INS-41-07-00001-E Establishment of the Industry Standard Rate

10/10/07 N.Y. St. Reg. INS-41-07-00001-E

NEW YORK STATE REGISTER

VOLUME XXIX, ISSUE 41

October 10, 2007

RULE MAKING ACTIVITIES

INSURANCE DEPARTMENT

EMERGENCY RULE MAKING

 

I.D No. INS-41-07-00001-E

Filing No. 1007

Filing Date. Sept. 19, 2007

Effective Date. Sept. 19, 2007

Establishment of the Industry Standard Rate

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following action:

Action taken:

Amendment of Part 151 (Regulation 119) of Title 11 NYCRR.

Statutory authority:

Insurance Law, sections 201 and 301; and Workers' Compensation Law, section 27

Finding of necessity for emergency rule:

Preservation of public health and general welfare.

Specific reasons underlying the finding of necessity:

Chapter 6 of the Laws of 2007 established comprehensive reforms to New York's Workers' Compensation Law by: (1) increasing maximum and minimum benefits for injured workers and indexing the maximum to New York's average weekly wage; (2) dramatically reducing costs in the workers' compensation system, thus making hundreds of millions of dollars available annually to be translated into premium reductions; (3) establishing enhanced measures to combat workers' compensation fraud; (4) replacing the Special Disability Fund with enhanced protections for injured veterans; (5) preventing insurers from transferring costs to New York employers by closing the Special Disability Fund to new claims; and (6) creating a financing mechanism to allow for settlement of the Fund's existing liabilities.

The legislation amended section 27(4) of the Workers' Compensation Law to authorize the Superintendent to determine, by regulation, the “industry standard rate” for calculating simple interest to be used in calculating the present value of future benefits when the employer or insurer is required to deposit such amount into the Aggregate Trust Fund (ATF).

The legislation directs that it shall apply to all awards made on or after July 1, 2007, and that the Workers' Compensation Board (WCB) shall immediately compute the present value thereof and require payment of such amount into the aggregate trust fund.

Without the Superintendent's determination of the industry standard rate, the WCB is unable to compute the present value of amounts to be deposited into the ATF. Consequently, because the requirement applies to all awards made since July 1, 2007, it is critical that this amendment be adopted as promptly as possible. For the reasons stated above, this rule must be promulgated on an emergency basis for the furtherance of the public health and general welfare.

Subject:

Establishment of the industry standard rate for use in conjunction with payments made by workers' compensation insurers to the aggregate trust fund.

Purpose:

To establish the interest rate applicable when workers' compensation insurers are required to deposit the present value of unpaid benefits for permanent partial disability cases into the aggregate trust fund.

Text of emergency rule:

Part 151 is hereby retitled: “Workers' Compensation Insurance Rates.”

Part 151 (Regulation No. 119) is hereby renumbered Subpart 151-1, in sequence. Subpart 151-1 shall be entitled: “Rate Filings Prior Approval.”

A new Subpart 151-2, entitled “Industry Standard Rate for Aggregate Trust Fund,” is added to read as follows:

Section 151-2.1 Preamble.

On March 13, 2007, legislation establishing comprehensive reform to New York's Workers' Compensation Law was signed into law, becoming chapter 6 of the laws of 2007. The legislation amended section 27(2) of the Workers' Compensation Law to mandate that, for awards made pursuant to WCL § 15(3)(w) (permanent partial disability) after July 1, 2007, every insurer writing workers' compensation insurance carriers shall deposit into the aggregate trust fund (ATF) established under the Workers' Compensation Law an amount equal to the present value of all unpaid benefits. The legislation also amends section 27(4) of the Workers' Compensation Law to mandate that the “industry standard rate” of interest, to be used in calculation of the present value of unpaid benefits, shall be determined by the superintendent of insurance by regulation.

Section 151-2.2 Industry Standard Rate.

(a) After discussions with the New York State Insurance Fund (NYSIF)(which administers the ATF), insurers, the Workers' Compensation Board, and other interested parties, the superintendent has determined the industry standard rate. Among the factors that were considered by the superintendent in making this determination were the following:

(1) the rate of return on invested assets experienced by the NYSIF in recent years;

(2) the investment performance of domestic property/casualty insurers;

(3) the rates of return on low risk investments of comparable duration to that of the ATF liabilities; and

(4) the discount rate used in calculating the minimum individual case reserves for policies of workers' compensation insurance, pursuant to section 4117(d) of the Insurance Law and section 86 of the Workers' Compensation Law.

(b) The industry standard rate shall be five percent per year.

Section 151-2.3 Effective Date

This Subpart shall apply to all awards made on or after July 1, 2007, as mandated by chapter 6 of the laws of 2007.

This notice is intended

to serve only as a notice of emergency adoption. This agency intends to adopt this emergency rule as a permanent rule and will publish a notice of proposed rule making in the State Register at some future date. The emergency rule will expire December 17, 2007.

Text of emergency rule and any required statements and analyses may be obtained from:

Andrew Mais, Insurance Department, 25 Beaver St., New York, NY 10004, [phone], e-mail: [e-mail]

Regulatory Impact Statement

1. Statutory authority: The superintendent's authority for the promulgation of the first amendment to Part 151 of Title 11 of the Official Compilation of Codes, Rules and Regulations of the State of New York (Regulation No. 119), derives from Sections 201 and 301 of the Insurance Law of the State of New York, and Section 27 of the Workers' Compensation Law of the State of New York. These sections establish the superintendent's authority to approve workers' compensation premium rates and related materials that impact on premium rates.

Sections 201 and 301 of the Insurance Law authorize the superintendent to effectuate any power accorded to him by the Insurance Law, and to prescribe regulations interpreting the Insurance Law.

