be low credibility by WCIRB actuarial standards; and (3) recent year to year (2006 – 2008) payrolls and losses for commercial dry cleaners are increasing. In view of the lack of full statistical credibility, the WCIRB will periodically review the ratemaking data developed by commercial dry cleaners and recommend appropriate action if the statistical credibility of Classification 2586 falls below acceptable levels. The WCIRB recommends that its January 1, 2013 Pure Premium Rate Filing include proposed revisions to Classifications 2586(1), 2589 and 2585 to delete the term “walk-in”.

31


WCIRB Ca l i f o rn ia®

Proposed Changes to the California Workers’ Compensation Uniform Statistical Reporting Plan—1995 Recommendation Amend Classifications 2586 (1), Dry Cleaning or Dyeing — N.O.C., 2589, Dry Cleaning or Laundry — retail, and 2585, Laundries — N.O.C., to remove the conditional term “walk in” for clarity and consistency.

PROPOSED


2586(1)

Retail dry cleaning and laundering establishments engaged primarily (in excess of 50% of gross re-ceipts) in the cleaning of garments, linens and other household items for the general walk-in public shall be classified as 2589, Dry Cleaning or Laundry — retail.


2589

This classification applies to those retail establishments engaged primarily (in excess of 50% of gross receipts) in the dry cleaning or laundering of garments, linens and other household items for the general walk-in public. This classification also applies to coin-operated laundries that retain at-tendants to perform “fluff and fold” activities.

Cash and carry facilities, situated away from the dry cleaning or laundry location, that solely en-gage in the receipt and distribution of items to be cleaned shall be classified as 8017(1), Stores — retail — N.O.C.



2585

Retail dry cleaning and laundering establishments engaged primarily (in excess of 50% of gross re-ceipts) in the cleaning of garments, linens and other household items for the general walk-in public shall be classified as 2589, Dry Cleaning or Laundry — retail.

32


Effective January 1, 2013CLASSIFICATION RELATIVITY REVIEW SHEET

WCIRB January 1, 2013 Pure Premium Rate Filing

52,864,60643,289,40645,045,73356,239,24455,723,036

1,484,3751,535,5211,536,4822,657,0532,515,416

67414

4537466055

253,162,025 22 243 3,606,705 9,728,847

2,385,1982,373,6252,334,1423,773,5173,588,703

14,455,185

Adjusted Loss to Payroll Ratio:

Credibility: 0.75

Expected Unlimited Loss to Payroll Ratio: 3.103 4.519

Expected Limited Loss to Payroll Ratio (adjusted for NAICS diff.): 1.892 3.174

20092008200720062005 4.512

5.4835.1826.7106.440

Code: 2586 DRY CLEANING OR DYEING

POLICY YEAR CLAIM COUNTS ADJUSTED LOSSES

TOTALSERIOUS NON-SERIOUS

MEDICAL-ONLY

INDEMNITY MEDICAL

CLASS:

INCLUDES 2623 D 1-1-09

Selected Loss to Payroll Ratio (Restricted to 25% Change):

Limit Factor:

7.329

31NAICS:

726876

125101

442

900,824838,103797,661

1,116,4641,073,286

4,726,338

1.867

1.282

1.998

0.72

Indicated Relativity Change: 62.2%

Relativity to Statewide Average Loss to Payroll Ratio: 292.0%

Indicated (Unlimited) Loss to Payroll Ratio:

PAYROLL (P/R)ADJ. LOSS TO P/R (00s)

2ILDG: 3MLDG:

3.843 5.710

1.416

1.703 5.0583.355

5.331

1.540 4.108 5.648

RHG: 4

1.173 1.589

Indicated Limited Loss to Payroll Ratio:

©2012 WCIRB California. All rights reserved. 33




6,413,7275,893,1936,192,2985,840,2345,319,773

75,082267,49844,89675,79725,643

20000

31451

29,659,225 2 14 121,921 488,916

168,086323,92264,164

106,16927,773

690,114


Credibility: 0.32



20092008200720062005 2.621

5.4971.0361.8180.522

Code: XXXX COMMERCIAL DRY CLEANING



MEDICAL-ONLY

INDEMNITY MEDICAL

CLASS:

Limit Factor:

4.167

31NAICS:

