Overview of Voluntary, Assigned Risk & Markets of Last Resort

Published 2016-09-22 10:44:37 into Pricing Factors of Workers' Comp

Market Type – Voluntary, Residual & Markets of Last Resort

 

Every WC market needs a back-stop, a market of last resort, for businesses that are unable to find coverage in the general market.  This can be due to poor loss history, hazardous operations, new business venture, etc.  Some states have established an insurance ‘Fund’ to serve this purpose.  Other states have a program in which a business that is unable to secure coverage from a carrier voluntarily (Residual) can submit to be assigned coverage with a carrier that participates in the state’s ‘Assigned Risk’ program.   

 

As you can imagine these ‘last resort’ options come with a higher cost in the form of higher rates or additional surcharges and therefore present opportunity to find unhappy prospects and/or prospects that should not be AR or in a Fund.

 

AR Rates

 

As you would expect AR typically carries higher rates than finding coverage voluntarily.  In the case of NJ’s Plan the rates remain unchanged but the insured is charged a ‘PPAP’ (plan premium adjustment plan) surcharge than can have a significant effect on the Total Cost.  In other AR markets, such as CT or NV, there is a LC (or Rate, depending on state) for the Vol market and a set Rate for AR.  Let’s look at an example –

 

State

Class

Voluntary LC

AR Rate

Increase

NV

0005 (Farm, Nurs)

3.09

4.82

56%

*rates effective 6/1/16

 

There is usually a reason businesses end up here, but there are also lots of opportunities to uncover accounts that do not belong in the AR market.

 

State Funds (Markets of last resort)

 

In states that do not participate in Assigned Risk there is typically a State Fund to act as a market of last resort.  These funds are usually subject to the same regulation as a private insurer.  If it is a competitive market where LCMs are filed, the Fund will most likely file an LCM used for creating policy rates. 

 

Whether or not you can actually find their published LCM is a different story.  Take NY for example – the bureau provides a list of the Carriers’ LCM filings that is readily available with a simple google search, but guess who isn’t on that list…ever – the State Fund!

 

In most markets the State Fund carriers file a relatively high LCM to account for its pool of (typically) lower quality risks.  In PA for example, the Fund’s filing is 2.789 (as of 8/1/16).  The median LCM is 1.62 and average LCM is. 1.689 – so the Fund’s LCM is 65% higher than the average and to be expected. 

 

In NY however, the Fund’s LCM filing is 1.453 (1.27 as of 2018..wtf).  The median LCM is 1.315 and average LCM being 1.311 – so the Fund’s LCM is a mere 10% higher than the average.  This seems pretty competitive to me.  (Wondering how I got their LCM if they don’t list it in the previously mentioned document…magic, and lots of outside the box research)

 

Side note – most State Fund’s do NOT pay agents commission.  Keep that in mind – you’ll either have to add a fee or do it for free, as a ‘favor’ for the insured ‘giving’ you his other lines of coverage…so kind of them to give the business to the person responsible for saving them 15% and eliminating coverage gaps.  I hope you saved some magic for the renewal when their short-term memory kicks in.