Original Notice.

     Preproposal statement of inquiry was filed as WSR 01-21-074.

     Title of Rule: United States Longshore and Harbor Workers' Assigned Risk Plan (USL&HARP).

     Purpose: Amend chapter 284-22 WAC as requested in a petition from the USL&HARP Governing Committee.

     Other Identifying Information: R 2001-10.

     Statutory Authority for Adoption: RCW 48.02.060 and 48.22.070.

     Statute Being Implemented: RCW 48.22.070.

     Summary: The proposed rules amend chapter 284-22 WAC to allow for distributions to participants. The information gathering process and minimum threshold for assessment are made more flexible. A process is created to assess insurers who do not report information in a timely manner.

     Reasons Supporting Proposal: The governing committee should be able to administer the proposed rules more efficiently. The potential for distribution is noted in statute but there is no mechanism in rule. Compliance with should increase regarding requests by the governing committee for information.

     Name of Agency Personnel Responsible for Drafting and Implementation: Lee Barclay, Tumwater, Washington, (360) 586-3685; and Enforcement: Carol Sureau, Tumwater, Washington, (360) 586-1189.

     Name of Proponent: USL&HARP Governing Committee and Mike Kreidler, Insurance Commissioner, private and governmental.

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

     Explanation of Rule, its Purpose, and Anticipated Effects: The main purpose is to establish clearer and more efficient rules for assessments from plan participants and to create a mechanism for distributions to plan participants. The proposed WAC 284-22-060 allows for the possibility of returning distributions back to participants in the USL&H assigned risk plan. The timing and amount of distributions are at the discretion of the governing committee of the plan but are subject to the approval of the insurance commissioner. This parallels the process for assessments. Assessments remain at the discretion of the governing committee. Greater flexibility for the governing committee is allowed in the proposed rules. Reporting is no longer required annually. Instead, the governing committee will request the information regarding the subject premium for time periods that the committee determines is appropriate. The proposed rules also give the governing committee a procedure to use if an insurer does not report its USL&H premium to the plan in a timely fashion. This will ensure that all participants are properly assessed or receive the appropriate distribution. The proposed rules also create additional flexibility for the governing committee by replacing the minimum $50 annual premium threshold for assessment with a de minimis standard that will be established by the governing committee for each assessment. This flexibility will give the governing committee the ability to adopt an appropriate standard for each assessment and to maintain an appropriate standard over time. Any person who is aggrieved by any decision of the plan would still have the right to appeal to the commissioner in RCW 48.22.070 and existing WAC 284-22-090.

     Proposal Changes the Following Existing Rules: WAC 284-22-020 is amended to change "underwriting results" to "net income or loss."

     WAC 284-22-050 is amended to remove the definition of "underwriting results."

     WAC 284-22-060(1) is amended to remove the allocation portion. Subsections (2) and (3) which address: A minimum threshold for assessment; information to be reported; and the filing of a report annually are removed. New subsection (2) includes the allocation portion and de minimis threshold language. New subsection (3) established the method for the plan to receive information from participants and to proceed when information is not received in a timely fashion. New subsection (4) establishes the mechanisms to make any assessment or a distribution.

     WAC 284-22-080 is amended to allow for the possibility of distributions.

     A small business economic impact statement has been prepared under chapter 19.85 RCW.

     Chapter 284-22 WAC was amended in 1993 and has not been amended since. Over the last several years, the governing committee has worked on proposed improvements to chapter 284-22 WAC. The proposal went through multiple drafts and has been discussed thoroughly, and the final proposal was passed unanimously by the governing committee. The proposal became a rule-making petition to the Office of the Insurance Commissioner (OIC).

     On October 18, 2001, a CR-101 was filed announcing the agency's intent to begin rule making in this area. The CR-101 was mailed to affected parties and posted on the agency website.

     Is the rule required by federal law or federal regulation? This rule is not required by federal law or regulation.

     Industry affected by the proposed rule: The rules would impact Fire, Marine & Casualty Insurers, #6331, who write USL&H coverage. This is a small portion of the admitted insurers. Only a few dozen forms and rates were filed with the OIC between 1992-2000. The three insurer representatives on the governing committee are likely more than 10% of the entire total of insurers selling policies.

     Parts of the proposed rule that may impose a cost to business: The proposed rules should not impose additional costs on businesses. RCW 48.22.070 allows for commissioner to develop rules to establish a reasonable plan. The plan is to share losses and surpluses. Currently, chapter 284-22 WAC does not mention the possibility of distributions of excess funds back to the plan participants.

     The main purpose of the requested rule making is to establish clearer and more efficient rules for assessments from plan participants and to create a mechanism for distributions to plan participants. The proposed WAC 284-22-060 allows for the possibility of returning distributions back to participants in the USL&H assigned risk plan. The timing and amount of distributions are at the discretion of the governing committee but are subject to the approval of the insurance commissioner. This parallels the process for assessments. Assessments remain at the discretion of the governing committee. Greater flexibility for the governing committee is allowed in the proposed rules. Reporting is no longer required annually. Instead, the governing committee will request the information regarding the subject premium for time periods that the committee determines is appropriate. The proposed rules also give the governing committee a procedure to use if an insurer does not report its USL&H premium to the plan in a timely fashion. This will ensure that all participants are properly assessed or receive the appropriate distribution. The proposed rules also create additional flexibility for the governing committee by replacing the minimum $50 annual premium threshold for assessment with a de minimis standard that will be established by the governing committee for each assessment. This flexibility will give the governing committee the ability to adopt an appropriate standard for each assessment and to maintain an appropriate standard over time. Any person who is aggrieved by any decision of the plan would still have the right to appeal to the commissioner in RCW 48.22.070 and existing WAC 284-22-090.

