Departmentof Regulatoryagencies

DEPARTMENTOF REGULATORYAGENCIES

Division of Insurance

3CCR 702-5

PROPERTYAND CASUALTY

ProposedAmendedRegulation5-1-11

RISKMODIFICATIONPLANS

Section1Authority

Section2ScopeandPurpose

Section3Applicability

Section4Definitions

Section5Rules

Section6Severability

Section7Enforcement

Section8EffectiveDate

Section9History

Section 1Authority

Thisregulationis promulgatedandadoptedbytheCommissionerof Insuranceundertheauthorityof §§10-1-109,10-4-401,10-4-403,10-4-404,and10-4-408,C.R.S.

Section 2Scope and Purpose

Thepurposeof thisregulationis toprovidecriteriaforthemodificationof commercialpropertyand casualtymanualratesandtoestablishworkers'compensationdisclosurerequirements.

Section 3Applicability

Thisregulationappliestoallinsurerswritingcommercialpropertyandcasualtyinsurancepolicies, includingworkers'compensationinsurers,licensedtoconductbusinessin thisstateandPinnacol Assurance.

Section 4Definitions

A."Anniversarydate''means, for the purpose of this regulation,theannualanniversaryof thedateof issueof apolicyasshowninthe policydeclaration.

B."Certifiedworkers'compensationriskmanagementprogram"means, for the purpose of this regulation,aprogramwhichmeetsthe minimumstandardsoutlinedin ColoradoInsuranceRegulation5-3-1and is certifiedwithaCost ContainmentCertificatebytheColoradoCostContainmentBoard.

C."Designatedmedicalprovider"means, for the purpose of this regulation,anyphysician,hospital,clinicorphysicianof apreferred providerorganizationnetworkwhomeetsallof thequalificationsof adesignatedmedicalprovider outlinedinRegulation5-3-1,whichdefinesminimumriskmanagementstandardsforcost containmentcertification.

D."Experienceratingplan"means, for the purpose of this regulation,anyratingplanorsystem whereinamanualrateforinsuranceis adjustedormodifiedbasedonthepastlossexperienceof the insured.

E."Improvedworkers’compensationlossexperienceforexperienceorscheduleratedinsured businessentities"means, for the purpose of this regulation,lowerfrequencyandseverityof lossesforthelastpolicyperiodas comparedwithfrequencyandseverityof losseswithinthe immediatepriorpolicyperiod.Ifloss experienceisnotavailableforthecompletelastpolicyyear,lossesmustbecomparedforequal periodsof time(eightmonthsvs.eightmonths,tenmonthsvs.tenmonths,etc.).Whethertherisk managementprogramcertificationcreditappliesandwhetherthebusinessentity’sloss experiencehasimprovedshallbedeterminedbytheinsurerpriortograntingthecostcontainmentcredit.TheColoradoCostContainmentBoardreviewsthebusinessentity’sloss recordforthepurposeof certificationof theriskmanagementprogramonly.

F."Initialcertificationdate"means, for the purpose of this regulation,thedatetheriskmanagementprogramof abusinessentityis initiallycertifiedbytheColoradoCostContainmentBoard.A riskmanagementprogramthat meetstheriskmanagementstandardsof ColoradoInsuranceRegulation5-3-1shallbe initially certifiedoneyearaftertheimplementationof theprogrambythebusinessentity.

G."Initialeffectivedateof thepremiumdividendresultingfrom theimplementationofarisk managementprogram"means, for the purpose of this regulation,theannualanniversarydateof aworkers'compensationpolicy immediatelyaftertheriskmanagementprogramhasbeencertifiedbytheColoradoCost ContainmentBoard.Iftheannualanniversarydateiswithinthirtysixty(3060)daysof thedatearisk has beencertified,agraceperiodfortheapplicationof apremiumdividendis allowed.However,a graceperiod, whenallowed,mustbeappliedconsistently.

H."Manualrate"means, for the purpose of this regulation,aratedesignedto applyon agenericbasistosimilarriskswithinthesame class,filedbyan insureror rating/advisoryorganizationwiththeDivisionof Insuranceandmade partof theratingmanualusedbyaninsurerorrating/advisoryorganization.

