Original Notice.

     Preproposal statement of inquiry was filed as WSR 05-23-141.

     Title of Rule and Other Identifying Information: Workers' compensation self-insurance rules and regulations, chapter 296-15 WAC. This chapter governs employers who are permitted to self-insure their workers' compensation obligation pursuant to Title 51 RCW. This filing includes new sections to define "default" and "financial watch" and establishes guidelines if a self-insured employer defaults on their workers' compensation obligation or if they experience a negative financial situation.

     Hearing Location(s): Department of Labor and Industries, 7273 Linderson Way S.W., Tumwater, WA 98501-5414, on February 22, 2006, at 1:30 p.m.

     Date of Intended Adoption: March 21, 2006.

     Submit Written Comments to: Margaret Conley, P.O. Box 44890, Olympia, WA 98504-4890, e-mail mcgm235@lni.wa.gov, fax (360) 902-6900, by February 22, 2006, 5 p.m.

     Assistance for Persons with Disabilities: Contact Margaret Conley by February 10, 2006, TTY (800) 833-6388 or (360) 902-6906.

     Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: The proposed new sections will define in rule "default" and "financial watch" and establish guidelines if a self-insured employer defaults on their workers' compensation obligation or if they experience a negative financial situation. The new sections will not modify existing rules.

     Reasons Supporting Proposal: The rules are being filed at the request of the insolvency trust board, to better clarify for self-insured employers the steps taken by the department when a self-insured employer defaults on their workers' compensation obligation, or when a self-insured employer experiences a negative financial situation.

     Statutory Authority for Adoption: RCW 51.04.020, 51.14.020, 51.32.190, 51.14.090, and 51.14.095.

     Rule is not necessitated by federal law, federal or state court decision.

     Name of Proponent: Department of labor and industries, governmental.

     Name of Agency Personnel Responsible for Drafting, Implementation and Enforcement: Jean Vanek, 724 Quince Street S.E., Olympia, WA 98501, (360) 902-6907.

     No small business economic impact statement has been prepared under chapter 19.85 RCW. Chapter 296-15 WAC applies only to businesses that are certified to self-insure in Washington state. Per RCW 19.85.020(1), a business must have fifty or fewer employees to qualify as a small business under the Regulatory Fairness Act. The department reviewed the number of worker hours reported by each employer currently certified to self-insure, and no self-insured business has fewer than fifty employees. Therefore, no small business economic impact statement is required.

     A cost-benefit analysis is not required under RCW 34.05.328. The new sections proposed in this rule filing are for clarification only. Per RCW 34.05.328 [(5)](b)(iv), "rules that only correct typographical errors, make address or name changes, or clarify language of a rule without changing its effect" do not require a cost-benefit analysis.

January 17, 2006

Gary Weeks

Director

OTS-8525.1

NEW SECTION
WAC 296-15-123   Financial watch.   (1) What is financial watch? Financial watch occurs when the department has concerns regarding a self-insured employer's ability to promptly provide benefits to its injured workers based on an analysis of the audited financial statements provided by that employer.

     The purpose of financial watch is two-fold:

     (a) It serves to alert the employer that the department is concerned with its ability to provide benefits to its injured workers; and

     (b) It enforces the due diligence that the department must exercise in preserving the financial integrity of each self-insurer.

     (2) What factors can lead to a firm being placed on financial watch? Contributing factors that can lead to a firm being placed on financial watch are negative changes in the following ratios and trends:

     (a) Net losses;

     (b) Ratio of debt to equity;

     (c) Liquidity ratios;

     (d) Ratios of debt and equity to total assets;

     (e) Ratio of net income to revenue;

     (f) Trends in earnings;

     (g) Trends in liquidity;

     (h) Trends in levels of debt;

     (i) Ratio of tangible net worth to levels of debt.

     To assess an employer's ability to promptly provide any and all required benefits to its injured workers, the department will utilize these and other analytical ratios. The department may also utilize industry standards and other relevant information in its analysis.

     (3) What are the consequences of being placed on financial watch? At the department's discretion, the surety requirement for a firm being placed on financial watch may be increased by up to twenty-five percent. No reduction in surety will be allowed while an employer is on financial watch.

     (4) How long can a firm remain on financial watch? The status of a firm on financial watch will be re-evaluated annually upon receipt of its audited financial statements. The department may request interim financial information in addition to the annual audited financial statement.

     If significant improvement is not demonstrated to the department's satisfaction after three years of being placed on financial watch, the department may undertake action to withdraw the self-insurance certification of that employer.

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     (2) What happens when the department first learns a self-insured employer has defaulted on its obligation? The department first corresponds with the self-insured employer to determine if the self-insurer will resume the provision of benefits. If the self-insurer does not respond to the department and resume the provision of benefits within ten days, the self-insured employer is determined to have defaulted.

     (3) What happens when the department confirms that a self-insurer has defaulted on its obligation? There are two actions that the department takes when a default by a self-insured employer is confirmed:

     (a) First, the department assumes jurisdiction of the claims of the defaulting self-insurer and begins to provide benefits to those injured workers.

     (b) Second, the department makes demand upon the surety provided by that self-insurer for the full amount of the surety. The proceeds of the surety are deposited with the department and accrue interest, which will be used to supplement the surety in providing benefits to those injured workers.

     (4) What happens to a self-insured employer's certification when it defaults? The employer surrenders its self-insurance certification when it defaults. Any remaining employment in the state would need industrial insurance coverage through the state fund effective with the default by the employer.

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