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Workers' Compensation Residual Market Overview by Cliff Merritt

Explore the concept of residual markets in workers' compensation insurance, including NCCI's Workers Compensation Insurance Plan (WCIP) and reinsurance pools. Learn about state-specific mechanisms and program details.

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Workers' Compensation Residual Market Overview by Cliff Merritt

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  1. Workers Compensation Residual Market OverviewCliff MerrittNCCIResidual MarketsHelena, MontanaNovember 7, 2003 1

  2. Residual Markets • In order to ensure that all employers have some means of complying with their statutory obligations, many states have created a market of last resort—the residual market. • The Residual Market within a particular state can be in the form of: • NCCI’s WCIP (Workers Compensation Insurance Plan) • Assigned Risk Reinsurance Pool • State Fund • JUA (Joint Underwriting Association) • Alternative Assigned Risk Plan 2

  3. NCCI’s WORKERS COMPENSATION INSURANCE PLAN (cont’d) • The PLAN is the set of rules that govern the administration of the residual market and are approved by the state regulatory authority • the random and equitable assignment of employers to assigned carriers (i.e., direct assignment and servicing carriers) • administration • eligibility of employers • participation of carriers • policy issuance requirements • duties and responsibilities of the Plan Administrator and assigned carriers 3

  4. NCCI’s WORKERS COMPENSATION INSURANCE PLAN (cont’d)) • NCCI provides Plan Administration services in the following states as of 1/2003: AL, AK, AR, AZ, CT, DE, DC, GA, ID, IN, IA, IL, KS, MS, NH, NJ, NM, NV, NC, OR, SC SD, VA, VT • NCCI also provides Pool Administration services in the following states: AL, AK, AR, AZ, CT, DE, DC, GA, ID, IN, IA, IL, KS, MA, MI, MO, NH, NJ, NM, NV, NC, OR, SC, SD, VA, VT 4

  5. RESIDUAL MARKET WORKERSCOMPENSATION REINSURANCE POOLS • The POOL is a contractual agreement among participating insurers to share in the operating results arising out of Plan assignments. • The largest reinsurance pooling arrangement is the National Workers Compensation Reinsurance Pool (NWCRP or National Pool or Pool) for which NCCI serves as Administrator. 5

  6. RESIDUAL MARKET WORKERSCOMPENSATION REINSURANCE POOLS (cont’d) • Participating companies in the National Pool share in the operating results of the Pool for those states where they are participating, in proportion to their share of the total voluntary workers compensation insurance premium in that state. 6

  7. STATE RESIDUAL MARKET MECHANISMS STATESTATE FUNDRESIDUAL MARKET Arizona Competitive NWCRP California Competitive State Fund Colorado Competitive State Fund Hawaii Competitive State Fund Idaho Competitive NWCRP Kentucky Competitive State Fund Louisiana Competitive State Fund Maine Competitive State Fund Maryland Competitive State Fund Minnesota Competitive MN AR Pool Missouri Competitive Alternative Montana Competitive State Fund New Mexico Competitive NM AR Pool 7

  8. STATE RESIDUAL MARKET MECHANISMS STATE STATE FUNDRESIDUAL MARKET New York Competitive State Fund North Dakota Monopolistic State Fund Ohio Monopolistic State Fund Oklahoma Competitive State Fund Oregon Competitive NWCRP Pennsylvania Competitive State Fund Rhode Island Competitive State Fund South Carolina Competitive NWCRP Texas Competitive State Fund Utah Competitive State Fund Washington Monopolistic State Fund West Virginia Monopolistic State Fund Wyoming Monopolistic State Fund 8

  9. STATE RESIDUAL MARKET MECHANISMS STATE STATE FUNDRESIDUAL MARKET Alabama None NWCRP Alaska None NWCRP Arkansas None NWCRP Connecticut None NWCRP Delaware None NWCRP D.C. None NWCRP Florida None JUA Georgia None NWCRP Illinois None NWCRP Indiana None NWCRP Iowa None NWCRP Kansas None NWCRP Massachusetts None MA Pool 9

  10. STATE RESIDUAL MARKET MECHANISMS STATE STATE FUNDRESIDUAL MARKET Michigan None MI Facility/Pool Mississippi None MS AR Pool Nebraska None Alternative Nevada None NWCRP New Hampshire None NWCRP New Jersey None NWCRP North Carolina None NWCRP South Dakota None NWCRP Tennessee None Alternative Vermont None NWCRP Virginia None NWCRP Wisconsin None WI Pool 10

  11. Premium Size Profile—Policy Year 2002 Assigned Risk in NCCI-Administered Plan States Montana – Total Market 11

  12. States With Highest Residual Market ShareCalendar Year 2002 Residual Market Premium as Percentage of Total Direct Premiums Written 12

  13. States With Lowest Residual Market ShareCalendar Year 2002 Residual Market Premium as Percentage of Total Direct Premiums Written 13

  14. RESIDUAL MARKET PROGRAMS # States (out of 22) • Surcharge and Differential Programs 22 • Take-Out Credit Program 16 • Removal of Premium Discounts 16 • Loss-Sensitive Rating Plan 15 • Assigned Risk Adjustment Program 15 14

  15. MONTANA ISSUES • Adequate Rates to Prevent Transfer of Liabilities to the Industry – Self Funded Residual Market • Number, Profile, Historical Losses of “Residual Market” Accounts Needed for Rating Purposes • Time – Need to Implement Rules, Rates and Select Servicing Carriers (1 year) • Claimant and Policyholder Service is Important • Need Approval for Reinsurance from NWCRP Board 15

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