Indiana law requires employers to carry workers compensation insurance or self-insure. When employers cannot find coverage in the regular (voluntary or open) market, then what can they do?
Well, our law also provides a "safety net" or "market of last resort" for those employers so they can buy a workers compensation policy and stay in business. This safety net is what we call the assigned risk market, or the residual market, or the involuntary market. It is truly the market of last resort for employers who otherwise would not have workers compensation insurance protection.
The law makes the Bureau responsible for setting up this market of last resort. Now we will explain how it all works in terms of who the players are and what documents are involved.
Indiana Department of Insurance
The Indiana Department of Insurance (IDOI) regulates all insurance in the state.
Indiana Compensation Rating Bureau
The Indiana Compensation Rating Bureau (ICRB) is the workers compensation rating organization in the state. It is created by the Indiana Workers Compensation Statute (IC 27-7-2-3). All insurance companies that write workers compensation insurance in Indiana by law must be members of the Bureau. The ICRB receives its license to operate from the IDOI. The statute also designates the Bureau to be responsible for the assigned risk market in Indiana (IC 27-7-2-28.1).
Accordingly, the ICRB is also the "Plan Administrator" in Indiana. To carry out that responsibility, the Bureau has filed a set of rules on how the assigned risk market operates within the requirements of the law. This set of rules is called the Workers Compensation Insurance Plan (WCIP) also known as the assigned risk plan. In our Plan, the Bureau decided to participate in the National Workers Compensation Reinsurance Pool (NWCRP).
National Workers Compensation Reinsurance Pool
Prior to January 1, 2005, the Indiana Workers Compensation Insurance Plan was reinsured through the National Workers Compensation Reinsurance Pool (NWCRP), pursuant to quota share reinsurance agreements between the NWCRP participating companies. The NWCRP has since merged with and into the National Workers Compensation Reinsurance Association NFP (NWCRA), which is governed by the NWCRA Board of Directors, and for which NCCI, Inc. provides contractual administrative services. For additional information regarding the NWCRA, please contact NCCI or refer to the NCCI.com website.
National Council on Compensation Insurance
National Council on Compensation Insurance (NCCI) provides many services dealing with workers compensation to insurance companies across the country. For purposes of this explanation, NCCI was hired by the National Pool Board to keep track of or administrate the Pool financial matters (premiums and losses shared among all insurance companies). So, the Pool Board hired NCCI to be its bookkeeper. Therefore, in this role, the NCCI performs services as the "Pool Administrator."
The definition of "Administrator" is found in the Item Filing RM-W-8024, Articles of Agreement, on page 26 of the filing memorandum. Here's an excerpt of the relevant definition:
Article I Definitions - Rules of Construction
The term "Administrator" shall mean the entity designated by the Board of Governors to provide the necessary administrative services as are required to achieve the purposes of these Articles of Agreement."
The Bureau has also hired NCCI to perform some services. Please note that NCCI has no rule-making authority for Indiana related issues. That authority belongs to the ICRB as the licensed rating bureau in Indiana (and Plan Administrator), subject to approval by the IDOI. However, as part of its services to the Bureau, NCCI does assist in, and recommend changes to, our rules.
An insurance company selected by the Bureau to actually write an assigned risk policy and provide insurance services to the employer, just like in the regular market.
A business entity in Indiana that needs workers compensation insurance. An employer is also known as the insured, risk, or policyholder. Now you can see why we call it an "assigned risk" market, because the Bureau "assigns" a carrier to a "risk" (the employer).
Okay, so how does the Bureau go about matching up employers who can't find insurance, to these servicing carriers who provide the insurance coverage? And how to you keep track of who owes what to whom, and when? Well, we have a bunch of documents or agreements that spell all of this out in quite of bit of detail. The concept is simple - assigning employers to insurance companies - but getting it done with just a handshake is too shaky. So, putting the concept on paper gives us a lot of legal jargon. These documents, like a jigsaw puzzle, piece it all together.
