BEFORE THE DEPARTMENT OF LABOR AND INDUSTRY
STATE OF MONTANA
In the matter of the amendment of ARM 24.29.601, 24.29.604, 24.29.607, 24.29.608, 24.29.610, 24.29.611, 24.29.616, 24.29.617, 24.29.618, 24.29.623, 24.29.908,
24.29.954, and 24.29.956, and the
adoption of NEW RULES I and II, related to workers' compensation insurance coverage under compensation plan No. 1 and plan No. 2
NOTICE OF AMENDMENT AND ADOPTION
TO: All Concerned Persons
1. On April 12, 2012, the Department of Labor and Industry (department) published MAR Notice No. 24-29-263 regarding the public hearing on the proposed amendment and adoption of the above-stated rules at page 693 of the 2012 Montana Administrative Register, issue no. 7.
2. On May 4, 2012, the department held a public hearing in Helena regarding the proposed amendments and adoptions at which comments were made. Additional written comments were received by the closing of the comment period on May 11, 2012.
3. The department has amended the following rules as proposed:
24.29.604 MONTANA SELF-INSURERS GUARANTY FUND--ACCEPTANCE REQUIRED FOR PRIVATE EMPLOYERS OR PRIVATE GROUPS
24.29.607 PUBLIC EMPLOYERS OTHER THAN STATE AGENCIES
24.29.608 ELECTION TO BE BOUND BY COMPENSATION PLAN NO. 1-ELIGIBILITY
24.29.610 WHEN SECURITY REQUIRED
24.29.611 SECURITY DEPOSIT -- CRITERIA
24.29.617 INITIAL ELECTION -- INDIVIDUAL EMPLOYERS
24.29.618 INITIAL ELECTION -- EMPLOYER GROUPS
24.29.908 PENALTIES, ADMINISTRATIVE FINES AND INTEREST
24.29.954 CALCULATION OF AMOUNT OF ADMINISTRATION FUND ASSESSMENT
24.29.956 COMPUTATION AND COLLECTION OF THE ADMINISTRATION FUND ASSESSMENT PREMIUM SURCHARGE RATE FOR PLAN NO. 2 AND NO. 3
4. The department has amended the following rules as proposed, but with the following changes from the original proposal, new matter underlined, deleted matter interlined:
24.29.616 EXCESS INSURANCE -- WHEN REQUIRED (1) through (3)(a) remain as proposed.
Its provisions or coverage may be altered only upon the prior approval of the department, with the concurrence of the guaranty fund. Proposed changes to provisions or coverage of the excess insurance policy must be submitted to the department at least 60 days in advance of the proposed effective date of the changes. A self-insurer that anticipates that it may have material changes to the provisions or coverage of its excess insurance policy must notify the department of that possibility at least 30 days before the effective date of the changes.
(i) If there is a change in the provisions or coverage, the department has the authority to evaluate the changes related to the terms of the authorization to self-insure, and the department may, with the concurrence of the guaranty fund, make adjustments in the terms of that authorization accordingly.
(ii) In the event of a temporary extension of authority, the department may condition the renewal of self-insurance authority upon a suitable change in the amount of security required from the self-insurer.
(c) through (g) remain as proposed.
AUTH: 39-71-203, MCA
IMP: 39-71-403, 39-71-2101, 39-71-2103, MCA
24.29.623 RENEWAL REQUIRED (1) remains as proposed.
(a) In addition to the other information required in ARM 24.29.617, except as provided by (1)(b), the employer shall submit an independent actuarial analysis for the preceding year, completed by a qualified actuary as defined by the American Academy of Actuaries. The analysis must include, but is not limited to, a reserve analysis that includes all self-insured periods in Montana, through the most recent calendar year.
The Except as provided by (1)(c), the results of the analysis must be summarized at the low level, middle (or expected) level, and high level, with the corresponding confidence level expressly stated for each.
(b) The department may waive the requirement of (1)(a) with the concurrence of the guaranty fund.
(c) If the self-insurer believes a different actuarial methodology other than that of confidence level is better for its business needs, the self-insurer in association with its independent actuary must present facts to the department that substantiate its position before it receives approval from the department, with the concurrence of the guaranty fund, to use that different methodology.
(2) through (2)(b) remain as proposed.
(c) an independent actuarial analysis for the preceding year, completed by a qualified actuary, as defined by the American Academy of Actuaries.
The Except as provided by (2)(d), the results of the analysis must be summarized at the low level, middle (or expected) level, and high level, with the corresponding confidence level expressly stated for each. The analysis must include, but is not limited to:
(i) a reserve analysis that includes all self-insured periods in Montana, through the most recent calendar year; and
(ii) a premium/rate analysis that projects the total premium need and average rate for the upcoming year which is adequate to cover:
(A) all expected workers' compensation liability costs, whether past, present, or future, with respect to claims previously incurred or claims expected to be incurred in the upcoming year; and
(B) administrative expenses.
