Current through Vol. 42, No. 1, September 16, 2024
(a) As a
condition to self fund its workers' compensation obligations, an employer
approved as an individual own risk employer shall post acceptable security with
the Commission, in such form and amount as determined by the
Commission.
(b) Acceptable forms of
security, are:
(1) An irrevocable letter of
credit issued by a financial institution, whose deposits are insured by the
Federal Deposit Insurance Corporation (FDIC). The financial institution must be
approved in advance by the Commission. The letter of credit must be on a form
prescribed by the Commission, include an automatic renewal clause, and cannot
be non-renewed without at least sixty (60) days' prior written notice to the
Commission. The letter of credit shall be made payable to the Commission. The
Commission may make demand and collect on the posted letter of credit in whole
or in part, in the case of actual or imminent default of the employer to pay
compensation liabilities, or the cancellation of the letter of credit without
an adequate replacement;
(2) A
surety bond from an admitted or surplus lines insurer with an AM Best Rating of
B+ or better, and on a form prescribed by the Commission; and
(3) Such other forms of security approved by
the Commission.
(c) The
amount of the security deposit shall be determined by the Commission after
evaluating the financial ability of the individual own risk employer to pay its
compensation and workers' compensation exposure. The determination may include
consideration of a factor for IBNR for the prior claims' years and the permit
year applied for. The Commission may require an actuarial report of estimated
claims reserves and IBNR from a Commission approved actuary. The minimum amount
of the security required in Subsection (b)(1) or (b)(2) of this Section shall
be the greater of:
(1) One Hundred Thousand
Dollars ($100,000.00); or
(2) The
employer's average yearly incurred workers' compensation losses for three (3)
calendar or fiscal years immediately preceding the application date;
or
(3) If the company is a renewal
applicant, the amount of outstanding claims reserves for the employer, as
determined by an approved third-party administrator or benefits administrator.
Outstanding reserves submitted by an approved self-insured entity or
organization must use a standardized approach to assessing future exposure. All
future liabilities should be reserved to at least the "most probable outcome."
The Commission defines "most probable outcome" as the expected amount of money
to cover a claim based upon information known at the time of the report. An
organization or entity that discounts either future indemnity or medical
payouts based upon present value or a reduced life expectancy must identify
said claims and acknowledge the potential future value.
(d) The security required of an individual
own risk employer, and any proceeds thereof collected upon demand, including
any interest thereon, shall be maintained by the Commission as provided in the
AWCA until each claim for workers' compensation benefits is paid, settled or
lapses under the AWCA, and costs of administration of those claims are paid, or
until the security is released by the Commission as provided in
810:25-9-19.