24944

23

93,00456,42319,26830,3732,130

201,198

0.678

1.282

1.284

0.31

Indicated Relativity Change: -7.8%


Selected (Unlimited) Loss to Payroll Ratio:


2ILDG: 3MLDG:

1.648 2.327

1.416

1.095 2.9091.814

2.882

RHG: 4

1.173 1.589






172,761,256178,023,467178,255,877164,196,160

3,044,6223,098,1912,891,0803,330,787

141148

73918885

693,236,760 37 337 4,641,321 12,364,680

4,618,4415,021,7294,403,6755,251,494

19,295,338


Credibility: 1.00



2009200820072006 2.673

2.8212.4703.198

Code: 2589 DRY CLEANING OR LAUNDRY - RETAIL



MEDICAL-ONLY

INDEMNITY MEDICAL

CLASS:

Limit Factor:

3.883

81NAICS:

73918571

320

1,573,8191,923,5381,512,5951,920,706

6,930,658

1.000

1.356

1.167

1.00





3ILDG: 2MLDG:

1.784 2.783

1.416

1.000 2.7831.784

2.716

RHG: 3

1.167 1.523






178,654,449184,215,765184,096,111169,515,933

3,333,8433,163,1622,965,0393,355,598

141148

74959386

716,482,258 37 348 4,760,055 12,817,642

4,970,7235,111,5484,509,0275,278,540

19,869,838


Credibility: 1.00



2009200820072006 2.782

2.7752.4493.114

Code: 2589 DRY CLEANING OR LAUNDRY - RETAIL



MEDICAL-ONLY

INDEMNITY MEDICAL

CLASS:

Limit Factor:

3.873

81NAICS:

771008975

341

1,636,8801,948,3871,543,9881,922,941

7,052,196

0.984

1.358

1.149

1.00





3ILDG: 2MLDG:

1.789 2.773

1.416

0.984 2.7731.789

2.725

RHG: 3

1.167 1.523






24,502,24720,789,92226,323,52534,673,15037,801,585

740,504737,031961,986

1,859,8391,997,024

24204

1920253939

144,090,429 12 142 2,359,717 6,296,383

1,111,6481,180,4461,534,8712,652,1982,802,224

9,281,387


Credibility: 0.60



20092008200720062005 4.537

5.6785.8317.6497.413

Code: XXXX COMMERCIAL DYEING OPERATIONS



MEDICAL-ONLY

INDEMNITY MEDICAL

CLASS:

Selected Loss to Payroll Ratio (Restricted to 25% Change):

Limit Factor:

7.410

31NAICS:

2236429385

278

371,144443,415572,885792,359805,201

2,985,004

2.072

1.282

2.041

0.58



Indicated (Unlimited) Loss to Payroll Ratio:


2ILDG: 3MLDG:

4.370 6.441

1.416

1.740 5.1193.379

5.369

1.556 4.092 5.648

RHG: 4

1.173 1.589






427,259,940406,110,176

17,790,52316,745,010

3918

407357

833,370,116 57 764 12,057,464 34,535,533

26,491,91524,302,748

50,794,664


Credibility: 1.00



20092008 6.200

5.984

Code: 2585 LAUNDRIES



MEDICAL-ONLY

INDEMNITY MEDICAL

CLASS:

Limit Factor:

8.226

81NAICS:

1,112822

1,934

8,701,3927,557,739

16,259,131

1.951

2.293

2.234

1.00





4ILDG: 4MLDG:

4.144 6.095

2.371

1.951 6.0954.144

5.992

RHG: 2

1.145 1.446






461,933,090443,911,761

19,835,34519,009,509

3922

446396

905,844,851 61 842 13,631,142 38,844,854

29,407,98927,498,743

56,906,732


Credibility: 1.00



20092008 6.366

6.195

Code: 2585 LAUNDRIES



MEDICAL-ONLY

INDEMNITY MEDICAL

CLASS:

Limit Factor:

8.484

81NAICS:

1,205907

2,112

9,572,6448,489,234

18,061,878

1.994

2.296

2.283

1.00





4ILDG: 4MLDG:

4.288 6.282

2.371

1.994 6.2824.288

6.201

RHG: 2

1.145 1.446




525 Market Street, Suite 800 San Francisco, CA 94105-2767 Voice 415.777.0777 Fax 415.778.7007 www.wcirb.com [email protected]

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