The Commissioner of Insurance, by Commissioner's Order No 04-1001, has adopted revised Texas worker's compensation classification relativities and a revised table of expected loss rates and discount ratios amending the Texas Basic Manual of Rules, Classifications and Experience Rating Plan for Workers' Compensation and Employers' Liability Insurance (the Basic Manual).
SUMMARY CHECKLISTS OF REQUIRED SUBMISSIONS BY COMPANIES
The following items are required to be submitted to the Texas Department of Insurance (TDI). Additional information regarding these items and the timing of the submissions are explained more thoroughly later in this Bulletin.
For companies with no change in their filed deviation:
Notice of Carrier Intent and Certification
Schedule Rating Plan Information Sheet and Certification
Schedule Rating Plan if applicable
Transmittal Form
For companies with a change in their filed deviation:
Notice of Carrier Intent and Certification
Schedule Rating Plan Information Sheet and Certification
Schedule Rating Plan if applicable
Filing forms and materials listed in "Filings Made Easy" published by TDI including actuarial support
Description of the Changes and Rate Level Impact
Classification Relativities:
The classification relativities have decreased by an average of 7.1% overall from the 1/1/2003 level based on the latest statewide distribution of business by classification. The new classification relativities were initially balanced back to the 1/1/2003 classification relativities, with the changes by class code limited to +/-25%. Then due to recent projections of Texas loss experience showing lower combined ratios, on average, for workers' compensation insurers, the revised classification relativities were multiplied by a factor of 65/70. The decrease in classification relativities means that if the carrier maintains its current deviations it will experience a rate decrease of approximately 7.1%.
Expected Loss Rates:
The expected loss rates have decreased by an average of 1.0% overall from the 1/1/2003 level based on the latest statewide distribution of business by classification. Changes in individual expected loss rates were limited to +/- 25%. The maximum impact will be for larger risks in classes where the expected loss rate decreased by 25%. In those cases, the experience modifier may increase by as much as 33%. In instances where the expected loss rate increases by 25%, the experience modifier may decrease by as much as 20%.
Discount Ratios
The discount ratios were revised to reflect the change in the size of claims and benefit levels over time. Changes for individual classification will affect the split between primary and excess losses.
Actions Required by Companies
All insurance companies must either use the revised classification relativities adopted by Commissioner's Order No. 04-1001 or file their own company-specific classification relativities for all workers' compensation policies written with an effective date on or after January 1, 2005. For policies with an effective date on or after January 1, 2005, insurance companies may no longer use the January 1, 2003 classification relativities as the basis of their rates. All rates must be based either on the January 1, 2005 classification relativities or on company-specific classification relativities that have been filed with TDI. Insurance companies that currently have company-specific classification relativities on file with TDI must use the revised January 1, 2005 classification relativities or make a new filing of company-specific classification relativities. Insurance companies may use the new classification relativities prior to January 1, 2005, provided they notify TDI on or before their selected effective date.
Insurance companies currently writing workers' compensation insurance that plan to continue writing that coverage in 2005 must send their submissions to TDI before January 1, 2005. Insurance companies that are not currently writing workers' compensation insurance but plan to write their first policy with an effective date on or after January 1, 2005, must send their submissions to TDI before the effective date of their first policy.
Failure of companies to comply with the required actions within the time limits specified may constitute a violation or violations of the Texas Insurance Code and may subject the insurer to penalties provided by law.
The revised expected loss rates must be used to calculate experience modifiers with an effective date on or after January 1, 2005. They may not be used to calculate an experience modifier with an effective date prior to January 1, 2005.
Copies of the tables of revised classification relativities and expected loss rates are available for downloading at TDI's website: www.tdi.state.tx.us. Look for Commissioner's Bulletin No. 0046-04 under "Bulletins" in the "Quick Links" section of TDI's website home page. These are available in Excel and PDF formats.
Required Submissions from Companies
Companies that do not wish to change their deviations must complete the attached Notice of Carrier Intent and Certification, Schedule Rating Plan Information Sheet and Certification and the Transmittal Form from "Filings Made Easy" published by TDI to confirm the date they will start using the new classification relativities (it must be no later than January 1, 2005).The Notice of Carrier Intent and Certification should be filled out completely even if the company has no change in its deviation or if no deviation exists. Such a submission will not be considered a rate filing under §3(a) of article 5.55, Texas Insurance Code.
If a company elects to change its deviations (even if it is for only one class, the company should answer yes to the question in the Notice of Carrier Intent and Certification attached), it will be considered to be a rate filing under §3(a) of article 5.55, Texas Insurance Code, and the company will have to comply with the instructions for rate changes found in "Filings Made Easy". The company must also complete and include the attached Notice of Carrier Intent and Certification with the rate filing. Such a submission will be considered a rate filing.
Companies that are not currently writing workers' compensation insurance but plan to write their first policy with an effective date on or after January 1, 2005, must comply with the instructions for rate changes found in "Filings Made Easy".
Additional Submissions Required from Companies - Schedule Rating Plans
Companies are also required to submit a copy of their current schedule rating plan, if any. This should include a list of the criteria used in assessing debits and credits, the maximum debit or credit for each criterion, and the maximum overall debit or credit allowed under the plan. Carriers must complete and submit the attached Schedule Rating Plan Information Sheet and Certification, regardless of whether or not they use schedule rating for workers' compensation insurance. Such a submission will not be considered to be a rate filing under §3(a) of article 5.55, Texas Insurance Code.
All submissions should be sent to:
Texas Department of Insurance
Property and Casualty Intake Unit (MC 104-3B)
P. O. Box 149104
Austin, TX 78714-9104
Filing requirements are listed in the "Filings Made Easy" at http://www.tdi.state.tx.us/company/rspceasy.html. Unless a company is changing its deviation, no other forms or other exhibits listed in the "Filings Made Easy", other than the Transmittal, needs to be included.
The following exhibits can be downloaded from TDI's website:
Notice of Carrier Intent and Certification
Transmittal Form
Schedule Rating Plan Information Sheet and Certification
Exhibit A: Revised Classification Relativities
Exhibit B: Revised Expected Loss Rates and D-Ratios
Exhibit C: Determination of 1/1/2005 Expected Loss Rates and D-Ratios for Certain Selected 'a' Rated Classes
If you are unable to download the exhibits, hard copies can be requested. Contact Dolores Thompson in the Property and Casualty Actuarial Division at 512-475-3017 or by e-mail at dolores.thompson@tdi.state.tx.us.
For further information or questions in regard to this bulletin, contact Elizabeth Buhro in the Property and Casualty Actuarial Division at 512-305-6747 or by e-mail at Elizabeth.buhro@tdi.state.tx.us.
Sincerely,
Philip O. Presley
Chief Actuary
Property and Casualty Division