Workers Compensation Insurance Plan
The Bureau has filed a set of rules on how the assigned risk market operates within the requirements of the law. This set of rules is called the Workers Compensation Insurance Plan (WCIP) also known as the assigned risk plan. The Indiana Plan and subsequent revisions are submitted as item filings. Some filings have dealt with minor form and endorsement changes. The more significant filings are shown below. For a list of all filings, please see document titled "Filings List."
Item Filing W-8014, "Restructured WCIP" effective February 1, 1993.
Item Filing RM-W-8017, "Revised WCIP" effective April 1, 1996 reorganized the contents and added electronic and phone submissions of applications as the NCCI RMAP System was introduced.
Item Filing RM-02-IN-95 "Revised WCIP Amended" also effective April 1, 1996 replaced RM-W-8017 to clarify signature and confidentiality issues.
Item Filing RM-01-IN-96 "Amendments to Indiana WCIP" also effective April 1, 1996 changed Plan wording to be consistent with Indiana law regarding three declinations of voluntary coverage and both Bureau and Board approval to cancel assigned risk policies.
Item Filing RM-W-8018 "Residual Market Limited Other States Insurance" effective February 1, 1997 modified the Part Three, Other States Insurance coverage, on the standard policy. This is the most recent change to the Indiana WCIP.
Item Filing RM-W-8020 "Proposed Revisions to the Articles of Agreement of the NWCRP" effective March 5, 1997 proposed alternative reinsurance mechanisms and was withdrawn at the request of the Indiana Department of Insurance effective December 9, 1997.
Item Filing RM-W-8021 "Modified WCIP" effective January 1, 2002 modified the NWCRP Board's authority to discharge its fiduciary duties, provided the Pool members a greater voice in matters that directly affect the financial interests of the Pool participants, and assisted the Regulator with Plan expense oversight.
This filing was originally proposed to be effective January 1, 1999, but was tabled by the ICRB Board. Upon the Board's approval of RM-W-8024 in December 2001, the Board then approved RM-W-8021 via mail vote in January 2002, with DOI approval in March 2002.
Item Filing RM-W-8024 "WCIP Proposed Amendments to the NWCRP Articles of Agreement" effective January 1, 2002. The filing:
a) established a Pool Financial Credit Policy,
b) allowed the Pool Board to commute liabilities, and
c) provided that the Pool Board can review and accept certain standards established by the ICRB as Plan Administrator.
The credit policy protects the Pool participants from the credit exposure posed by carriers with less than an A- Best Rating.
The commutation rule allows the Pool Board to commute liabilities if at some point in the future it would be an economically wise decision. For instance, the Board could choose to commute all claims from the early years of the Pool in order to lock in a loss ratio form those early years and eliminate data reporting and accounting expenses. An economic benefit could be derived by transferring the liabilities to high quality reinsurers. Thus, the intent of these Articles changes is to allow the Pool Board to direct its vendor, NCCI, on Pool financial policies and decisions.
The review provisions assure that communication will occur between the Plan Administrator (the ICRB) and the Pool Board. The Articles do not intend that the Pool Board would have any authority over the Plan administrator (ICRB Board). However, the Articles provide that the Pool Board can review and accept certain standards established by the ICRB as Plan Administrator. The intent in the rule is that the Pool Board, as the reinsurer, desires to know what's going on, as any reinsurer would want to know and should know.
Item Filing RM-W-8040 "Revisions to Basic Manual Rule 4-C Loss Sensitive Rating Plan" effective January 1, 2012 revises the Basic Manual for Workers Compensation and Employers Liability Insurance Rule 4-C—Loss Sensitive Rating Plan (LSRP) to:
Raise the eligibility threshold from $100,000 to $250,000
Revise the renewal quote notification requirement to apply to all assigned risk policies
Increase the basic premium factor from 0.30 to 0.40
Item Filing RM-02-IN-02 "Amended LSRP" effective December 1, 2001 amended the Assigned Risk Mandatory Loss Sensitive Rating Plan (LSRP) that changes the eligibility premium threshold from $200,000 to $100,000. Additionally, this filing changed the renewal premium quotation threshold upon which notification of the possible applicability of LSRP is required to $50,000. Servicing carriers are required to provide this notice on renewal quotes.
