WSR 17-09-061 PROPOSED RULES DEPARTMENT OF LABOR AND INDUSTRIES [Filed April 18, 2017, 10:44 a.m.]
Original Notice.
Preproposal statement of inquiry was filed as WSR 14-17-088.
Title of Rule and Other Identifying Information: Chapter 296-17B WAC, Retrospective rating for workers' compensation insurance and chapter 296-17 WAC, General reporting rules, classifications, audit and recordkeeping, rates and rating system for Washington workers' compensation insurance:
WAC 296-17B-010 Introduction and overview, 296-17B-300 Choosing loss limits, 296-17B-420 Premium administration expense charge, 296-17B-430 Incurred loss and expense charge, 296-17B-560 Determining your hazard group and size group, 296-17B-620 How we determine the performance adjustment factor, 296-17B-810 Discounted loss development factors, 296-17B-830 Expected loss ratio factors, 296-17B-910 Hazard Group 1 tables, 296-17B-920 Hazard Group 2 tables, 296-17B-930 Hazard Group 3 tables, 296-17B-940 Hazard Group 4 tables, 296-17B-950 Hazard Group 5 tables, 296-17B-960 Hazard Group 6 tables, 296-17B-970 Hazard Group 7 tables, 296-17B-980 Hazard Group 8 tables, 296-17B-990 Hazard Group 9 tables, and 296-17-901 Risk classification hazard group table.
Hearing Location(s): Department of Labor and Industries, 7273 Linderson Way S.W., Auditorium, Tumwater, WA 98501, on May 24, 2017, at 9:00 a.m.
Date of Intended Adoption: May 30, 2017.
Submit Written Comments to: Diane Doherty, Department of Labor and Industries, P.O. Box 44148, Olympia, WA 98504-4148, email Diane.Doherty@LNI.wa.gov, fax (360) 902-4988, by May 24, 2017, at 5:00 p.m.
Assistance for Persons with Disabilities: Contact Diane Doherty or the office of information and assistance by May 23, 2017, TTY (360) 902-5797 or (360) 902-5903.
Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: In 2010, the department hired an independent actuarial firm to review and recommend changes to the retrospective rating (retro) program. In 2011 significant changes to the rules governing the retro program were implemented, including the introduction of hazard groups, and offering additional choices in how firms and groups participate financially in the retro program.
Included in the 2011 rules was a commitment to repeat the studies that resulted in the hazard group assignments and changes to retro plan tables. These rules will implement the results of the updated studies, and will take effect with July 1, 2017, enrollment.
Reasons Supporting Proposal: Updating the hazard groups and rating plan tables continues to improve fairness in the distribution of refunds among the participants in the retro program.
Rule is not necessitated by federal law, federal or state court decision.
Agency Comments or Recommendations, if any, as to Statutory Language, Implementation, Enforcement, and Fiscal Matters: This rule will not change the amount of the aggregate refund distributed to retro participants. It will change the way the refund is distributed among all participants in the program based on the choices they make, the premium they pay and their losses or claims costs.
Name of Proponent: Department of labor and industries, governmental.
Name of Agency Personnel Responsible for Drafting: Diane Doherty, Tumwater, (360) 902-5903; Implementation: Tim Smolen, Tumwater, (360) 902-4835; and Enforcement: Victoria Kennedy, Tumwater, (360) 902-4997.
No small business economic impact statement has been prepared under chapter 19.85 RCW. RCW 19.85.025(3) does not apply to a rule described in RCW 34.05.310(4), and that subsection exempts rules that "set or adjust fees pursuant to legislative standards."
A cost-benefit analysis is not required under RCW 34.05.328. RCW 34.05.328 exempts from its requirements rules "that set or adjust fees pursuant to legislative standards." These proposed rules clarify one part of the process for calculating retrospective rating premiums.
April 18, 2017
Joel Sacks
Director
AMENDATORY SECTION (Amending WSR 14-24-084, filed 12/1/14, effective 1/1/15)
WAC 296-17-901 Risk classification hazard group table.
Effective ((July 1, 2014)) June 30, 2017.
AMENDATORY SECTION (Amending WSR 12-21-054, filed 10/15/12, effective 12/14/12)
WAC 296-17B-010 Introduction and overview.
Retrospective rating (retro) is a voluntary financial incentive program offered by the department of labor and industries to encourage improvements in workplace safety.
Chapter 296-17 WAC defines the standard method for determining the price of workers' compensation insurance for employers insured with the state fund. All employers insured with the state fund must pay the accident fund, medical aid fund, and supplemental pension fund premiums established in that chapter.