Section 27 of the Workers' Compensation Law establishes the circumstances when insurers must deposit, into the aggregate trust fund (ATF), an amount equal to the present value of all unpaid benefits resulting from a claim for death benefits, or total permanent or permanent partial disability. It also establishes the formula for calculation of the present value of unpaid future benefits, including the direction that the “industry standard rate” of interest shall be determined by the Superintendent of Insurance by regulation.

2. Legislative objectives: Chapter 6 of the laws of 2007 established comprehensive reforms to New York's Workers' Compensation Law by: (1) increasing maximum and minimum benefits for injured workers and indexing the maximum to New York's average weekly wage; (2) dramatically reducing costs in the workers' compensation system, thus making hundreds of millions of dollars available annually to be translated into premium reductions; (3) establishing enhanced measures to combat workers' compensation fraud; (4) replacing the Special Disability Fund with enhanced protections for injured veterans; (5) preventing insurers from transferring costs to New York employers by closing the Special Disability Fund to new claims; and (6) creating a financing mechanism to allow for settlement of the Fund's existing liabilities.

The legislation amended section 27(4) of the Workers' Compensation Law to authorize the superintendent to determine, by regulation, the “industry standard rate” for calculating simple interest to be used in calculating the present value of future benefits when the employer or insurer is required to deposit such amount into the Aggregate Trust Fund (ATF).

3. Needs and benefits: Chapter 6 of the laws of 2007 added a provision to Section 27 of the Workers' Compensation Law whereby the Superintendent sets the “industry standard rate” to be used for calculating future workers compensation indemnity liabilities, when the Workers' Compensation Board (WCB) computes required contributions to the Aggregate Trust Fund (ATF). After discussions with the New York State Insurance Fund (NYSIF) (which administers the ATF), insurance carriers, the WCB, and other interested parties, the superintendent has determined that the industry standard rate shall be set at 5% per year. The superintendent's determination was based on the consideration of the following:

• A review of the rates of return on invested assets experienced by NYSIF in recent years indicates that NYSIF has realized returns that are at or near 5% per year. Prudent investment of the carrier contributions will insure that the ATF has adequate surplus to meet its obligations.

• The Department expects that NYSIF will settle a significant number of claims at an amount significantly less than the present value of the associated liabilities. The new law does not entitle insurers to recover any funds that remain after NYSIF settles, so settlement related savings will add to ATF surplus.

• A 5% industry standard rate is consistent with the investment performance of New York-domiciled property/casualty insurers. Therefore, the Department does not expect that insurers will experience a windfall when transferring liabilities to the ATF.

• A 5% industry standard rate is consistent with the rates of return on low risk investments of comparable duration to that of the ATF liabilities.

• In establishing the minimum reserves under workers' compensation policies, Section 4117(d) of the Insurance Law and Section 86 of the Workers' Compensation Law require a company's individual case reserves to be no less than the sum of the present values, at five percent interest per annum, of the determined and unpaid losses, plus the estimated unpaid loss expenses.

4. Costs: This regulation does not establish any new requirements on regulated parties. The Legislature mandated that insurers deposit awards pursuant to WCL § 15(3)(w) into the ATF, and that the superintendent determine the “industry standard rate” by regulation. The determination of the industry standard rate affects the amount of the deposit that carriers must make into the ATF.

5. Local government mandates: This regulation imposes no new programs, services, duties or responsibilities on any county, city, town, village, school district, fire district or other special district.

6. Paperwork: This regulation does not impose any new reporting requirements on regulated parties.

7. Duplication: This regulation does not duplicate any existing law or regulations.

8. Alternatives: The Legislature directed that the industry standard rate be determined by the superintendent by regulation. The only alternatives were with regard to the factors considered in determining an appropriate industry standard rate.

9. Federal standards: There are no applicable federal standards.

10. Compliance schedule: Immediate compliance is expected, as the legislation directs that it shall apply to all awards made on or after July 1, 2007.

Regulatory Flexibility Analysis

1. Small businesses:

The Insurance Department finds that this rule will not impose any adverse economic impact on small businesses and will not impose any reporting, recordkeeping or other compliance requirements on small businesses. The basis for this finding is that this rule is directed at all workers' compensation insurers authorized to do business in New York State, none of which fall within the definition of “small business” as found in section 102(8) of the State Administrative Procedure Act. The Insurance Department has reviewed filed Reports on Examination and Annual Statements of workers' compensation insurers, and believes that none of them fall within the definition of “small business”, because there are none that are both independently owned and have less than one hundred employees.

2. Local governments:

The regulation does not impose any impacts, including any adverse impacts, or reporting, recordkeeping, or other compliance requirements on any local governments.

Rural Area Flexibility Analysis

The amendment will not impose any adverse impact on rural areas or reporting, recordkeeping or other compliance requirements on public or private entities in rural areas. The rule applies to workers' compensation insurers, which do business in every county of the state, including rural areas as defined under State Administrative Procedure Act Section 102(13). Since the rule applies to the workers' compensation market throughout New York, not only to rural areas, the same regulation will apply to regulated entities across the state. Therefore, there is no adverse impact on rural areas as a result of this rule.

Job Impact Statement

This rule will not adversely impact job or employment opportunities in New York. Determination of the “industry standard rate” by the superintendent was mandated by the Legislature. It will affect the calculation of the present value of all unpaid benefits resulting from a claim for permanent partial disability, and the resulting amount that workers' compensation insurers must may into the aggregate trust fund (ATF) in such cases. The Legislature has determined when such payments are required. This rule only establishes the “discount” rate on the amount that must be deposited into the ATF. This rule should not have any impact on jobs and employment opportunities in this state.