Original Notice.

     Preproposal statement of inquiry was filed as WSR 06-13-083.

     Title of Rule and Other Identifying Information: 2007 industrial insurance premium rates, chapter 296-17 WAC, General reporting rules, classifications, audit and recordkeeping, rates and rating system for Washington workers' compensation insurance.

     This rule proposal will amend the tables of classification base premium rates, experience rating plan rates and factors, and retrospective rating plan size groupings for the workers' compensation insurance program for calendar year 2007. New classification base rates were calculated based on updated loss and payroll experience resulting in an overall average 2% general rate decrease in the premium rates being proposed.

     Proposal establishes premium rates for workers' compensation insurance classifications for calendar year 2007 and modifications to the related experience rating and retrospective rating plans: WAC 296-17-855 Experience modification, 296-17-875 Table I primary losses for selected claim values, 296-17-880 Table II primary and excess credibility values, 296-17-885 Table III expected loss rates and primary ratios, 296-17-890 Table IV maximum experience modifications, 296-17-895 Base rate table by class of industry, 296-17-89502 Industrial insurance rates for nonhourly rated classifications, 296-17-90492 Table I retrospective rating plans A, A1, A2, A3 and B, standard premium size ranges, and 296-17-920 Assessment for supplemental pension fund.

     Hearing Location(s): Yakima Service Office, Department of Labor and Industries, 15 West Yakima Avenue, Yakima, WA 98902, on October 19, 2006, at 1 p.m.; at the WestCoast Ridpath Hotel, 515 West Sprague Avenue, Spokane, WA 99201, on October 20, 2006, at 10 a.m.; at the Best Western CottonTree Inn, Fidalgo Room, 2300 Market Street, Mt. Vernon, WA 98273, on October 23, 2006, at 10 a.m.; and at the Department of Labor and Industries Building, Room S117-118, 7273 Linderson Way S.W., Olympia, WA 98504, on November 6, 2006, at 10 a.m.

     Date of Intended Adoption: November 21, 2006.

     Submit Written Comments to: Ronald Moore, Acting Program Manager, Employer Services, P.O. Box 44140, Olympia, WA 98504-4140, e-mail mooa235@lni.wa.gov, fax (360)902-4748, by November 6, 2006, at 5 p.m.

     Assistance for Persons with Disabilities: Contact Office of Information and Assistance by October 18, 2006, TTY (360) 902-5797.

     Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: This rule proposal will amend the tables of classification base premium rates, experience rating plan rates and factors, and retrospective rating plan size groupings for the workers' compensation insurance program for calendar year 2007. New classification base rates were calculated based on updated loss and payroll experience resulting in an overall average 2% general rate decrease in the premium rates being proposed. The decrease was a result of a strong state economy, a good return on investments, and L&I's ability to control its health care costs. The B&W tables for experience rating were replaced with primary and excess credibility tables which will be easier for the customers to understand. The credibilities were changed so that the accuracy of the individual firm rates for medium to large firms will be increased and so that the change in experience factors will be reasonable for small changes to the loss experience for the smaller firms. This proposal specifically amends WAC 296-17-855, 296-17-875, 296-17-880, 296-17-885, 296-17-890, 296-17-895, 296-17-89502, 296-17-90492, and 296-17-920.

     Reasons Supporting Proposal: Insurance base rates and experience rating tables are being modified to reflect changes in loss data associated with the classification and rating plan from the previous 2006 rating period. Washington law provides that rates should be adjusted annually to reflect the hazards of each industry and in accordance with the rating plan. Similarly the rating plan is revised to recognize changes within the industry groups.

     Statutory Authority for Adoption: RCW 51.16.035 Base rates, 51.32.073 Supplemental pension, 51.08.010 Retrospective rating and 51.04.020(1) General authority.

     Statute Being Implemented: RCW 51.16.035, 51.32.073, 51.18.010, and 51.04.020(1).

     Rule is not necessitated by federal law, federal or state court decision.

     Name of Proponent: Department of labor and industries, governmental.

     Name of Agency Personnel Responsible for Drafting: Bill Moomau, Tumwater, Washington, (360) 902-4774; Implementation: Ronald Moore, Tumwater, Washington, (360) 902-4748; and Enforcement: Robert Malooly, Tumwater, Washington, (360) 902-4209.

     No small business economic impact statement has been prepared under chapter 19.85 RCW. In this rule making the agency is exempt from preparing a small business economic impact statement when the proposed rules set or adjust fees or rates pursuant to legislative standards. This exemption is described in RCW 34.05.310 (4)(f).

     A cost-benefit analysis is not required under RCW 34.05.328. In this rule making, the agency is exempt from conducting a cost-benefit analysis since the proposed rules set or adjust fees or rates pursuant to legislative standards described in RCW 34.05.328 (5)(b)(vi).

