Deductible and Coinsurance

Indiana law permits deductible and coinsurance options for workers compensation policies.;

Summary
Deductible policies are available under Indiana's competitive rating law.
 
Carriers are required to report the full value of the claim to ensure rate integrity. Also, Indiana is a gross reporting state, meaning the full amount of the claim is used in calculating employer experience rating modifications. 
 
Carriers are required to file their larger deductible programs with the Department of Insurance.
 
Indiana Statutory Small Deductible Program
Indiana law permits deductible and coinsurance options for workers compensation policies per IC 22-3-5-5.5.
 
Deductibles may be available from $500 to $5000 with premium reductions ranging from 1.4% to 20.8% depending on the deductible level and the risk's hazard grade.
 
A carrier may offer this coverage. It is up to the carrier to make the offer on these options. The statute says "(a) Each insurer entering into or issuing an insurance policy under IC 22-3-2 through IC 22-3-7 may, as a part of the policy or as an optional endorsement to the policy, offer deductibles or co-insurance, or both, that are optional to the insured for benefits under IC 22-3-2 through IC 22-3-7."

Note the reference to "benefits" here and throughout the statute. Therefore loss adjustment expenses are not recoverable as part of the deductible.

Assigned Risk Small Deductible Program
The Indiana Assigned Risk rules do not address whether or not the small deductible rules preempt the statute.  Since the statute leaves the decision up to the carrier, the assigned risk servicing carriers may or may not offer the small deductible program.  The Servicing Carrier will underwrite the request by considering items such as policy size, financial strength of the employer, and appropriateness versus the risk's loss history.

Indiana DOI issued Bulletin 72, which explains the statute. Here's an explanation of the amounts allowed by law and the reasons for offering deductible and coinsurance options.

Deductible
Deductible amounts are available in multiples of $500, up to a maximum of $5000 per claim. Here's how it works: if an insured has a $1000 deductible and there was a $23,000 claim, then he must pay the first $1000 and the carrier will pay the rest ($22,000). The deductible clause reduces the price of insurance by eliminating numerous small claims that are relatively expensive for the carrier to handle and encourages the insured to prevent losses. However, the total amount of the claim is used in the experience rating.

Coinsurance
The coinsurance amounts are 80/20, meaning the carrier pays 80% of the claim and the insured pays 20%. Coinsurance applies to the first $21,000 of a claim, so the maximum amount an insured would pay on a claim is $4200 ($21,000 x 20%). A coinsurance clause reduces the price of insurance by the insured sharing in paying for the loss and encourages loss prevention.

Options
In Indiana, a carrier can offer one of four options to the insured:
1. offer nothing (no deductible and no coinsurance)
 
2. offer deductible program only
[carrier attach the Indiana Benefits Deductible Endorsement WC 13 06 04]
 
3. offer coinsurance program only
[carrier attach the Indiana Coinsurance Endorsement WC 13 06 03]
 
4. offer a combination of both deductible and coinsurance programs
[carrier attach the Indiana Coinsurance and Deductible Endorsement WC 13 06 02]

Gross vs. Net Reporting
In Indiana, the total amount of the claim is reported and used in the experience rating. Indiana is considered a "gross reporting" state versus a "net reporting" state for experience rating. For a list of "gross vs. net" states, refer to the NCCI Unit Statistical Reporting Guidebook, Part 7 Exhibits. As of January, 2011, 16 states use net deductible programs, and 20 states use gross deductible programs (note some states are listed under both categories).

States with "Net Deductible Programs" (see manual for state specific notes)
Alabama, Colorado, Georgia, Hawaii, Idaho, Iowa, Kansas, Kentucky, Maine, New Mexico, Oklahoma, Oregon, Rhode Island, South Carolina.
States with "Gross Deductible Programs"
Arkansas, Connecticut, District of Columbia, Illinois, Indiana, Louisiana, Maryland, Mississippi, Montana, Nebraska, Nevada, New Hampshire, North Carolina, Tennessee, Texas (with exceptions), Utah, Vermont, Virginia. 
 
States with both Net and Gross Programs
Florida, Missouri, South Dakota
NCCI Actuarial Committee reviewed the topic in "Unintended Consequences of Net​ Experience Rating"  and it contains a good explanation of the issues.


Statistical Reporting
The Statistical Plan - 2008 Edition Rule 6-E explains how carriers must report deductible programs under the new Unit Report Expansion (URE) program. For Indiana the reporting requirements are summarized in the chart below.  

Note that Indiana is a "gross reporting" state for experience rating purposes. 
 
Report Item
Choice for Indiana
Category:
Claim Deductible
Premium Credit Table:
Hazard Group % of Class with Most Premium
Experience Rating:
Gross (statistical code = 9664)
Deductible Type Coding:
Position 1 = 03;
Position 2 = 01 if ded only, 06 if coins only, 07 if both
Deductible Amount per Claim Field:
$500 - $5,000 (in $500 increments)
Deductible Amount Aggregate Field:
$21,000 ($21,000 x .20 = $4200 insured max)
Deductible Percent Field:
20%

Please open the document titled "​​Reporting of Deductible Programs" for more detailed information on reporting.

Employer Failure to Reimburse Carrier
IC 22-3-5-5.5  Deductibles and co-insurance

“(d) The payment or nonpayment of a deductible or co-insurance amount by an insured employer to the insurer shall be treated under the policy insuring the liability for worker's compensation in the same manner as payment or nonpayment of premiums is treated.”

The statute supports policy cancellation for non payment of premium by the employer.

Large Deductibles
If any insurance carrier wants to write large deductible programs they must directly file these with the Department of Insurance.  The ICRB has no jurisdiction over this process.

Large deductible policies are generally defined as those with deductible amounts of $100,000 or more.  For a premium credit between 75-85%, an employer agrees to cover a per-claim or per-occurrence deductible of at least $100,000. These policies are designed for large employers. This alternative can be attractive to both employers and carriers. Employers realize reduced premiums and can lower their claim costs because they are motivated to create safer workplaces and improved loss control programs. Carriers save on taxes and assessments, as well as through the employers' increased incentive to control losses.


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