(d) If the self-insured group believes a different actuarial methodology other than that of confidence level is better for its business needs, the self-insured group in association with its independent actuary must present facts to the department that substantiate its position before it receives approval from the department, with the concurrence of the guaranty fund, to use that different methodology.
(3) remains as proposed.
AUTH: 39-71-203, MCA
IMP: 39-71-403, 39-71-2104, MCA
5. The department has adopted new rules as proposed:
NEW RULE I (24.29.631) SELF-INSURED EMPLOYERS AND GROUPS -- TRANSFER OF CLAIM LIABILITIES
NEW RULE II (24.29.709) SECURITY DEPOSITS FOR PLAN NUMBER TWO INSURERS -- REPORTS
6. The department has thoroughly considered the comments and testimony received. A summary of the comments received, and the department's responses are as follows:
COMMENT 1: Commenters stated that because the exact terms of a policy of excess insurance are subject to negotiation, and pricing for those terms is typically not available until at or near the renewal deadline, it is not feasible for a self-insurer or group of self-insurers to provide the department with 60 days advance notice of a change of terms of a policy of excess insurance. A commenter stated that due to insurer's pricing practices, a self-insurer may not receive a price quote until a few hours before the existing policy is set to expire. As a result of the uncertainty of pricing, a self-insurer will request price quotes on different coverage levels, and then select a coverage level that appears affordable.
RESPONSE 1: The department accepts the commenter's representation of the reality of the market for excess workers' compensation coverage. The department's interest in advance notification is to ensure that there is continuous coverage in place for employees, and that a last minute failure to obtain adequate excess coverage does not leave employees without adequate protection for the payment of compensation.
The department concludes if a self-insurer anticipates it may be changing the terms of its excess coverage, the department should be notified in advance. The advance notice should specify the type of change being considered by the self-insurer (typically the amount of coverage being obtained) so that the department can advise the self-insurer of how the change of coverage might affect the department's decision whether to approve renewal, or whether renewal approval is likely to be conditioned upon other changes, such as an increase in the amount of security that the self-insurer must post. The department has amended ARM 24.29.616 accordingly.
COMMENT 2: A commenter objected to the proposed requirement that the excess insurer be an admitted carrier in Montana.
RESPONSE 2: As described in the statement of reasonable necessity in the proposal notice, the department has the understanding that an excess carrier must be an admitted insurer in order to participate in Montana's insurance guaranty program. The department notes that the presence of an excess insurer serves to provide additional security for injured workers by limiting the financial exposure of a self-insurer on a high-value claim. The failure of an excess insurer would, by definition, expose the self-insurer to insolvency due to the unanticipated fiscal responsibility that would revert to the self-insurer. The department sets the security amount based (in part) upon the self-insurer's excess coverage. The collapse of an excess carrier, if not a member of the Montana insurance guaranty program, would significantly increase the financial effect on the already-incurred liability of a self-insurer, and thereby lead to the risk of nonpayment of the claim. The department concludes that it is unwise and imprudent to allow nonadmitted excess insurers to provide coverage to Montana self-insurers.
COMMENT 3: Two commenters stated that because not all actuaries base their actuarial reports on a basis that provides for a high, middle, and low confidence level, and that for some businesses or industries an alternative analytical model was appropriate, the department's proposal to require a high, middle, low confidence level was not a reasonable requirement.
RESPONSE 3: The department concludes that it will review requests to use alternative analytical models in actuarial reports on a case-by-case basis. The department has amended ARM 24.29.623 to allow it to approve, with the concurrence of the guaranty fund, use of an alternative methodology.
COMMENT 4: A commentor questioned whether authorization for a private self-insurer or group to continue to self-insure required the approval of the department and the guaranty fund, versus the approval of either the department or the guaranty fund.
RESPONSE 4: The department concludes that the law requires the approval of both the department and the guaranty fund of a private self-insurer or group to renew its self-insurance privilege. The guaranty fund does not have any role in the approval of a public sector self-employer or group.
COMMENT 5: A commenter objected to the department's proposed use of the term "benefits" instead of "compensation benefits", noting that a variety of court cases over the past 25 years have held that the term "compensation" includes medical and other benefits.
RESPONSE 5: The department believes that while the term "compensation benefits" has been recognized to include medical and other benefits besides wage-loss compensation, there is little risk that specifically defining the term "benefits" as including wage loss, medical, rehabilitation and other benefits will change Montana law. The department concludes that given the definition's express inclusion of benefits other than wage-loss replacement payments, there is no reasonable possibility that anyone will plausibly believe that the defined term "benefits", as used in ARM Title 24, chapter 29, part 6, will be misconstrued as not including all benefits payable under the Workers' Compensation Act.
/s/ MARK CADWALLADER /s/ KEITH KELLY
Mark Cadwallader Keith Kelly, Commissioner
Alternate Rule Reviewer DEPARTMENT OF LABOR AND INDUSTRY
Certified to the Secretary of State August 13, 2012