Report on Self Insurance Groups
Existing regulations require that each SIG demonstrate sufficient income to fund actuarially projected claim liabilities for each program year at the prescribed confidence level plus administrative expenses and the security deposit. A SIG’s solvency is presumed to be impaired and the SIG may be required to post an increased deposit or lose its Consent to Self-Insure if the rates fail to generate sufficient funds to meet these requirements. (Rule 15484.) In effect, this is a ―file and use‖ rate system where OSIP can intervene if rates are inadequate.
Existing regulations do not specifically require that the rate plans be filed with OSIP, although many SIGs either file separate rate plans or include the rate computations in the actuarial reports filed with OSIP. Existing regulations do not require that SIG contribution rates be tied to insurance industry premium rates. Even without any direct requirement, when reviewing a SIG’s
rate plan or actuarial report, it may be prudent for OSIP advisory pure premiums approved by the Insurance wcirb/resources/rate_filings/pdf/2010_01_01_rates.xls).
to compare the
projections to the wcirbonline.org/ an independent
adopted for the insurance industry are no guaranty of solvency, but they may reference points, and any lower rates for SIGS should be convincingly justified.
CHSWC recommends that each SIG be required to file its rate plans and to charge rates in accordance with its filed rate plan. Otherwise, the actuarially derived rates will not be the actual rates collected, and the actual contribution rates may be insufficient to fully fund a SIG.
There appears to be some discrepancy in the interpretation of Rule 15476, which prohibits
discounts.‖ That term is not defined in the regulations. CHSWC staff have observed evidence
of experience rating practices. These might be construed as being within a SIG’s rating plan
rather than ―discounts‖ below the rating plan. interprets the rule to require that a single rate
On the other hand, it has been reported that OSIP for each classification must apply uniformly to all that the regulation be clarified to remove any
uncertainty as to into rate plans. also assure that
whether prospective rate reductions like experience rating may lawfully be built If the Director is going to allow experience rating, then the regulations should the experience rating formula is at least as predictive of future losses as the
experience modification system developed in the insurance industry. Also, any plan requires an adjustment to base rates to preserve the actuarial validity of (cf., the ―on balance adjustment‖ in the WCIRB rate recommendations).
experience rating the rate structure
CHSWC recommends that regulators examine the present value discount rates that are used in projecting loss costs. Seemingly small variations in the discount rate can have a large impact on the adequacy of reserves because loss payouts can occur over many years. Regulators should consider exercising the existing authority to appoint independent auditors and actuaries to review the positions of groups using the more aggressive discount rates, or consider requiring losses to be calculated without discounting.