Florida Division of Workers’ Compensation Rule Development Workshop Report: Rules for Self-Insurers

 

On Monday, February 16, 2009, the Florida Department of Financial Services (“DFS”), Division of Workers’ Compensation (“Division”) held a workshop on proposed Rule Chapter 69L-5 entitled “Rules for Self-Insurers Under the Workers’ Compensation Act.”

The Rules under consideration would repeal and replace the existing Chapter with guidelines for employers that are self-insuring workers’ compensation under the provisions of Chapter 440, F.S..  To view the proposed Rules click here.

Division Bureau Chief Robin Ippolito explained that the new Rules have been under development for several years and represent a comprehensive change from the existing Chapter.

The new Rules address:

• The scope of self-insurance authorization
• Required filings, record maintenance and audit processes for self-insurers
• The self-insurance process for both governmental entities and members and former members of the Florida Self-Insurers Guaranty Association, Inc.
• The application process for, and regulations regarding, servicing entities
• The adoption of forms for use with the new Rules

The proposed new Rules differ from the existing self-insurer rules in various ways, including:

• Provision for an increase in the minimum net worth requirement to qualify to self-insure
• Establishing new guidelines to be used in determining the financial strength of current and former self-insurers
• Requiring security deposits for current and former self-insurers to be based on long-term issuer credit ratings.  This would create a more structured and objective system in determining the degree of financial strength necessary to ensure timely payment of current and future claims.

The proposed new Rules outline penalties for self-insurers that late-file reports, fail to file, fail to maintain loss records, or misclassify losses or other data that impacts the calculation and collection of assessments for the Workers’ Compensation Administration Trust Fund and the Special Disability Trust Fund.  Also included is:

• A change in the specific excess insurance requirements regarding the maximum retention amount allowed without additional approval
• Provision for an electronic version of Form DFS-F2-SI-17 Unit Statistical Report
• Elimination of the alternative method of application to self-insure

Noting that the overall purpose of revising Chapter 69L-5 is to ensure the financial ability of self-insurers to pay workers’ compensation claims, Ms. Ippolito reviewed the individual Rule sections and allowed for public comments after each.

Below is a brief summary of the comments (by section) offered during the workshop:

Section 69L-5.204 Maintenance of Payroll Records, Review and Audit:  It was recommended that the review and audit costs charged by the state employee and authorized contractor auditor be amended to be equivalent, and that the audit calculation should be based on a percentage amount rather than a specific dollar amount.

Section 69L-5.205(d) Loss Data Reporting:  It was suggested that the proposed Rule provide an option to submit loss data manually, rather than electronically.

Section 69L-5.206 Maintenance of Loss Data Records, Review and Audit:  It was offered that calculation should be based on a percentage rather than a specific dollar amount.

Section 69-L5.209 Financial Statements Reporting:  The increased minimum net worth requirement from $1 million to $10 million is expected to impact self-insurers significantly. DFS staff noted that there are six active members of the Florida Self Insurance Guaranty Association (“FSIGA”), whose minimum net worth is between $1 million and $10 million.  Under the proposed Rule, three members would comply with the reporting requirements through alternative provisions, while other former FSIGA members would not comply.  DFS staff noted that the non-qualifying members could post the required collateral to comply with the Proposed Rule.

Section 69L-5.210 Actuarial Reports:  Objection to this proposed Rule was raised by some companies that have not previously had to submit these reports. Concerns about allowing flexibility in discounting all future obligations at four percent were expressed. The ability of the DFS or FSIGA to request an Actuarial Report “at any time” was viewed as problematic.

Section 69L-5.215 Parental Guarantee:  It was suggested that the parent company be authorized to sign an indemnity agreement guaranteeing the debt of all of its affiliated companies. Current requirements are viewed as burdensome for the employer.

Section 69L-5.217 Civil Penalties and Fines:  It was suggested that in this section, the word “shall” should be changed to “may” and an aggregate cap should be added.

Rule 69L-5.218 Security Deposit:  Concern was expressed regarding the requirement for self-insurers with an investment-grade credit rating to maintain a minimum security deposit of $100,000. It was noted that, because few states rely on rating organizations, requiring a large security deposit would add an inefficient expense for self-insurers, and that an increase in the required deposit would be problematic in the tough economic climate, since it would require an infusion of capital, as well as the ability to remove that capital from the market. DFS Staff reminded that the requirement is intended to ensure that insurers can make timely payment of claims.

Section 69L-5.219 Excess Insurance:  The statutory workers’ compensation limits requirement was deemed as excessive.

DFS Officials noted that public comments will be taken into consideration, and that the record will remain open for the submission of written comments until February 26, 2009.

Next, a public hearing on the proposed Rules will be scheduled, at which interested parties will have an opportunity to provide comments.

The meeting concluded following some further discussion.

Should you have any questions or comments regarding the above matter, please feel free to contact Colodny Fass.

 

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