I."Payroll"means, for the purpose of this regulation,theremunerationpaidorpayablebythebusinessentityforservicesof employees.Remunerationismoneyorsubstitutesformoneyincludingcommissions,bonuses, extrapayforovertime,payforvacations,holidaysandsickness,statutoryinsuranceorpension plans,paymentsforpiecework,allowancesfortools,therentalvalueof an apartment,andthe valueof lodgingandmeals.

J."PremiumDifferential"means, for the purpose of this regulation,anadjustmenttotheworkers'compensationpremiumwhenthe insuredbusinessentityhasselectedadesignatedmedicalprovider.

K."Premiumdividendresultingfrom theimplementationof ariskmanagementprogram"means, for the purpose of this regulation,the creditsallowedforbusinessentitieswhichimplementariskmanagementprogramandcomply withthestandardsestablishedbyColoradoInsuranceRegulation5-3-1andthebusinessentity's lossexperienceundertheriskmanagementprogramindicatesthatsuchpremiumdividendis warranted.

L."Premiumdividendresultingfrom rehiringpreviouslyinjuredemployees"means, for the purpose of this regulation,thecreditarrived atforemployerswhorehirepreviouslyinjuredemployeeswhosustainedpermanentpartial disabilities.

M."Ratemodificationplan"(commonlycalledScheduleRatingPlanorIndividualRisk Premium ModificationPlan)means, for the purpose of this regulation,aratingplanorprocedurewhichprovidesalistingof variousrisk characteristicsorconditionsanda rangeof modificationfactorswhichmaybeappliedforthese characteristicsorconditionstothemanualrateof aparticularinsurancerisk.Theeffectof the modificationfactoris to increase(debit)ordecrease(credit)themanualrate.Ratemodification plansexcludemeritratingplansandretrospectiveratingplans.

N."Rehiredemployeewithpermanentpartialdisabilities"means, for the purpose of this regulation,anemployeewhosustained permanentpartialdisabilitiesand is reemployedbythesameemployer,nota successor,atthe pre-injurywagesincludinganywageincreasesto whichsuchemployeewouldhavebeenentitled hadtheemployeenotbeeninjured.

O."Renewaldateof premiumdividend"means, for the purpose of this regulation,eachannualanniversarydateof aworkers' compensationinsurancepolicyafterthe initialeffectivedateof thepremiumdividend.

Section5Rules

A.RateModificationPlans

Ratemodificationplans,justifiedaccordingto thestandardsherein,arepermitted.However,the commissionerhasdeterminedthattheuseof unjustifiedratemodificationplansisnotreasonable, is notobjectiveand is unfairlydiscriminatory.Therefore,theuseof unjustifiedratemodification plansinratingof commercialpropertyandcasualtyinsuranceriskslocatedin Coloradois prohibited.

Thefollowingelementsshallbeconsideredindeterminingwhetherornotaratemodification plan,oritsuse,is justified:

1.Ratemodificationplansmustbeusedto acknowledgevarianceinrisk characteristicsand notmerelytogaincompetitiveadvantage.

2.Ratemodificationplansmustbebasedonlyonratingcharacteristicsnotalreadyreflected inthemanualrates.Theplansmustclearlyindicatetheobjectivecriteriato be used.

3.Ifarisk is experiencerated,theamountof thecreditordebitderivedfrom usingarate modificationplan(ScheduleRatingPlan)shallbeappliedtoanexperienceratedrisk ina multiplicativemanner,afterapplicationof theexperiencemodification,andbeforethe applicationof thecostcontainmentdividend,premiumdiscountsandexpenseconstants.

4.Individualunderwritingfilesmustcontainthespecificcriteriaanddocumenttheparticular circumstancesof therisk thatsupporteachdebitorcredit.Thisdocumentationmustexist intheunderwritingfileorcredibleelectronicrecordto enablethecommissionerto verify compliancewiththisregulation.Documentationmayinclude,but is notlimitedto, inspectionreports,photographs,agentobservationsandfindings,insured'sformalsafety plans,premisesevaluations,andnarrativereportscoveringotheraspectsof therisk.For thepurposeof workers'compensationinsurance,documentationmustincludea copyof theemployer'sColoradoCostContainmentCertificateifapremiumdividendis allowed. Misclassificationof arisk willbeconsideredamodificationwithoutjustification.

