FISCAL NOTE



FUND(S):



Sources of Revenue:

Special Fund

Legislation creates:

A New Fund



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


HB 4657 charges the Offices of the Insurance Commissioner with the responsibility of managing the workers compensation risks of all state agencies and controlling the workers compensation program of the agencies. The fiscal impact on the revenues and costs of state government is ultimately determined by the appropriate risk control and risk financing techniques implemented. The estimated savings for state government is projected at $2,000,000 per year; however, many variables will contribute to what actual results are achieved. The capturing of increasing long-term savings is primarily dependent upon the degree of acceptance of risk control within the culture of state agencies.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2010
Increase/Decrease
(use"-")
2011
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 -2,000,000 -2,000,000
Personal Services 0 0 0
Current Expenses 0 -2,000,000 -2,000,000
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 0 0


Explanation of above estimates (including long-range effect):


Aggregate workers compensation premium for state agencies is currently estimated at $17.2 million. Estimate does not include projected premium increases. A preliminary funding study estimates ultimate workers compensation losses to range between $11.5 to $14 million for state agencies. The analysis assumes a $100,000 self-insured retention level, limiting losses of the state to $100,000 per occurrence. There would be additional costs for excess insurance or reinsurance (insurance for claims over $100,000), overhead, loss prevention and certain other expenses. The selection of a $100,000 retention level is only for general analysis purposes. Range of savings (Current Premium – Estimated Losses) = $3.2 to $5.7 million, does not include any additional costs for reinsurance and overhead. For estimating purposes, also looked at potential savings using industry averages for those premium elements that are not incurred by a self-insured. Holding all variables equal, a portion of the savings to state government from moving from a guaranteed cost insurance plan to plan that provides the state a level of self-retention would be the removal of the insurance company’s profit margin and acquisition costs. Profit and acquisition expenses for workers compensation insurers average 12%. This simplistic analysis assumes all other expenses provided by the insurer will be the same for the self-insured even if provided by a third party (i.e. claims handling, policy issuance etc). Annual aggregate state agency gty cost workers compensation premium = $17.2 million X 12% = $2,064,000 annual savings.



Memorandum






    Person submitting Fiscal Note: Michael D Riley
    Email Address: Michael.Riley@wvinsurance.gov