Better Deal in WC Assigned Risk Market?

by Ronald W. Cooper, CWCP, General Manager, Indiana Compensation Rating Bureau

Executive Summary

It's a hard market. Carrier results have tanked over the past several years. Underwriters have squeezed their acceptable risks to a level not seen in over a decade. As you would expect, these market conditions have swelled the assigned risk ranks. However, the Indiana statute sets up some barriers for agents to get their hard-to-place clients into the assigned risk market, the market of last resort.

Not fair!

Your voluntary market carrier offers a workers comp policy quote 30-50% higher than assigned risk rates. You think, let's put the client in the assigned risk market and avoid that enormous price increase. Can't do it. Here's why...

Offer of Regular Coverage

When a carrier makes an offer of regular (standard or voluntary) coverage, then an employer is no longer entitled to assigned risk coverage. IC 27-7-2-34 reads "...any member of such bureau may write any rejected risk as regular business in which event the risk so written shall no longer be treated as provided for in section 29 [IC 27-7-2-29] of this chapter."

The law makes no distinction if the offer is better or worse than rates in the assigned risk market. Once such an offer is made, the statute tells us we can no longer maintain the employer in the assigned risk market.

Exception: Deductible or Coinsurance

A carrier may offer an employer regular coverage in the voluntary market, but with a deductible or coinsurance requirement. In this instance, we would consider this to be a non standard policy because the employer is asked to assume some of the risk. The usual and customary provisions of a standard policy do not require deductibles or coinsurance. If the employer chose to refuse this offer, such employer could still be accepted into the assigned risk market.

It appears the statute supports this position. IC 27-7-2-29 requires "the bureau shall designate a member of said bureau whose duty it shall be to issue a policy containing the usual and customary provisions found in such policies therefore."

Although we may recognize that the voluntary market rarely writes certain types of businesses, the law does not provide for any shortcuts to get into the assigned risk plan. Here are some laws and rules of which you should be aware.

Three Rejections

Indiana laws and assigned risk rules require:

• three rejections

• from nonaffiliated carriers

• one rejection from the current carrier (cannot be the assigned risk servicing carrier)

• in writing with a record maintained

Sometimes we receive an assigned risk application where the insured and agent have not made an attempt to place the coverage in the voluntary market. Their position is that no carriers are writing a certain class of business, so why even try. Well, the Indiana WC Act clearly requires an agent must "try" three carriers in the voluntary market before we can assign coverage.

Other Disqualifications for Assigned Risk Coverage

1. Changing Agents

An employer changes agents midterm. The new agent cannot find standard coverage and applies to the assigned risk plan. The app review reveals current voluntary market coverage. The new agent advises that the current voluntary policy will be cancelled to coincide with the new assigned risk application. In this scenario, the employer has valid regular market coverage and is therefore not eligible for the assigned risk market. We cannot accept a cancellation by the insured as a valid reason to enter the assigned risk market. Only a cancellation by the carrier for Indiana statutory reasons outside the employer's control would qualify the employer to enter the assigned risk market. Those reasons are:

• change in scale of risk

• reinsurance canceled

Other reasons that the carrier may cancel are a result of the employer's action/inaction and in such instances we also cannot accept these cancellations by the carrier as valid reasons to enter the assigned risk market:

• premium unpaid

• safety noncompliance

• fraud or misrepresentation

2. "A" Carrier

An employer needs a carrier with an "A" rating or better as required by the job contract to earn the business. His voluntary market carrier has a "B" rating and our servicing carriers have "A" ratings. In this scenario, the employer has valid voluntary market coverage and is therefore not eligible for the assigned risk market.

3. Waiver of Subrogation

An employer needs a carrier to issue a waiver of subrogation as required by the job contract to earn the business. His voluntary market carrier will not do it. The app review reveals current voluntary market coverage. In this scenario, the employer has valid voluntary market coverage and is therefore not eligible for the assigned risk market. It is unfortunate that the employer's current carrier will not attach a "Waiver of Our Right to Recover From Others Endorsement" (WC 00 03 13). However, the employer would still have a voluntary market policy which prohibits him from getting coverage in the assigned risk market.

4. No Pay - No Insurance

An employer cannot get an assigned risk policy if it has unpaid premium for policies within the past 12 months.

Good News - Cancel Pro Rata

The statute directs that if an employer accepts coverage in the regular market, then the assigned risk policy must be cancelled pro rata (no penalty). This serves as an incentive for employers to continue to shop and find coverage in the regular market.

Market Trivia

The assigned risk market bottomed out in 1999 at about $10 million in premium. For 2001, total assigned risk premium was around $40 million. For the first quarter of 2002, the trend continues. As of March 4, 2002, total "in force" assigned risk premium was $44.6 million.

Premium continues to increase at a much faster pace than policy count. This tell us that some very large premium employers are entering the assigned risk market.

For more info, and to access the Indiana assigned risk Expiration Lists and New Risks Lists, visit our website at www.icrb.net.