5.Anyratemodificationplandesignedtobeappliedsimultaneouslyto property,liability,or vehiclecoverageshallcontainreasonablefactorsthatgiveappropriaterecognitiontothe distinctexposuresinvolvedinsuchcoverages.

6.Oncean insurerhasfileda ratemodificationplan,itsuseis mandatory.Insurersmayuse judgmentinselectingtheamountof creditordebitstatedwithina rangeof creditsor debits.However,suchcreditsordebitsmustbeapplieduniformlyinanondiscriminatory mannerforalleligibleclassesof riskseligibleunderaratemodificationplan,even ifthe applicationof theplanresultsinazeromodification,ornochangein aprevious modificationapplied.

7.Theapplicationof anyratemodificationplanshallnotresultin debitsorcreditsthat exceed25%.Theratemodificationplanmuststatespecificallythe25%maximum limitation.Modificationsgeneratedbyexperience(experiencerating)orcompany expenseexperience(companydeviationplans)arenotsubjecttothe25%limitation.Companydeviationplansmaybe appliedin additiontoexperiencemodifications,rate modificationsandpremiumdiscounts.

8.Oncearatemodificationplanhasbeenappliedto arisk andacreditordebitestablished, nochangein theestablishedcreditordebitcanbemadewithoutappropriatejustification anddocumentation.If suchjustificationanddocumentationbecomesavailableduringthe policyperiod,theestablishedcreditordebitcannotbe changeduntilthenextanniversary dateof the insurancepolicy.

9.Aratemodificationplanshallnotapplyto minimumpremiumpolicies.

10.Anyratemodificationplanmustprovidethatwhenarisk is ratedbelowaverage (debited),an insuredorapplicant,uponrequest,willbeadvisedbythe insurerofthe factorswhichresultedintheadverseratingsothatthe insuredorapplicantwillbe fairly apprisedof anycorrectiveactionthatmightbe appropriatewithrespecttotheinsurance risk.

B.ExperienceRatingPlans

Experienceratingplansshallbecalculatedfrom atleastthreecomplete yearsof premiumor payrollandlossdata,exceptifalessertimeperiodhasbeenapprovedbytheCommissioner. Experienceratingplanscannotbecalculatedwithestimatedpremiumsorpayroll.Premiumor payrollandlossfiguresusedin thecalculationmustbe verifiableandjustifiable.

C.Workers'CompensationCostContainmentCertificationandSelectionof DesignatedMedicalProviderdisclosure

Allworkers'compensationinsurers,includingPinnacolAssurance,shalldisclosetheavailability of costcontainmentcertificationbytheColoradoWorkers'CompensationCostContainment Boardandthepotentialpremiumsavingson thefaceof theinsurancepolicyorin aseparate disclosureform attachedasanaddendumtothepolicy.Suchdisclosureappliesregardlessof whetherornotarisk is experienceorschedulerated.Insurersshallrequirethattheinsured businessentityindicateon aform developedbythe insurer,thatthebusinessentityis awareof thepossiblepremiumdividendifthebusinessentity’s riskmanagementprogramis certifiedby theColoradoCostContainmentBoard.Thisform shallbemadepartof the insuredbusiness entity’sunderwritingfile.

Onan annualbasis,allworkers'compensationinsurers,includingPinnacolAssurance,shall disclosethepremiumdifferentialonthefaceof the insurancepolicyorin aseparatedisclosure form attachedasanaddendumtothepolicywhenthepolicyholderhasselectedadesignated medicalprovider.Suchdisclosureappliesregardlessof whetherarisk is schedulerated.Insurers shallrequirethatthe insuredbusinessentityindicate,onaform developedbythe insurer,thatthe businessentityis awareofthepremiumdifferentialforselectingadesignatedmedicalprovider. Thisformshallbemadepartof theinsuredbusinessentity’sunderwritingfile.

D.PremiumDividendforCertifiedRiskManagementPrograms

InsuredBusinessEntitiesQualifyingforExperienceand/orScheduleRating:Ifaninsured businessentityqualifiesforexperienceand/orscheduleratingunderitsworkers'compensation insuranceandtheinsuredbusinessentityhasimplementedacertifiedworkers'compensation riskmanagementprogram,the insurermustallowa5%premiumdividendifthelossexperience hasimprovedsincethe lastrenewaldateof workers'compensationinsurance.Thepremium dividendshallbe inadditiontothemaximumscheduleratingdeviationof 25%.Theschedule ratingandcostcontainmentdiscountsshallbeappliedmultiplicatively.Therefore,themaximum scheduleratingcredit(0.75)multipliedbythecostcontainmentcertificationpremiumdividend (0.95)cannotexceed28.75%.

