FISCAL NOTE

Date Requested: February 22, 2016
Time Requested: 01:03 PM
Agency: Insurance Commission
CBD Number: Version: Bill Number: Resolution Number:
2555 Introduced SB553
CBD Subject: Insurance, Workers Compensation


FUND(S):

7173, 7152, 7150

Sources of Revenue:

Special Fund

Legislation creates:

Neither Program nor Fund



Fiscal Note Summary


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


As drafted, Senate Bill 553 permits volunteer fire departments (VFDs) to enter the State Agency Worker's Compensation Program (SAWC) which is administered by the Offices of the Insurance Commissioner (OIC). If enacted, SB553 would have a significant negative impact on the existing program designed to insure the worker's compensation risk of the currently participating state agencies. All currently participating agencies are likely to experience significantly higher premiums if VFDs are included. It is also possible that the current insurance carrier, Zurich Insurance Company may be unwilling to write the VFD exposure and may cancel the current policy. SB553 could also negatively impact WV VFDs because participation in the SAWC by VFDs may result in significantly higher premiums, loss fund allocation participation and greater fixed / administrative costs. It is not possible to quickly quantify the precise amount of increased costs that will be incurred by the state agencies or by the VFDs, as the amount of increase will vary from agency to agency and VFD to VFD. However, a conservative estimate of at least $12 million in additional costs has been calculated as of the filing of this fiscal note.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2016
Increase/Decrease
(use"-")
2017
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 0 0
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 11,664,560 11,664,560 11,664,560
2. Estimated Total Revenues 0 0 0


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


Assigned Risk Estimated Premium" SAWC (FY2016) $30,135,858 VFD (FY2013) $2,558,135 Total Combined Policy Estimated Premium $32,693,993 Current Premium SAWC $18,424,962 VFD $2,604,471 Total Combined $21,029,433 Difference $11,710,896 $(46,336) Total Increased Costs $11,664,560 NOTES: - Premium projection only - SAWC using current FY2016 billing file with Pinnacle agency e-mods, no schedule rating and 1.01 ARAP; Assigned risk rates in effect in July 2015." - VFD using FY2013 audited premium obtained from NCCI. Increased by 14% surcharge. Unknown ARAP factor and e-mods. Assume all other policy components remain unchanged." - FY2013 7711 rate = $13.49; Current 7711 rate = $13.25 - VFD estimated premium reduced by 1.78% due to rate decrease." - Unable to determine minimum premium adjustments to VFD policies - VFD coverage such as increased EL and deliberate intent are unknown. Combined policy may incur additional premium dependent on coverage needs. - Does not include additional staffing required to administer a consolidated policy; data unavailable at this time - Does not include premium subsidies for VFD premium