September 5, 2006

Gary Weeks

Director

OTS-9179.3

AMENDATORY SECTION(Amending WSR 05-23-162, filed 11/22/05, effective 1/1/06)

WAC 296-17-855   Experience modification.   The basis of the experience modification shall be a comparison of the actual losses charged to an employer during the experience period with the expected losses ((which would be expected)) for an average employer reporting the same exposures in each classification. The comparison shall contain actuarial refinements designed to ((mitigate the effects of losses which may be considered catastrophic or of doubtful statistical significance)) weigh the extent to which the actual experience is credible, due consideration being given to the volume of the employer's experience. Except for those employers who qualify for an adjusted experience modification as specified in WAC 296-17-860 or 296-17-865, the experience modification factor shall be calculated from the formula:

((MODIFICATION	=	Ap + WAe + (1-W) Ee + B
		E + B))

EXPERIENCE MODIFICATION FACTOR	=	(Credible Actual Primary Loss + Credible Actual Excess Loss)/Expected Loss
Where
Credible Actual Primary Loss	=	Actual Primary Loss x Primary Credibility
	+	Expected Primary Loss x (100% -Primary Credibility)
Credible Actual Excess Loss	=	Actual Excess Loss x Excess Credibility
	+	Expected Excess Loss x (100% -Excess Credibility)

     ((The components Ap, WAe, and (1-W) Ee are values which shall be charged against an employer's experience record. The component, E, shall be the expected value of these charges for an average employer reporting the same exposures in each classification.)) The meaning and function of each ((symbol)) term in the formula is specified below.

     (("Ap" signifies "primary actual losses.")) For each claim, the actual primary ((actual)) loss is ((defined as that portion of the claim which is considered completely rateable for all employers and which is to enter the experience modification calculation at its full value)) the first dollar portion of the claim costs, which has been shown in actuarial studies, to have the greater credibility in predicting future experience. These amounts are summed over all claims. For each claim in excess of (($18,972)) $19,560 the actual primary ((actual)) loss shall be determined from the formula:

ACTUAL PRIMARY LOSS	=	((47,430)) 48,900	x total loss
		(Total loss + ((28,458)) 29,340)

     ((Primary actual losses for selected claim values are shown in Table I.)) For each claim, less than (($18,972)) $19,560 the full value of the claim shall be considered a primary loss.

     (("Ae" signifies "excess actual losses.")) For each claim, the excess actual loss is ((defined as that portion of the claim which is not considered completely rateable for all employers)) the remaining portion of the claim costs, which have been shown in actuarial studies to have less credibility in predicting future experience. The excess actual loss for each claim shall be determined by subtracting the primary loss from the total loss. These amounts are summed over all claims.

     For any claim without disability benefits (time loss, partial permanent disability, total permanent disability or death) either actually paid or estimated to be paid, the total actual losses for calculating the primary loss and excess loss shall first be reduced by the lesser of $1,510 or the total cost of the claim. Here are some examples for these claims:

Total Loss	Total Loss (after deduction)	Primary Loss	Excess Loss
200	-	-	-
2,000	490	490	-
20,000	18,490	18,490	-
200,000	198,490	42,603	155,887
2,000,000	487,490	46,124	441,366

Note:

The deduction, $1,510, is twice the average case incurred cost of these types of claims occurring during the three-year period used for experience rating. On average this results in reducing the average actual loss about seventy percent for these types of claims adjusted. This is done to help make the transition between the two different experience rating methods better by helping make the change in experience factor reasonable for small changes to the actual losses. The $2,000,000 loss is limited by the Maximum Claim Value before the reduction of $1,510 is applied.

     (("W" signifies "W value.")) For each employer, the ((W value)) primary credibility and the excess credibility determines the ((portion of)) percentage weight given to the corresponding actual primary losses and the actual excess losses ((which shall be)), included in the calculation of ((his)) the experience modification, ((due consideration being given to)) based on the volume of ((his experience)) expected losses. ((This amount is represented by the symbol "WAe" in the experience modification formula. W values)) Primary credibility and excess credibility values are set forth in Table II.

     (("E" signifies "expected losses.")) An employer's expected losses shall be determined by summing the expected loss for each of the three years of the experience period, which are calculated by multiplying ((his)) the reported exposure in each classification during the ((experience period)) year by the corresponding classification expected loss rate and rounding the result to the nearest cent. Classification expected loss rates by year are set forth in Table III.