Employers who participate in retrospective rating bind themselves to the rules of the retrospective rating program found in this chapter. Under these sections, a participant's ultimate cost of workers' compensation insurance will be different than under chapter 296-17 WAC.
Employers participate in retrospective rating because it creates an opportunity to earn refunds of premiums they are required to pay under chapter 296-17 WAC. However, participation involves risk: Participants not successful in controlling losses can be assessed additional premiums.
Employers control losses by preventing workplace illnesses and injuries, and helping injured workers return to work.
Employers that participate in retro can enroll either individually or as members of a sponsored group. Enrollment is for a one-year coverage period, but it is possible for employers to join a sponsored group after the group's one-year coverage period has begun, at the beginning of a calendar quarter.
After a coverage period is over, the department evaluates premiums and claims losses and determines retro premiums according to these rules. If a retro group's or an individually enrolled employer's retro premiums are less than the standard premiums paid initially, that firm or group will receive a refund. If the retro premiums are more than the standard premiums initially paid, the firm or group will be assessed the additional amount. Calculation of retrospective premiums is defined further in this chapter. The department goes through this annual adjustment process three times for each coverage period.
The department will repeat the studies that resulted in the hazard group assignments and changes to retrospective plan tables that are shown in WAC 296-17-901, 296-17B-300, 296-17B-560, 296-17B-830, and 296-17B-910 through 296-17B-990. The repeated studies will determine whether the results are consistent with the expectation of improved fairness in the distribution of the retrospective rating refunds among participants. These repeated studies will be done by April 1, ((2014)) 2020.
The department will evaluate and if necessary update the tables beginning at WAC 296-17B-910 every five years.
AMENDATORY SECTION (Amending WSR 10-21-086, filed 10/19/10, effective 11/19/10)
WAC 296-17B-300 Choosing loss limits.
The loss limits you select will also affect your net insurance charge.
(1) Single loss occurrence limit: Your losses incurred for each claim occurrence will be limited by the amount of protection chosen, as described in WAC 296-17B-440. You must choose one of the following single loss occurrence limits:
• $120,000;
• $160,000;
• $250,000;
• $275,000;
• $380,000;
• $500,000;
• $550,000;
• $800,000;
• $1,000,000;
• Unlimited.
(2) Aggregate loss limits: The product of the sum of your losses incurred and the performance adjustment factor will be limited by the maximum and minimum loss ratios you select. You will choose both a maximum and minimum loss ratio limit from the options available in the tables. You can also choose loss limits between the options listed in the tables.
(3) Restrictions on choice of limits:
(a) If you wish to select a single loss occurrence limit other than unlimited, the four most recent quarters of standard premiums must be at least twice the limit chosen. For example, you can only choose a single loss occurrence limit of two hundred ((fifty)) seventy-five thousand dollars if your standard premiums in the four most recent calendar quarters were at least five hundred fifty thousand dollars.
(b) Your minimum loss ratio limit must be at least ((ten)) twenty percentage points lower than your maximum loss ratio limit.
(c) You can choose any maximum loss ratio between forty percent and one hundred sixty percent. Also you can choose any minimum loss ratio between zero percent and sixty percent. Your choice needs to be rounded to two decimal places. For example, you could choose a maximum loss ratio of ninety-eight and seventy-six one-hundredths percent.
(d) The three limits must be chosen so that the highest possible retrospective premiums ((cannot be more than twice the)) must be between 105% and 200% of standard premiums, assuming a performance adjustment factor of 1.0 and the same size and hazard groups as your most recent coverage period.
(((d) You can choose any maximum loss ratio between thirty percent and one hundred sixty percent. Also you can choose any minimum loss ratio between zero percent and sixty percent. Your choice needs to be rounded to two decimal places. For example, you could choose a maximum loss ratio of ninety-eight and seventy-six one-hundredths percent.)) (e) If at the time of adjustment, the standard premium at risk is less than one hundred five percent of the standard premium paid, the department will recalculate the adjustment results by amending your plan choices for the aggregate loss limits (maximum loss ratio, minimum loss ratio) so that the results conform to this requirement. The amendment of plan choices will be done in such a way as to make the best financial result for the participant. If that is not possible, the department will not adjust the premium at all: No refund or assessment will be calculated.
(f) If at the time of any annual adjustment, the standard premium you have paid places you in a size group outside of the options available in the appropriate hazard group table found in WAC 296-17B-910 through 296-17B-990, the department will change your single loss limit selection to unlimited.
AMENDATORY SECTION (Amending WSR 10-21-086, filed 10/19/10, effective 11/19/10)
WAC 296-17B-420 Premium administration expense charge.