Memorandum


Senate Bill 553 provides the opportunity for volunteer fire departments (VFDs) to enter the state agency workers’ compensation (SAWC) program administered by the West Virginia Offices of the Insurance Commissioner (WVOIC) and written by Zurich Insurance Company. The current SAWC plan structure includes 108 state agencies with nearly 900 locations throughout the state. There are approximately 24,000 state employees covered under the SAWC policy. The premium and loss fund costs for the policy are allocated among all members based on their payroll, classification and claims experience. If additional loss fund premium is due, the additional portion is only allocated among agencies that experienced losses during the policy period. Due to the high safety risk, volatility and hazardous exposure of the volunteer firefighting operations, none of the 262 insurance carriers offering workers’ compensation coverage in WV are willing to write VFD policies. This is a national trend as carriers are unwilling to assume the liability of writing these types of policies. Therefore, all WV VFDs are currently in the assigned risk pool where there is a minimum premium of $1,250 for a guaranteed cost policy. The minimum premium covers all losses and other administrative fees. Under the SAWC plan, VFDs may be subject to substantially higher premiums, loss fund allocations and other fixed and/or administrative costs. Impacts to the VFD if merged into the SAWC program include: When a claim is incurred by a volunteer, claim benefits are paid based on the volunteer’s regular or “day” wages. Estimated losses could vary extensively depending on a volunteer’s wages. As noted above, carriers are not offering coverage to VFDs in the voluntary market. The SAWC program carrier, Zurich Insurance, may be unwilling to write the VFD exposure and may cancel the SAWC policy. As no other carrier has an appetite for writing VFD coverage, it could be detrimental to all state agencies and the program as a whole and could potentially force the plan into the assigned risk market. The WVOIC is not adequately staffed to administer the policy with the inclusion of > 400 VFD locations. Administration includes agency invoicing, policy renewal, claims reviews, providing safety measures and inspections, implementing return to work policies, audit processing and general agency updates. The current system invoices state agencies for their portion of the policy costs and the agencies pay via IET (Internal Exchange Transaction). As VFDs are not state agencies and cannot access the State's wvOASIS system, additional resources would be required to process and reconcile checks from each VFD. Impacts to state agencies if VFDs are merged into the SAWC program include: Many state agencies are currently under budget cut mandates and hiring freezes in order to balance the state budget. By including VFD experience, all members would most likely experience increased premiums. The WVOIC and the state agency members have implemented safety programs and processes that are already showing positive trends. The program’s experience rating factor has decreased from 1.28 to 1.10 due to these efforts in providing safer work environments for state employees. With over 400 de-centralized VFD locations added to the program as well as the losses the VFDs will experience, it is quite plausible to conclude that the experience rating factor will increase thus erasing all current progress. As the program administrator, the WVOIC has no regulatory authority to mandate SAWC members comply with safety recommendations, plans and processes or to return audit information, provide policy renewal data, etc. By merging the VFDs into the program, administration costs of the policy may significantly increase due to the time and efforts that may be needed to provide safety services and invoicing procedures to all VFD locations. In addition, with no authority to ensure compliance with the safety programs, loss fund, fixed costs and true up costs may increase significantly thus causing all members to experience much higher policy premiums and costs. The WVOIC has concerns over the solvency of the VFDs and the capability to “pay their share” as well as to provide policy information needed for adequate policy pricing due to the nature of premium determination for volunteers. If any member of the program defaults on their premium and other policy costs or needs, the remaining members must carry the financial burden – a burden that budget strapped agencies may not be able to cover. In summary, it