Okla. Admin. Code § 365:15-1-3.2

Current through Vol. 42, No. 7, December 16, 2024

Section 365:15-1-3.2 - Financial requirements - mega deductible workers' compensation policies

(a) Every insurer issuing mega deductible workers' compensation policies ("MDWC"), as defined in subsection c of this Section, shall comply with the following requirements:

(1) The MDWC policy shall require collateralization, as provided herein, of the outstanding deductible reimbursement obligations of the policyholder for any prospective period of coverage. "Collateralization" means deposit by the policyholder with the insurance company of assets to serve as security in the event that a policyholder fails to reimburse the insurer for losses within the deductible.

(2) For purposes of this section, only the following assets shall qualify as "collateral":

(A) Assets admissible pursuant to Article 16 of Title 36 of the Oklahoma Statutes;

(B) A surety bond issued by a surety insurer authorized to transact business by the Commissioner and whose financial strength and size ratings from A.M. Best Company are not less than "A" and "V", respectively;

(C) An irrevocable letter of credit, utilizing a form designated by the Commissioner, issued by a financial institution whose deposits are federally insured. Letters of credit meeting applicable standards of issuer acceptability as of the dates of their issuance or confirmation shall, notwithstanding the issuing or confirming institution's subsequent failure to meet applicable standards of issuer acceptability, continue to be acceptable as security until their expiration, extension, renewal, modification, or amendment, whichever first occurs; provided however, that a letter of credit must be replaced within three months after the date of the institution's failure to meet applicable standards of issuer acceptability;

(D) Guaranty of a solvent parent or affiliated entity that has:

(i) been continuously engaged in business for not less than three (3) years immediately preceding the application for the MDWC policy;

(ii) at least one hundred (100) employees (all states included); and

(iii) at least One Million Dollars ($1,000,000.00) in net assets, as shown in its immediately preceding year-end GAAP audited financial statements. For purposes of this subparagraph, "affiliated" shall have the meaning ascribed in 36 O.S. § 1651; or

(E) Any combination of the foregoing.

(3) When a policy is written with an aggregate deductible option, the amount of the collateral may not exceed the aggregate deductible.

(4) Collateral held pursuant to this subsection shall be under the direct control of the insurer. Collateral shall be held for the express and sole purpose of securing the policyholder's obligations under the mega deductible workers' compensation policy. Collateral shall not be commingled with the assets of the insurer. Insurers shall not permit policyholders or agents or affiliates of policyholders, or any third party with any contractual or other relationship to the policyholder, directly or indirectly, to access such collateral.

(5) Claims information for each mega deductible insured employer and co-employer shall be maintained in the possession of the insurer for at least six years.

(6) Insurers shall not permit policyholders or agents or affiliates of policyholders, or any third party with any contractual or other relationship to the policyholder, directly or indirectly, to administer claims under a mega deductible workers' compensation policy.

(7) All agreements between insurers and policyholders relating to handling of claims by third parties shall be maintained by the insurer and made available to the Commissioner upon request.

(8) Notwithstanding any other limitation on the insurer's right to cancel the insurance, the policy shall provide that the policyholder's failure to post collateral as required by the policy or pay deductible reimbursements when due, are grounds for policy cancellation, upon 10 days prior notice.

(9) Before issuing or renewing a mega deductible workers' compensation policy, the insurer shall obtain an audited financial statement for the policyholder, or a financially strong parent or affiliate that has issued an unconditional financial guaranty of the policyholder's deductible obligations. The amount of the policyholder's aggregate deductible obligation is limited to no more than 20% of the total net worth of the policyholder and guarantor, at each policy inception and renewal. Net worth shall be determined as of the fiscal year-end GAAP audited financial statements next preceding such inception or renewal. The Commissioner may request and consider more recent unaudited GAAP financial statements.

(10) If the policy covers employers, co-employers, subcontractors, or other employers in addition to the policyholder, the policy shall provide that deductible reimbursements are the sole obligation of the policyholder, unless such additional covered employer has given informed written consent to be jointly obligated and the employer's maximum reimbursement obligation is limited to an amount consistent with paragraph 9 of this subsection.

(11) No insurer shall issue a mega deductible workers' compensation policy to a professional employer organization as defined by 40 O.S. § 600.2, which is affiliated with such insurer.

(b) An insurer is exempt from the requirements of this Section, with the exception of paragraph 7 of subsection a, if the insurer, at the time of issuance or renewal of the policy, has an A.M. Best Company rating of A- or above, or a comparable rating accepted by the Commissioner, and either:

(1) has at least $200,000,000.00 in policyholder surplus, or

(2) upon application to the Commissioner, has been exempted by the Commissioner for good cause shown.

(c) The term "MDWC policy" means any workers' compensation insurance policy that is subject to endorsements or other direct or indirect agreements between the insurer and the policyholder or others that have the effect, singly or in combination, of requiring the policyholder to bear a combined risk of loss of greater than $100,000.00 per covered employee. For purposes of this Section, entering into an agreement with an existing policyholder that has the effect of making its policy a mega deductible workers' compensation policy is considered to be the issuance of a mega deductible workers' compensation policy.

(d) An insurer found to be in a financially hazardous condition pursuant to the applicable Sections of Title 36 of the Oklahoma Statutes, or subject to an equivalent regulatory determination in any other state, may not issue or renew a MDWC policy.

(e) In addition to the provisions of Title 36 of the Oklahoma Statutes, an insurer issuing MDWC policies may be found to be in hazardous financial condition when one or more of the following conditions are found to exist:

(1) the insurer fails to perform a quarterly review of the sufficiency of the collateral maintained by the insurer to secure the policyholder's obligations to reimburse the insurer for claims paid and credit taken against reserves for each policy up to the negotiated deductible amount;

(2) the insurer issues a MDWC policy that does not state a specific dollar amount of deductible per claim and, if applicable, in the aggregate;

(3) the insurer issues a MDWC policy and fails to include an actuarially supported calculation of the total amounts owed by the policyholder through ultimate loss development;

(4) from the inception of the policy through ultimate loss development, the insurer fails to maintain collateral for 100% of the policyholder's liability for each MDWC policy; or

(5) the insurer fails to maintain or produce, upon the Department's request, gross and net premium data and first-dollar loss data for each workers' compensation policy with a mega deductible. Such data must be maintained on a quarterly basis in accordance with, or in a substantially similar format as, the Oklahoma Mega Deductible Workers' Compensation Experience Reporting Form created by the Commissioner.

(f) Insurers shall provide to the MDWC policyholder, documentation separate from the MDWC policy, explaining the financial responsibility of both the insurer to pay all covered claims and the policyholder's obligation to reimburse the insurer for any deductible amounts paid by the insurer.

(g) The insurer shall report statistics under each MDWC policy to a statistical agency designated by the Commissioner. Statistics shall be reported separately for each insured and each coinsured employer. For statistical and ratemaking purposes, all claims paid by the insurer within the deductible amount shall be reported gross of payments under the deductible. Subject to applicable law, the instructions for statistical reporting shall be as required by that statistical agency.

(h) This Section applies to MDWC policies issued, delivered, issued for delivery, or renewed on and after the effective date of this Section.

Okla. Admin. Code § 365:15-1-3.2

Adopted by Oklahoma Register, Volume 33, Issue 24, September 1, 2016, eff. 9/15/2016