CAS Exam 5 Fall 2017, Question 6
Study guide: Exam 5
The current workers compensation indemnity benefit structure in a state is as follows:
- The compensation rate is 80% of the workers pre-injury wage.
- The state average weekly wage (SAWW) is currently $1,500.
- The minimum indemnity benefit is 50% of the SAWW.
- The maximum indemnity benefit is 125% of the SAWW.
The following changes have been proposed to the workers compensation indemnity benefit structure:
- The proposed minimum indemnity benefit is 75% of the SAWW.
- The proposed maximum indemnity benefit is 100% of the SAWW.
The distribution of injured workers for Company A is shown below:
| Ratio to SAWW | # Workers | Total Weekly Wages |
|---|---|---|
| <50% | 150 | $108,750 |
| 50%-75% | 100 | $110,000 |
| 75%-100% | 95 | $137,750 |
| 100%-125% | 50 | $87,500 |
| >125% | 45 | $216,000 |
| Total | 440 | $660,000 |
(Note from the Syllabus and Examination Committee: It was not the intention of this question to have the cutoff for the minimum/maximum to land in the middle of the given wage bands. Because of this ambiguity, reasonable assumptions, including assuming all workers in a band earn the average or a uniform distribution of workers across the band were accepted.)
Part a (1.5 points)
Calculate the impact to Company A of the state's proposed workers compensation indemnity benefit change.
Part b (0.5 points)
Briefly describe two potential indirect effects of the benefit change.
Answer this question and see the worked solution