The ICRB implemented an Indiana assigned risk pool effective January 1, 2005. Let's take a dip in the pool and learn about the Indiana Pool, approved by the Indiana Department of Insurance on 11/16/04.
1. Assigned Risk 101
The ICRB is the licensed workers compensation rating organization in the state, created by statute. All insurance companies that write workers comp in Indiana by law must be members of the Bureau. The statute also designates the Bureau to be responsible for the assigned risk market in Indiana.
The assigned risk market provides coverage for employers who can’t find insurance in the regular market. It’s known as the market of last resort. In Indiana, all workers comp carriers reinsure (share) in the results of the assigned risk pool.
The statute requires that all insurance companies must be "reinsurers as among themselves." This means they must all share in the operating results (premiums collected from employers and losses or claims paid to injured workers) in the assigned risk market.
So, the assigned risk pool is the mechanism that enables the sharing or reinsuring of risk among the member carriers. Even though only a few insurance companies are actually writing the policies (servicing carriers), all share in paying for the losses.
Since 1970, Indiana has participated in the National Workers Compensation Reinsurance Pool (NWCRP). Indiana is one of 22 states in the National Pool.
2. Indiana Pool
In April 2003, the ICRB released an RFP soliciting bids for consultative assistance in the creation and implementation of a stand-alone Indiana WC Assigned Risk pooling mechanism.
Bureau management, at the direction of its Board of Governors, has developed an alternative pooling arrangement that will benefit the Indiana workers compensation system. We believe the proposed Indiana Pool offers several advantages over the current pooling mechanism under the National Pool. Let’s swim through the major pros and cons of the Indiana Pool concept:
Indiana Pool Pros:
The cornerstone of the proposed Indiana Pool is a fundamental change in the cash flow of assigned risk premiums and carrier assessments. The National Pool uses a cash flow approach wherein funds are distributed quarterly to all carriers in the State, less certain fixed expenses and losses paid. Over the ensuing years, these carrier distributions are “called back,” to pay claims and ongoing expenses. Uncollectible sums owed by insolvent carriers are assessed against the remaining Members.
In contrast, the Indiana Pool will hold and invest funds at the Pool level, and make distributions to and assessments from Pool member companies based on operating surplus and losses, not cash flow. Although carriers will lose the opportunity to directly invest the funds while losses are maturing, they will not forfeit investment income. Rather, the ICRB will invest the funds on the carriers’ behalf, while virtually eliminating the financial burden associated with carrier insolvencies, which have been in the millions of dollars.
Summary of Benefits:
Virtually eliminates the financial impact of insolvencies on member carriers
Reduces the costs of managing a pool financial credit policy
Eliminates continual shuffling of money between servicing carriers, the Pool and member companies
Supports Indiana banking institutions through the local deposit of funds
Accommodates eventual absorption of all functions into the ICRB, rather than requiring continued dependence on a vendor, should outsourcing become less attractive in future years
Indiana Pool Cons:
All new and renewal multi-state Assigned Risk policies that now include other National Pool states will have to be written as Indiana-only. Such employers will need to submit one more application than done today. For 2003 there were 709 multi-state policies that included Indiana vs. total policies in force of 8,372 (8.5%).
The costs associated with participation in the National Pool will continue indefinitely. Although no “new” costs will accrue for subsequent policy years, the run-off costs for prior policy years will continue to be assessed.
Carriers will not have the advantage of the inflow of new funds to offset the prior years’ assessments.
Carriers lose direct control over investment of Pool funds.
3. Multistate Assigned Risk Policies
The new Indiana assigned risk pool will be implemented effective January 1, 2005. An assigned risk pool is the mechanism used to equitably distribute results of the assigned risk plan (market of last resort) to carriers writing Indiana workers compensation insurance. Prior to 2005, the apportionment of results were achieved through participation in the National Workers Compensation Reinsurance Pool (NWCRP). Indiana was one of 22 states that participated in the NWCRP.
As a result of this proposed change, Indiana requires a separate workers compensation insurance policy to cover Indiana exposures.
New applications can only show Indiana in Item 3.A on the policy information page (only Indiana payroll and rates). No other states can be included. As in most states, Indiana also uses the Residual Market Limited Other States Insurance Endorsement (WC 00 03 26 A) for incidental out of state exposures.
All new and renewal multi-state Assigned Risk policies effective January 1, 2005 and after, that now include other National Pool states, will have to be written as Indiana-only. Such employers will need to submit one more application than done today. The ICRB website contains more information.
Renewal assigned risk policies will be handled in one of two ways, depending on whether Indiana is the dominant state (the state with the greatest payroll):
When Indiana is the Dominant State:
A renewal quote will be prepared for the Indiana exposure. A new application must be completed and submitted to the NCCI for other NWCRP states where operations continue to exist.
When Indiana is Included, but it is not the Dominant State:
A renewal quote will be prepared for all states on the policy except Indiana. A new application must be submitted to the ICRB for Indiana, as per the instructions included on our website at http://www.icrb.net/rm/rm_forminfo.htm.
4. For More Information
a. ICRB circular announcing the approval of the Indiana Pool on 11/16/04
b. Document prepared by ICRB for IDOI hearing on 10/13/04
also known as the Plan of Operation, and Indiana Workers Compensation Insurance Plan (WCIP)