"Indiana Assigned Risk Reinsurance Pool" Filing effective January 1, 2005 established a stand-alone Indiana pooling mechanism to replace the previous arrangement with the National Workers Compensation Reinsurance Pool (1970-2004).
Articles of Agreement (NWCRP)
An agreement that sets forth the framework for participation in the National Pool reinsurance mechanism.
The Articles create a reinsurance mechanism and thus assure that all insurance companies are "reinsurers as among themselves" as required by Indiana law (IC 27-7-2-29). This agreement is a contract among all insurance companies who join the National Pool. The Articles basically guarantee that the few servicing carriers who do all the work are reinsured (losses are shared) by all carriers in the state. The Articles are signed by all insurance companies in Indiana (who are also members of the National Pool by signing the Articles).
The Articles of Agreement are included in the WCIP. Section IV - Participation in the WCIP provides that "All insurers licensed to write workers compensation insurance in this state are required to participate in this Plan and subscribe to the Articles of Agreement..."
The Articles were purposely incorporated into the Plan under Item Filing W-8014. This filing also directed that the restructured Plan (including the Articles) be printed in the Basic Manual. The full text of the Articles currently appears in the NCCI Basic Manual Assigned Risk Supplement, pages POOL-35 through POOL-50, and on the NCCI website. There are twelve articles to the agreement.
Quoting from the filing memorandum: "Perhaps one of the most significant changes is the incorporation of the Articles of Agreement into the Plan. This expressly subjects the Articles and the reinsurance mechanism it creates to regulatory approval and oversight and brings together the separate elements of the residual market into a single regulated mechanism."
Quota Share Reinsurance Agreement
An agreement between the servicing carrier and subscribers to the Articles of Agreement whereby the servicing carrier agrees to cede the premium and the Pool participating companies agree to accept the liability for eligible losses that arise under the Plan policies.
This Agreement describes the responsibilities of the servicing carriers and all other members of the National Pool. It guarantees that the servicing carriers will do their job and that the other carriers will share in the losses. The Agreement is signed by the servicing carriers and all other insurance companies in Indiana.
Interest and Liabilities Agreement
This Agreement is a subset of the Quota Share Reinsurance Agreement and is also signed by the servicing carriers and all other insurance companies in Indiana.
Servicing Carrier Contract
An agreement between the Servicing Carrier and the Plan Administrator (Indiana Compensation Rating Bureau) outlining the powers and duties of the Servicing Carrier and Plan Administrator.
This contract describes the responsibilities of the servicing carriers as required by the Bureau. It sets up the relationship between the Bureau, which is responsible for the entire assigned risk plan, and the servicing carriers it has selected to actually write the assigned risk policies and provide insurance services to the employers. The contract is signed by the ICRB and the servicing carriers.
Servicing Carrier Performance Standards
This document sets minimum criteria for servicing carriers to follow in delivering services to policyholders. The purpose is to provide quality service while reducing overall loss ratio of the Pool results. The standards are compiled annually by NCCI and approved by the National Pool Board of Governors. The standards are then submitted as an item filing in Indiana where the ICRB Governing Board and IDOI approve the standards. The year 2005 standards are currently in effect in Indiana as of January 2005.
This Agreement appoints the NCCI as Pool Administrator for the National Pool to perform a range services including financial, actuarial, and servicing carrier oversight services. The Agreement is signed by NCCI and the National Pool Board chair, acting on behalf of all National Pool members.
This Agreement is a subset of the Administration Agreement to continue the contract. It is also signed by NCCI and the National Pool Board chair, acting on behalf of all National Pool members.
The Indiana Code is available on the State of Indiana website at this address: http://www.state.in.us/legislative/ic/code/.