InsuredBusinessEntitiesNotQualifyingforExperienceand/orScheduleRating:Ifaninsured businessentitydoesnotqualifyforexperienceand/orscheduleratingunderitsworkers' compensationinsuranceandthe insuredbusinessentityhasimplementedacertifiedworkers' compensationriskmanagementprogram,theinsurermustallowthefollowingpremiumdividend:

Premium
Dividend / DividendCriteria
10% / Iftheinsuredbusinessentityhasbeenlossfreeforatleastthelastyear immediatelyprecedingtheeffectivedateof thepremiumdividend.
8% / Iftheinsuredbusinessentityhadonemedicallossexceeding$250in the lastyear immediatelyprecedingtheeffectivedateof thepremium dividend.
6% / Iftheinsuredbusinessentityhadtwomedicallosses,eachexceeding
$250,inthelastyearimmediatelyprecedingtheeffectivedateof the premiumdividend.
4% / Iftheinsuredbusinessentityhadthreemedicallosses,eachexceeding
$250,inthelastyearimmediatelyprecedingtheeffectivedateof the premiumdividend.
2% / Iftheinsuredbusinessentityhadthreemedicallosses,eachexceeding
$250,andoneclaimforlossof timeinthe lastyear immediately precedingtheeffectivedateof thepremiumdividend.
0% / Iftheinsuredbusinessentityhadmorethanthreemedicallossesand oneclaimforlossof timein the lastyear immediatelyprecedingthe effectivedateof thepremiumdividend.

Theapplicationof thepremiumdividendupto 10%shallbe dependenton availablelossstatistics ontheinitialandtherenewaldateof premiumdividends.However,iflossstatisticsarenot availableattheinitialorrenewaldateof thepremiumdividend,suchlossstatisticsshallbeappliedonthesubsequentrenewaldate.Ifaninsuredbusinessentitychangesinsurers,the replacedinsurermustfurnishsuchlossstatisticstothebusinessentitypriorto theeffectivedate of thenewpolicy.

Individualunderwritingfilesmustcontainacopyorelectronicrecordof theinsuredbusiness entity'sColoradoCostContainmentCertificateandhistoricalandcurrentlossstatistics,orcredibleevidenceavailablefrom theColoradoDivisionofWorkers’Compensationthatsuchentity qualifiesandhasreceivedcostcontainmentcertification.

Anyotherratingplanwhichincorporatesthecharacteristicsof theplanfor"premiumdividend"as definedin thisregulation,maybesubstitutedfortheplanforpremiumdividend.However,under nocircumstance,cansuchasubstituteratingplanallowforcreditsalreadyreflectedintherates.

E.PremiumDifferentialforSelectionof DesignatedMedicalProvider

Allworkers'compensationinsurers,includingPinnacolAssurance,mustallowacreditof 2.5%as apremiumdifferentialof theworkers'compensationinsurancepremiumiftheinsuredbusiness entityhasselectedadesignatedmedicalprovider.Ifaninsuredbusinessentityiseligiblefor schedulerating,the2.5%creditmustbeincludedin thetotalschedulecreditordebit,subjectto the25%maximumlimitation.

Wheneverthe insurerallowsthepremiumdifferentialinthescheduleratingforan insured businessentitywhichselectsthedesignatedmedicalprovider,the insurermustreportthe premiumdifferential,separately,totherating/advisoryorganizationtocapturethis information.

Ifaninsuredbusinessentityisnoteligibleforexperienceorschedulerating,the2.5%creditshall beappliedinadditionto thepremiumdividedapplicable.Thecombinedpremiumdividendand the2.5%creditforselectionof adesignatedmedicalprovidershallnotexceed12.5%.

