CRM FAQ: New York
Questions and Answers You Need To Know About Group Self Insurance:
Do you screen new members? Do you refuse to take anyone who has a very bad loss record?
If a member leaves the plan or goes out of business are the remaining members of the self-insured group required to pay their claims?
Am I required to give notice if I want to leave your program? What will I be charged if I leave the trust?
Do the trusts have excess insurance to protect against adverse loss experience?
Is there a time limit on our liability for claims? For example, suppose a loss of hearing or asbestos claim is filed ten years from now. Would the group still be liable to pay claims?
Will I continue to receive a credit for my favorable experience rating? If the self-insured plan uses a different experience rating formula, how do I know it will benefit me? Will you provide details of the rating formula and examples?
What is liability on large claims? If there is a limit, how would it apply?
Is there a joint and several liability clause? What is the associated risk? What controls are in place to minimize this exposure?
Is there regulatory oversight of trusts? What are the basics?
Is security deposit required of individual members?
How is my premium calculated?
Does CRM keep members informed of a trusts financial performance?
Q. Do you screen new members? Do you refuse to take anyone who has a very bad loss record?
A. Absolutely. Each prospective member is individually underwritten and priced according to a number of factors including financial status, loss experience, and physical inspection. Furthermore, New York State regulations and excess insurance contracts determine which companies are allowed to participate in trusts.
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Q. If a member leaves the plan or goes out of business are the remaining members of the self-insured group required to pay their claims?
A. Technically, this is correct. However, should an organization leave the program or go out of business our commitment to individual account underwriting will help to ensure that adequate funds are available to cover those losses.
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Q. Am I required to give notice if I want to leave your program? What will I be charged if I leave the trust?
A. Yes. Upon entering the program you are required to maintain membership for at least one year. Should you decide to leave the program, you must give 60 days notice. Furthermore, like all insurance policies, if you do not honor your commitment of one year there will be a penalty charged.
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Q. Do the trusts have excess insurance to protect against adverse loss experience?
A. Yes, this required by the New York State Workers’ Compensation Board. The excess insurance is purchased to protect the programs’ assets against catastrophic claims or substantial frequency of claims.
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Q. Is there a time limit on our liability for claims? For example, suppose a loss of hearing or asbestos claim is filed ten years from now. Would the group still be liable to pay claims?
A. All organizations providing workers’ compensation insurance in New York must abide by the Workers’ Compensation Act. The laws are in place to protect a claimant’s right to compensation. If it were legally proven that any claim, regardless of circumstance, was compensable under the law, both programs would have to respond and pay the benefits. BACK TO INDEX
Q. Will I continue to receive a credit for my favorable experience rating? If the self-insured plan uses a different experience rating formula, how do I know it will benefit me? Will you provide details of the rating formula and examples?
A. Yes, CRM adjusts members’ contribution by their “experience rating modification factor”. CRM calculates individual member’s modifications using the NY Rating Board’s formula. Upon calculation of a new modification, each member receives an explanation of the calculation and a detailed breakout of the modification factor. BACK TO INDEX
Q.What is liability on large claims? If there is a limit, how would it apply?
A. Yes, each large claim is limited through the purchase of excess workers’ compensation insurance. Once a limit (retention) is reached on an individual claim, the risk is transferred to the excess carrier. That carrier is responsible for the remainder of the claim, regardless of the amount. BACK TO INDEX
Q. Is there a joint and several liability clause? What is the associated risk? What controls are in place to minimize this exposure ?
A. Yes, all trusts in New York State must include a joint and several liability clause within their membership participation agreements. We will explore this further; however, keep in mind that for practical purposes, the exposure presented by joint and several liability is not without controls.
In its simplest form, joint and several liability means that group members must share in shortfalls, if any that may result from adverse loss experience of the trust. Specifically, if in a given year the groups’ claims/expenses exceed its premium/income, any resulting shortfalls must be corrected. Typically, this would be resolved via a renewal pricing adjustment, just as in the standard markets. However, usually considered a last resort, trusts can assess their members whereby each could pay a pro- rata portion of the shortfall based upon the ratio of their individual premium size in relationship to the total group premium.