is our belief that by including volunteer fire departments within the SAWC plan it would put a strain on the entire program and all state agencies by most likely increasing claims costs and premiums, potentially losing a 25% credit all agencies are currently receiving in addition to finding a carrier willing to write a policy with VFD exposure. These estimates do not include coverage for deliberate intent. This coverage is provided by BRIM. We are unable to estimate the impact for this coverage and BRIM should be consulted for the deliberate intent impact. The following is a list of state agencies who currently participate in the SAWC, whose budgets would be negatively impacted if Senate Bill 553 is enacted: Agency: AIR & ENVIRONMENTAL QUALITY BOARD ALCOHOL BEVERAGE CONTROL ADMINISTRATION BOARD OF COAL MINE HEALTH & SAFETY CIVIL CONTINGENT FUND COAL HERITAGE HIGHWAY AUTHORITY COMMISSION FOR NATIONAL & COMMUNITY SERVICE - VOLUNTEER WV DEPARTMENT OF VETERANS ASSISTANCE DEPT OF COMMERCE OFFICE OF THE SECRETARY DIVISION OF JUSTICE AND COMMUNITY SERVICES DIVISION OF PROTECTIVE SERVICES DIVISION OF PUBLIC TRANSIT DIVISION OF TOURISM GOVERNOR's Office OF WEST VIRGINIA HEALTH CARE COST REVIEW AUTHORITY HOPEMONT HOSPITAL JACKIE WITHROW HOSPITAL JOHN MANCHIN SR HEALTH CARE CENTER MILDRED MITCHELL BATEMAN HOSPITAL MILITARY AFFAIRS - OFFICE OF THE SECRETARY MUNICIPAL BOND COMMISSION MUNICIPAL PENSIONS OVERSIGHT BOARD OFFICE OF ADMINISTRATIVE HEARINGS OFFICE OF ECONOMIC OPPORTUNITY OFFICE OF MINORITY AFFAIRS OFFICE OF TAX APPEALS PUBLIC PORT AUTHORITY STATE BUDGET OFFICE STATE RAIL AUTHORITY WELCH EMERGENCY HOSPITAL WEST VA SCHOOLS FOR THE DEAF & THE BLIND WEST VIRGINIA BOARD OF ACCOUNTANCY WEST VIRGINIA BOARD OF OPTOMETRY WEST VIRGINIA BUREAU OF SENIOR SERVICES WEST VIRGINIA DEPARTMENT OF AGRICULTURE WEST VIRGINIA DEPARTMENT OF CORRECTIONS WEST VIRGINIA DEPARTMENT OF EDUCATION WEST VIRGINIA DIV OF JUVENILE SERVICES WEST VIRGINIA DIVISION OF FORESTRY WEST VIRGINIA DIVISION OF HIGHWAYS WEST VIRGINIA DIVISION OF MOTOR VEHICLES WEST VIRGINIA DIVISION OF NATURAL RESOURCES WEST VIRGINIA HEALTH INFORMATION NETWORK WEST VIRGINIA HOSPITAL FINANCE AUTHORITY WEST VIRGINIA LAKIN STATE HOSPITAL WEST VIRGINIA LOTTERY WEST VIRGINIA MILITARY AUTHORITY WEST VIRGINIA OFFICE OF MINERS HEALTH SAFETY AND TRAINING WEST VIRGINIA RACING COMMISSION WEST VIRGINIA REAL ESTATE COMMISSION WEST VIRGINIA STATE FIRE COMMISSION WEST VIRGINIA STATE POLICE WILLIAM R SHARPE JR HOSPITAL WORKFORCE WEST VIRGINIA WV ADJUTANT GENERAL DEPARTMENT WV AERONAUTICS COMMISSION WV ATTORNEY GENERAL'S OFFICE WV BOARD OF ARCHITECTS WV BOARD OF CHIROPRACTIC EXAMINERS WV BOARD OF DENTISTRY WV BOARD OF EXAMINERS FOR REGISTERED PROF NURSES WV BOARD OF EXAMINERS IN COUNSELING WV BOARD OF EXAMINERS OF PSYCHOLOGISTS WV BOARD OF PHARMACY WV BOARD OF PHYSICAL THERAPY WV BOARD OF PROFESSIONAL SURVEYORS WV BOARD OF REG FOR PROF ENGINEERS WV BOARD OF RESPIRATORY CARE WV BOARD OF SOCIAL WORK WV BOARD OF SPEECH PATHOLOGY AND AUDIOLOGY WV BOARD OF VETERINARY MEDICINE WV CIVIL AIR PATROL WV COURTHOUSE FACILITIES IMPROVEMENT AUTHORITY WV DEP - OIL & GAS CONSERVATION COMMISSION WV DEP - SOLID WASTE MANAGEMENT BD WV DEPARTMENT OF EDUCATION WORK BASED LEARNING WV DEPARTMENT OF ENVIRONMENTAL PROTECTION WV DEPARTMENT OF HEALTH AND HUMAN RESOURCES WV DEPT OF EDUCATION & THE ARTS - CENTER FOR PROFESSIONAL DEVELOPMENT WV DEPT OF EDUCATION & THE ARTS - EDUCATIONAL BROADCASTING AUTHORITY WV DEPT OF EDUCATION & THE ARTS - EDUCATIONAL BROADCASTING WNPB TV WV DEPT OF EDUCATION & THE ARTS - GRANDVIEW ED TV WSWP TV WV DEPT OF EDUCATION & THE ARTS - OFFICE OF THE SECRETARY WV DEPT OF EDUCATION & THE ARTS - WEST VIRGINIA PUBLIC RADIO WV DEPT OF FINANCE & ADMINISTRATION WV DEVELOPMENT OFFICE WV DHHR - NURSING HOME ADMINISTRATORS LICENSING WV DHHR SECRETARY'S OFFICE WV DIV OF HOMELAND SECURITY AND EMERGENCY MANAGEMENT WV DIVISION OF CULTURE & HISTORY WV DIVISION OF ENERGY WV DIVISION OF FINANCIAL INSTITUTIONS WV DIVISION OF LABOR WV DIVISION OF REHABILITATION SERVICES WV ECONOMIC DEVELOPMENT AUTHORITY WV GEOLOGICAL-ECONOMIC SURVEY WV HUMAN RIGHTS COMMISSION WV INSURANCE COMMISSIONER WV LIBRARY COMMISSION WV MASSAGE THERAPY LICENSURE BOARD WV MEDICAL IMAGING & RADIATION THERAPY TECHNOLOGY BOARD OF EXAMINERS WV PAROLE BOARD WV REAL ESTATE APPRAISER LICENSING & CERTIFICATION BOARD WV REGIONAL JAIL & CORRECTIONAL FACILITY WV SENATE WV STATE TAX DEPARTMENT WV STATE TREASURER'S OFFICE WV WATER DEVELOPMENT AUTHORITY



    Person submitting Fiscal Note: Melinda Kiss
    Email Address: Melinda.Kiss@wvinsurance.gov