F.Workers'CompensationPremiumDividendforEmployingPreviouslyInjuredEmployeeswith PermanentPartialDisabilities

Theworkers'compensationpremiumdividendappliestoallworkers'compensationpolicieswith largeorsmallpremiums,exceptpoliciessubjecttominimumpremiums.Thedividendshallbe calculatedannuallyafterapolicyhasexpiredandshallapplytothepremiumdevelopedfrom the payrollof therehiredinjuredemployeeswhosustainedpermanentpartialdisabilities(payrollof rehiredemployeesx manualratesx ratioof rehiredemployeeswithpermanentpartialdisabilities toinjuredemployeeswithpermanentpartialdisabilities).Thispremiumshallbesubjecttoallrisk modificationcreditsordebitsotherwiseapplicableunderthepolicy.Ifanyemployeeis rehired duringapolicyperiodorwasnotrehiredforthetotalpolicyterm,therehiredemployeeshallbe consideredasbeingrehiredforthetotalannualpolicyperiodorterm.Theworkers'compensation premiumdividendappliestoallpolicieswhichexpireonorafterMarch1,1993andallrenewal policiesthereafteraslongasaninjuredemployeewho sustainedpermanentpartialdisabilities remainswiththesameemployer.In calculatingthepremiumdividend,insurersshallusethe followingformula:

(R/I)(P)= D

If (R/I) is greaterthan10%,(R/I)=10% Assumptions:

R=Thenumberof injuredemployeeswithpermanentpartialdisabilitieswho were rehiredduringagivenpolicyperiod.

I=Thenumberof injuredemployeeswhosustainedpermanentpartialdisabilitiesduring thesamegivenpolicyperiod.

P= Theactualpayrollof reemployedinjuredemployeeswhosustainedpermanentpartial disabilitiesmultipliedbythemanualratefortheclassificationof thereemployedinjured employees.Ifemployeesfallintodifferentmanualrateclassifications,payrollof each employeeshouldbemultipliedbytheappropriatemanualrate.Thesum of thesewould equalP.

D= Amountof premiumdividendsubjecttoamaximumof 10%annually.

Thepremiumdividendshallbeadjustedannuallybasedon thenumberof injuredemployeeswho sustainedpermanentpartialdisabilitiesrehiredwithinthegivenpolicyperiod.

G.Reportingof PertinentInformation

Upontherequestof thecommissioner,an insurerto whichthisregulationapplies,shallsubmit datatothecommissionerestablishingtherelationshipof theaggregatepremiumsactually chargedpolicyholdersbytheinsurerforeachlineof commercialinsurancetotheaggregate premiumthatwouldhavebeenproducedbythe insurer'sfiledunmodifiedratesforthat lineof commercialinsurance.A rating/advisoryorganizationmayfilethedataon behalfof theinsurer.

H.RateComplianceExaminations

Todeterminecompliancewiththisregulationthecommissionermayorderacompliance examinationbemadeof anyinsurerto whichthisregulationapplies.

I.Filingof RateModificationPlans

Eachinsurerto whichthisregulationapplies,shallfileitsratemodificationplan(ScheduleRating Plan),itsplanforpremiumdividendoritssubstituteplan,andthepremiumdifferentialforthe selectionof adesignatedmedicalproviderpriortoimplementationwiththeDivisionof Insurance.

Section6Severability

Ifanyprovisionsof thisregulationoritsapplicationto anypersonorcircumstancesareforanyreason heldto be invalid,theremainderof theregulationshallnotbeaffectedin anyway.

Section7Enforcement

NoncompliancewiththisRegulationmayresultintheimpositionof anyof thesanctionsmadeavailablein theColoradostatutespertainingtothebusinessof insurance,orotherlaws,whichincludethe impositionof finescivil penalties,issuanceof ceaseanddesistorders,and/orsuspensionsorrevocationof insurancelicenses,subject to the requirements of due process.

Section8EffectiveDate

This amendedregulationiseffectiveon June1,2012February 1, 2016.

Section9History

Newregulation88-3,effective1988.

Amendedregulation91-4,effectiveMay1,1991.

Re-codifiedasregulation5-1-11,effectiveJanuary1,1992.

Amendedasregulation5-1-11,effectiveMarch1, 1993.

Amendedasregulation5-1-11,effectiveApril1,1997.

Amendedasregulation5-1-11,effectiveMay1, 2003.

AmendedregulationeffectiveJune1,2012.

AmendedregulationeffectiveFebruary 1, 2016.