The keys to success, and what makes employers comfortable with joint and several liability, are the controls and limits we put into place to manage our programs.
Management & Service
One of CRM’s primary services is underwriting. We have a fiduciary responsibility to preserve the integrity of each group trust we manage; and therefore, we are only interested in bringing on members who are committed to controlling workers’ compensation costs. We underwrite each member individually and, if acceptable, each is members are charged a contributions based upon their individual loss history, prevailing state manual rates and experience modification. We examine member financial histories to assure that we take on only financially reliable clients.
Mandatory safety and claims service programs are implemented for all CRM’s group-trust members and are provided by CRM. This consistent level of commitment from all group members is unique in the industry and offers a prospective member the opportunity to join and benefit from an elite group of employers.
Last but certainly not least, each group trust maintains a board of trustees comprised of only group members. CRM provides regular claims activity and financial reports to these boards as well as advises on appropriate action, if needed. Through monthly reviews of loss and financial data, the trustees monitor their financial position. This is much more information, and more timely information, than any insured could expect from a standard insurance carrier.
Reinsurance
New York State requires that each group trust maintain a state-approved excess workers’ compensation policy that caps the group’s exposure in the event of a catastrophic claim. CRM has gone a step further: the excess insurance we purchase is from carriers rated “A” or better by A.M. Best. More importantly, and not required by state regulation, CRM secures aggregate reinsurance that limits the group’s exposure to substantial claims frequency in a given year. Put another way, although underwriting deficits are highly unlikely, an underwriting deficit could happen. We use reinsurance to limit the extent of an underwriting deficit.
New York Regulations
The applicable regulations call for annual reviews of each group trust’s financial statements, along with a certified audit and an actuarial study submitted to the WC Board. These regulations require any group trust that is in deficit to submit to the WC Board a proposal for a revised rating or funding method for the subsequent year, and that no dividend is distributed unless a surplus position is in effect.
These regulations assure members and prospective members alike that group trusts will on an annual basis be independently certified and reviewed every year and, if necessary, corrected to be in a surplus position.
Further details about the regulations can be seen in the FAQ section on regulatory oversight.
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Q. Is there regulatory oversight of trusts? What are the basics?
A. Trusts are overseen by the New York State Workers’ Compensation Board, Office of Self Insurance. The applicable regulation is Title 12 NYCRR Part 317 – Group Self Insurance (http://www.wcb.state.ny.us/content/main/SiLr/selfins_part315.htm#part317_1).
As a member of the Board of Directors of our state association, CRM’s CEO, Martin Rakoff, assisted the New York Workers’ Compensation (WC) Board in drafting new regulations with respect to group-trust programs that went into effect in January of 2001. The most important element of these new regulations calls for an annual review of each group-trust’s financial statements, along with a certified audit and an actuarial study submitted to the WC Board. These regulations require any group trust that is in deficit to submit to the WC Board a proposal for a revised rating or funding method for the subsequent year, and that no dividend is distributed unless a surplus position is in effect. This assures members and prospective members alike that group trusts will on an annual basis be independently certified and reviewed every year and, if necessary, corrected to maintain a surplus position.
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Q. Is a security deposit required of individual members?
A. No. However, in accordance with state requirements, each “group” upon formation must deposit with the Workers’ Compensation Board securities, cash or surety bonds in an aggregate amount as specified by the WCB. The amount of the security can be reevaluated by the WCB during the trust’s annual review.
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Q. How is my premium calculated?
A. One of CRM’s primary services is underwriting. We have a fiduciary responsibility to preserve the integrity of each group trust we manage; and therefore, we are only interested in bringing on members who are committed to controlling workers’ compensation costs. We underwrite each member individually and, if acceptable, each member is charged a contribution based upon their individual loss history, prevailing state manual rates and experience modification. We also examine member financial histories to assure that we take on only financially reliable clients.
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Q. Does CRM keep members informed of a trusts’ financial performance?
A. As required by New York State, trust administrators must regularly report the trust’s financials to each group’s board of trustees. This panel of group members is charged with the responsibility of taking actions necessary to protect the assets of the trust. Pursuant to individual group By-Laws, Compensation Risk Managers also meets with the trustees to communicate the status of the underwriting and risk management results.
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