3 Colo. Code Regs. § 702-5-1-11-5
Rate modification plans, justified according to the standards herein, are permitted. However, the commissioner has determined that the use of unjustified rate modification plans is not reasonable, is not objective and is unfairly discriminatory. Therefore, the use of unjustified rate modification plans in rating of commercial property and casualty insurance risks located in Colorado is prohibited.
The following elements shall be considered in determining whether or not a rate modification plan, or its use, is justified:
Experience rating plans shall be calculated from at least three complete years of premium or payroll and loss data, except if a lesser time period has been approved by the Commissioner. Experience rating plans cannot be calculated with estimated premiums or payroll. Premium or payroll and loss figures used in the calculation must be verifiable and justifiable.
All workers' compensation insurers, including Pinnacol Assurance, shall disclose the availability of cost containment certification by the Colorado Workers' Compensation Cost Containment Board and the potential premium savings on the face of the insurance policy or in a separate disclosure form attached as an addendum to the policy. Such disclosure applies regardless of whether or not a risk is experience or schedule rated. Insurers shall require that the insured business entity indicate on a form developed by the insurer, that the business entity is aware of the possible premium dividend if the business entity's risk management program is certified by the Colorado Cost Containment Board. This form shall be made part of the insured business entity's underwriting file.
On an annual basis, all workers' compensation insurers, including Pinnacol Assurance, shall disclose the premium differential on the face of the insurance policy or in a separate disclosure form attached as an addendum to the policy when the policyholder has selected a designated medical provider. Such disclosure applies regardless of whether a risk is schedule rated. Insurers shall require that the insured business entity indicate, on a form developed by the insurer, that the business entity is aware of the premium differential for selecting a designated medical provider. This form shall be made part of the insured business entity's underwriting file.
Insured Business Entities Qualifying for Experience and/or Schedule Rating: If an insured business entity qualifies for experience and/or schedule rating under its workers' compensation insurance and the insured business entity has implemented a certified workers' compensation risk management program, the insurer must allow a 5% premium dividend if the loss experience has improved since the last renewal date of workers' compensation insurance. The premium dividend shall be in addition to the maximum schedule rating deviation of 25%. The schedule rating and cost containment discounts shall be applied multiplicatively. Therefore, the maximum schedule rating credit (0.75) multiplied by the cost containment certification premium dividend (0.95) cannot exceed 28.75%.
Insured Business Entities Not Qualifying for Experience and/or Schedule Rating: If an insured business entity does not qualify for experience and/or schedule rating under its workers' compensation insurance and the insured business entity has implemented a certified workers' compensation risk management program, the insurer must allow the following premium dividend:
Premium Dividend | Dividend Criteria |
10% | If the insured business entity has been loss free for at least the last year immediately preceding the effective date of the premium dividend. |
8% | If the insured business entity had one medical loss exceeding $250 in the last year immediately preceding the effective date of the premium dividend. |
6% | If the insured business entity had two medical losses, each exceeding $250, in the last year immediately preceding the effective date of the premium dividend. |
4% | If the insured business entity had three medical losses, each exceeding $250, in the last year immediately preceding the effective date of the premium dividend. |
2% | If the insured business entity had three medical losses, each exceeding $250, and one claim for loss of time in the last year immediately preceding the effective date of the premium dividend. |
0% | If the insured business entity had more than three medical losses and one claim for loss of time in the last year immediately preceding the effective date of the premium dividend. |
The application of the premium dividend up to 10% shall be dependent on available loss statistics on the initial and the renewal date of premium dividends. However, if loss statistics are not available at the initial or renewal date of the premium dividend, such loss statistics shall be applied on the subsequent renewal date. If an insured business entity changes insurers, the replaced insurer must furnish such loss statistics to the business entity prior to the effective date of the new policy.
Individual underwriting files must contain a copy or electronic record of the insured business entity's Colorado Cost Containment Certificate and historical and current loss statistics, or credible evidence available from the Colorado Division of Workers' Compensation that such entity qualifies and has received cost containment certification.
Any other rating plan which incorporates the characteristics of the plan for "premium dividend" as defined in this regulation, may be substituted for the plan for premium dividend. However, under no circumstance, can such a substitute rating plan allow for credits already reflected in the rates.
All workers' compensation insurers, including Pinnacol Assurance, must allow a credit of 2.5% as a premium differential of the workers' compensation insurance premium if the insured business entity has selected a designated medical provider. If an insured business entity is eligible for schedule rating, the 2.5% credit must be included in the total schedule credit or debit, subject to the 25% maximum limitation.
Whenever the insurer allows the premium differential in the schedule rating for an insured business entity which selects the designated medical provider, the insurer must report the premium differential, separately, to the rating/advisory organization to capture this information.
If an insured business entity is not eligible for experience or schedule rating, the 2.5% credit shall be applied in addition to the premium divided applicable. The combined premium dividend and the 2.5% credit for selection of a designated medical provider shall not exceed 12.5%.
The workers' compensation premium dividend applies to all workers' compensation policies with large or small premiums, except policies subject to minimum premiums. The dividend shall be calculated annually after a policy has expired and shall apply to the premium developed from the payroll of the rehired injured employees who sustained permanent partial disabilities (payroll of rehired employees x manual rates x ratio of rehired employees with permanent partial disabilities to injured employees with permanent partial disabilities). This premium shall be subject to all risk modification credits or debits otherwise applicable under the policy. If any employee is rehired during a policy period or was not rehired for the total policy term, the rehired employee shall be considered as being rehired for the total annual policy period or term. The workers' compensation premium dividend applies to all policies which expire on or after March 1, 1993 and all renewal policies thereafter as long as an injured employee who sustained permanent partial disabilities remains with the same employer. In calculating the premium dividend, insurers shall use the following formula:
(R / I) (P) = D
If (R / I) is greater than 10%, (R / I) = 10%
Assumptions:
R = The number of injured employees with permanent partial disabilities who were rehired during a given policy period.
I = The number of injured employees who sustained permanent partial disabilities during the same given policy period.
P = The actual payroll of reemployed injured employees who sustained permanent partial disabilities multiplied by the manual rate for the classification of the reemployed injured employees. If employees fall into different manual rate classifications, payroll of each employee should be multiplied by the appropriate manual rate. The sum of these would equal P.
D = Amount of premium dividend subject to a maximum of 10% annually.
The premium dividend shall be adjusted annually based on the number of injured employees who sustained permanent partial disabilities rehired within the given policy period.
Upon the request of the commissioner, an insurer to which this regulation applies, shall submit data to the commissioner establishing the relationship of the aggregate premiums actually charged policyholders by the insurer for each line of commercial insurance to the aggregate premium that would have been produced by the insurer's filed unmodified rates for that line of commercial insurance. A rating/advisory organization may file the data on behalf of the insurer.
To determine compliance with this regulation the commissioner may order a compliance examination be made of any insurer to which this regulation applies.
Each insurer to which this regulation applies, shall file its rate modification plan (Schedule Rating Plan), its plan for premium dividend or its substitute plan, and the premium differential for the selection of a designated medical provider prior to implementation with the Division of Insurance.
3 CCR 702-5-1-11-5