     (("Ee" signifies "expected excess losses.")) Expected losses in each classification shall be multiplied by the classification "((D)) Primary-Ratio" to obtain "expected primary losses((.))" which shall be rounded to the nearest cent. Expected excess losses shall then be calculated by subtracting expected primary losses from expected total losses rounded to the nearest cent. ((Each employer shall have a statistical charge included in the calculation of his experience modification, said charge to be actuarially equivalent to the amount forgiven an average employer because of the exclusion of a portion of his excess actual losses. This charge is represented by "(1-W) Ee" in the experience modification formula. D)) Primary-Ratios are also set forth in Table III.

     (("B" signifies "B value" or "ballast." In order to limit the effect of a single severe accident on the modification of a small employer, a stabilizing element (B value) shall be added to both actual and expected losses. B values are set forth in Table II.))

[Statutory Authority: RCW 51.04.020, 51.16.035, and 51.32.073. 05-23-162, § 296-17-855, filed 11/22/05, effective 1/1/06; 04-24-025, § 296-17-855, filed 11/23/04, effective 1/1/05. Statutory Authority: RCW 51.04.020, 51.16.035, 51.32.073, and 51.18.010. 03-24-066, § 296-17-855, filed 12/1/03, effective 1/1/04. Statutory Authority: RCW 51.16.035, 51.32.073, 51.18.010, and 51.04.020(1). 02-24-029, § 296-17-855, filed 11/27/02, effective 1/1/03. Statutory Authority: RCW 51.04.020, 51.16.035, 51.32.073, 51.18.010. 01-23-061, § 296-17-855, filed 11/20/01, effective 1/1/02; 00-23-101, § 296-17-855, filed 11/21/00, effective 1/1/01. Statutory Authority: RCW 51.16.035, 51.04.020. 00-14-052, § 296-17-855, filed 7/1/00, effective 7/1/00. Statutory Authority: RCW 51.04.020, 51.16.035 and 51.32.073. 99-24-055, § 296-17-855, filed 11/29/99, effective 12/31/99; 98-24-094, § 296-17-855, filed 12/1/98, effective 1/1/99; 97-24-062, § 296-17-855, filed 12/1/97, effective 1/1/98; 96-24-063, § 296-17-855, filed 11/29/96, effective 1/1/97. Statutory Authority: RCW 51.04.020. 95-23-080, § 296-17-855, filed 11/20/95, effective 1/1/96; 94-24-007, § 296-17-855, filed 11/28/94, effective 1/1/95; 93-24-114, § 296-17-855, filed 12/1/93, effective 1/1/94. Statutory Authority: RCW 51.04.020(1) and 51.16.035. 93-12-093, § 296-17-855, filed 5/31/93, effective 7/1/93; 92-24-063, § 296-17-855, filed 11/30/92, effective 1/1/93; 91-24-053, § 296-17-855, filed 11/27/91, effective 1/1/92; 90-24-042, § 296-17-855, filed 11/30/90, effective 1/1/91; 89-24-051 (Order 89-22), § 296-17-855, filed 12/1/89, effective 1/1/90. Statutory Authority: RCW 51.16.035 and 51.04.020. 88-24-012 (Order 88-30), § 296-17-855, filed 12/1/88, effective 1/1/89. Statutory Authority: RCW 51.16.035. 87-24-060 (Order 87-26), § 296-17-855, filed 12/1/87, effective 1/1/88. Statutory Authority: RCW 51.04.020(1) and 51.16.035. 86-24-042 (Order 86-41), § 296-17-855, filed 11/26/86. Statutory Authority: RCW 51.16.035. 85-24-032 (Order 85-33), § 296-17-855, filed 11/27/85, effective 1/1/86; 84-24-016 (Order 84-23), § 296-17-855, filed 11/28/84, effective 1/1/85; 83-24-017 (Order 83-36), § 296-17-855, filed 11/30/83, effective 1/1/84; 82-24-047 (Order 82-38), § 296-17-855, filed 11/29/82, effective 1/1/83; 81-24-042 (Order 81-30), § 296-17-855, filed 11/30/81, effective 1/1/82; 80-17-016 (Order 80-23), § 296-17-855, filed 11/13/80, effective 1/1/81. Statutory Authority: RCW 51.04.030 and 51.16.035. 79-12-086 (Order 79-18), § 296-17-855, filed 11/30/79, effective 1/1/80; Order 77-27, § 296-17-855, filed 11/30/77, effective 1/1/78; Order 74-40, § 296-17-855, filed 11/27/74, effective 1/1/75; Order 73-22, § 296-17-855, filed 11/9/73, effective 1/1/74.]

(("B" and "W" Values
Effective January 1, 2006

Maximum Claim Value = $ 474,300
Average Death Value = $ 208,747

PRIMARY AND EXCESS CREDIBILITY VALUES
Effective January 1, 2007

Maximum Claim Value = $ 489,000
Average Death Value = $ 191,760