WC Self-Insureds Seek State Standards

Minimum premium levels required by some states for an individual employer to qualify to self-insure workers comp that are not required in other states, such as Oklahoma. SIIA finds that in Texas the minimum premium must exceed $500,000 in the state, or $10 million nationally. This means that multi-state employers that cannot meet these levels must buy an insurance policy in Texas, even though they may be self-insured everyplace else, according to SIIA.

Security deposit requirements can vary. Some states require a self-insurer to deposit annually 100 percent of all of its reserves or liabilities. California requires 135 percent, the SIIA said.

Michael Andreatta, financial analyst for the insurance department of the Workers Compensation Court of Oklahoma–which governs workers comp matters in Oklahoma independently of the state's insurance department–said the minimum security deposit for most industries is $100,000, while for manufacturing, trucking, and the oil and gas industries it is $200,000. The amount depends on the average workers comp losses paid in the preceding three years, he added.

The form of the deposit also varies and can be in cash, surety bonds or letter of credit, depending on the state.

Reporting requirements differ as to how much information a self-insured employer must file with an insurance regulator and how frequently.

Washington, Florida and New Mexico, for example, require both quarterly reports and annual reports. Mississippi and Oklahoma generally require only annual reports from workers comp self-insureds. Oklahoma may sometimes require workers comp loss runs on a quarterly basis from employers that it believes need watching, Mr. Andreatta noted.

Other areas of variance in state standards are years-in-business requirements, corporate net worth, parent-company guarantee requirements, filing fees, solvency fees, and excess insurance requirements, SIIA has suggested.

SIIA has been trying to get the National Association of Insurance Commissioners to take a serious look at these issues. SIIA made a presentation on the topic to the NAIC's Workers Compensation Task Force in March. In June, SIIA made another presentation to the NAIC/International Association of Industrial Accident Boards and Commissions Joint Working Group at the NAICs National Summer Meeting.

SIIAs Washington counsel, George Pantos, suggested that the Kansas City, Mo.-based NAIC could call for a white paper on the topic, which, he noted, is generally how the NAIC decides whether to take on a particular project.

A white paper on the multi-state compliance issues of self-insuring employers "could serve as a basis for action by individual states to come closer to each other," Mr. Pantos said.

SIIA said it knows that achieving greater regulatory consistency in the area of workers comp is not an easy task.

"We are aware of the historical state-specific environment within which the workers compensation system was established and operates," SIIA wrote in its presentation to the NAIC/IAIABC Joint Working Group. "We know that there is great diversity at the state level with various agencies, boards and commissions, each with unique statutory jurisdiction over workers comp programs."

According to Mr. Pantos, statistics show that single employers increasingly are moving toward self-insurance. Approximately 40 percent of all workers comp program premiums and premium equivalents are covered by self-insured arrangements, he said. In the 1980s, that figure was only 20 percent, SIIA noted.

On the other hand, Oklahoma's Mr. Andreatta reported that for the past three years, the number of individual employer workers comp self-insureds has hovered at 240, even with new applications received each year. He attributed the steadfastness to mergers and acquisitions in various industries.

Mr. Pantos explained that many companies prefer to self-insure workers comp to avoid the administrative costs associated with insurance policies and to ensure higher-quality claims handling.

Industry data indicates that the total benefits paid by private self-insured workers comp programs, including group funds and individual employer programs, exceed $11 billion annually, SIIA said.

The group also reported that, according to the U.S. Department of Labor, approximately 35 states authorize group self-insurance for smaller employers that pool their risks and liabilities through group arrangements. Additionally, a U.S. Chamber of Commerce survey found that 47 states permit the self-insurance of workers comp for all purposes–individual and group.

No one from the IAIABC was present at the meeting of the NAIC/IAIABC Joint Working Group. As a result, the working group declined to say what if anything it might do about the issues raised by SIIA before advising the executive board of the IAIABC of those issues. "The industrial accident people weren't there -it's important for them to also register a viewpoint," Mr. Pantos said.

SIIA is still waiting to find out whether the NAIC wants to hear more on the topic. Mr. Pantos said there had been "some indication" that SIIA would be invited to the next NAIC national meeting in New Orleans in September.

Without NAIC interest, SIIA will not on its own take up the task of compiling a state-by-state survey of the regulation of workers comp self-insurers and of making specific recommendations, Mr. Pantos said.

But if the regulators are interested in delving into the topic further, he said, SIIA would be ready to lend support. SIIA could appoint some members of its workers comp committee, "particularly the large multi-state employers," to act as resources and even to work with the regulators "to identify areas where there could be some rationalization of the different systems," he said.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, August 19, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.