You will pay a premium administration expense charge for your share of the expenses of the industrial insurance program that are not directly related to claims administration. To determine your premium administration expense charge, our actuaries will multiply your standard premiums by the premium administration expense factor, which is four and ((eight-tenths)) three-tenths percent. This charge is not performance adjusted.
The premium administration expense factor was determined using premium and expense data from fiscal years ((2007)) 2013 through ((2009)) 2015.
AMENDATORY SECTION (Amending WSR 10-21-086, filed 10/19/10, effective 11/19/10)
WAC 296-17B-430 Incurred loss and expense charge.
You will pay for the cost of your claims and their administration for those injuries and illnesses occurring during your retrospective rating enrollment period. You can protect yourself from high claims costs at the claim level with the single loss occurrence limit you select. You can protect yourself from high claims costs at the aggregate claims level with the maximum loss ratio you select.
Our actuaries will determine your incurred loss and expense charge by multiplying your losses incurred by the performance adjustment factor and one hundred ((seven)) nine percent, which is one plus the claims administration expense factor, currently ((seven)) nine percent.
Data from fiscal years ((2000)) 2006 through ((2009)) 2015 was used to determine the claims administration expense factor.
AMENDATORY SECTION (Amending WSR 10-21-086, filed 10/19/10, effective 11/19/10)
WAC 296-17B-560 Determining your hazard group and size group.
(1) Each risk classification is assigned to a hazard group, as shown in WAC 296-17-901. To determine your hazard group, we will first multiply your standard premiums in each risk class by the hazard group index for that risk class. This is called the adjusted standard premium. Hazard group indices are shown in subsection (3) of this section. We will then divide the total adjusted standard premiums by your total standard premiums, rounded to three decimal places to determine your average hazard index. We will assign you to a hazard group based on your average hazard index using the table in subsection (4) of this section.
(2) We will determine your size group based on your standard premiums using the table in WAC 296-17B-900.
(3) Hazard group index table.
(4) Average hazard index table.
Example:
• For your retrospective enrollment year, your group has exposure in risk classifications with Hazard Groups ((4)) 3 and 6 and corresponding standard premiums of $1,000,000 and $2,000,000 during the enrollment year.
• The Average Hazard Index value for your group is the total adjusted standard premiums divided by the total standard premiums or $((2,510,000)) 2,500,000/$3,000,000 = ((0.837)) 0.833 to three decimal places. This value ((0.837)) 0.833 is in the range between ((0.630 and 0.874)) 0.720 and 0.914.
• Therefore, your group will be assigned Hazard Group Number 5 during this annual adjustment.
AMENDATORY SECTION (Amending WSR 10-21-086, filed 10/19/10, effective 11/19/10)
WAC 296-17B-620 More about the performance adjustment factor.
There is no particular significance to the performance adjustment factor being less than, greater than, or equal to 1.0000. The performance adjustment factor is influenced by many things, including overall premium rates, large losses by either retro or nonretro employers, and what options retro participants select when enrolling.
A new performance adjustment factor is calculated for each annual retrospective rating ((annual)) adjustment so that loss ratios of retro and nonretro employers are equal after refunds and additional premium assessments have been paid.
AMENDATORY SECTION (Amending WSR 12-21-054, filed 10/15/12, effective 12/14/12)
WAC 296-17B-810 Discounted loss development factors.
At the time of adjustment, our actuaries determine discounted loss development factors by claim type, fund and enrollment period. Loss development factors account for the fact that claims ultimately cost the state fund more than they have cost ((the state fund)) to date, and more than they are estimated to cost ((the state fund)) at any particular point in time.
Discounting accounts for the fact that benefits are not paid at once, but rather are paid over a period of time. Discounts vary for different types of claims based on when benefits ((tend)) are expected to be paid.
((Separate discounted loss development factors will be calculated by fund and also by enrollment period at the time of each annual retrospective rating adjustment.))
AMENDATORY SECTION (Amending WSR 12-21-054, filed 10/15/12, effective 12/14/12)
WAC 296-17B-830 Expected loss ratio factors.
((The)) An expected loss ratio factor is a factor applied to case incurred loss amounts of claims and discounted loss development factors so that the ratio of discounted developed loss to standard premiums for the entire state fund used in the actuarial calculations equals the expected loss ratios. By doing this, loss ratios will not be expected to change simply because the department changed the rates for one fund significantly more than the rates for another fund. The expected loss ratios are:
Separate factors will be calculated by fund and also by enrollment period at the time of each annual retrospective rating adjustment.
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