     Compliance costs for the industries affected by the proposed rules: The drafters do not anticipate any costs attributable to the rule beyond the time spent in reading and comprehending the rule. The rules will establish clearer mechanisms to assess insurers.

     Percentage of the industries in the four-digit standard industrial classification affected by the rule: The proposed rule would affect 100% of the insurers who write USL&H coverage in Washington.

     Proportionality of the economic burden on small businesses: The proposed rule will not impose a disproportionately higher economic burden on smaller carriers. The commissioner does not anticipate any economic burdens due to the rules for any size of carrier or insurer.

     Mitigation measures that could be used to reduce the economic impact of the rule on small businesses and still meet the objectives: No additional mitigation to reduce economic costs of the proposed rules appears to be possible or necessary (due to the lack of anticipated costs). The governing committee unanimously requested the rule changes clarification in order to administer the plan more efficiently. It developed the proposed changes after lengthy discussions. It does not appear that this goal can be achieved in any more efficient fashion. The commissioner will continue to discuss the rules and any possible negative impacts on small businesses with any affected parties.

     Steps the commissioner will take to reduce the costs of the rule on small businesses: See above.

     Mitigation techniques that have been considered and incorporated into the proposed rule: Staff from the OIC participated in the discussions with the governing committee and interested parties as the proposal was developed. As mentioned, the proposed changes were suggested by the governing committee after several years of discussions with affected parties. The governing committee petitioned the commissioner to amend the existing rules. After the petition was made, an affected insurer objected. The CR-101 was not filed until after the objecting insurer consulted with the governing committee and some of the concerns were resolved.

     Mitigation techniques that were considered for incorporation into the proposed rule but were rejected: See above.

     Briefly describe the reporting, record-keeping, and other compliance requirements of the proposed rule: There are no new record-keeping requirements as a result of this rule. The commissioner already must approve of a requested assessment. The rule allows for the possibility of distributions, which also would have to be approved by the commissioner.

     Professional services that may be needed to comply with the requirements of the proposed rule: It is expected that no new professional services will be needed by smaller businesses. There may be some minimal costs associated with reading and comprehending the new rule.

     Cost of equipment: There is no anticipated additional cost of equipment.

     Cost of supplies: There is no anticipated additional cost of supplies.

     Cost of labor: There is no anticipated additional cost of labor.

     Cost of increased administration: There is no anticipated additional cost of increased administration.

     The proportionality of the cost of compliance for small business and the cost of compliance for the largest business: The cost of compliance should not increase from the present level. The costs are currently proportional and should remain proportional for small businesses. There should be no proportional differences in costs of equipment, supplies, labor, or administration.

     Informing and involving affected businesses: As noted earlier, the proposed amendments were developed over several years of discussions by the governing committee. The governing committee then petitioned the commissioner to amend the existing rules. The prolonged interest and discussion by the governing committee allowed the affected parties a substantial amount of time to learn about the proposed amendments and to discuss the proposal with the governing committee and with staff from the OIC. The commissioner encourages all businesses, and particularly small businesses, to comment upon the proposal either in writing or at the hearing.

     The CR-101 was filed on October 18, 2001. The proposal was published in the Washington State Register and was posted on the insurance commissioner's website with contact names and numbers. Affected parties, including smaller insurers, were mailed the CR-101. The CR-101 requested comments and gave agency contact numbers for parties interested in participating in the rule-making process.

     Involvement of small business in the development of the proposed rule: See above.

     Informing affected small businesses of the proposed rule: See above.

     A copy of the statement may be obtained by writing to Kacy Scott, P.O. Box 40255, Olympia, WA 98504-0255, e-mail Kacys@oic.wa.gov, phone (360) 664-3784, fax (360) 586-3109.

     RCW 34.05.328 applies to this rule adoption. The rule is a "significant legislative rule" for the purpose of RCW 34.05.328.

     Hearing Location: John A. Cherberg Building, Senate Hearing Room 2, Olympia, Washington, on Tuesday, August 20, 2002, at 10:00 a.m.

     Assistance for Persons with Disabilities: Contact Lori Villaflores by August 13, 2002, TDD (360) 664-3154, or phone (360) 407-0198.

     Submit Written Comments to: Kacy Scott, P.O. Box 40255, Olympia, WA 98504-0255, e-mail Kacys@oic.wa.gov, fax (360) 586-3109, by Monday, August 19, 2002.

     Date of Intended Adoption: September 4, 2002.

July 3, 2002

Mike Kriedler

Insurance Commissioner

OTS-5173.1

AMENDATORY SECTION(Amending Order R 93-17, filed 9/24/93, effective 10/25/93)

WAC 284-22-020   Purpose.   The purposes of the assigned risk plan are:

     (1) To promote a strong and healthy maritime industry, within Washington state, by ensuring the continued availability of workers' compensation coverage required by the United States Longshore and Harbor Workers' Act and maritime employers' liability coverage incidental to such workers' compensation coverage for employers who are unable to purchase it through the normal insurance market.

     (2) To provide a mechanism through which the ((underwriting results)) net income or loss of the assigned risk plan ((are)) is shared by authorized insurers writing primary or excess United States Longshore and Harbor Workers' insurance within Washington state and the Washington state industrial insurance fund.

[Statutory Authority: RCW 48.02.060. 93-20-019 (Order R 93-17), § 284-22-020, filed 9/24/93, effective 10/25/93. Statutory Authority: RCW 48.02.060 and 1992 c 209. 92-19-095 (Order R 92-12), § 284-22-020, filed 9/16/92, effective 10/17/92.]

     (2) "Applicant" means an employer, seeking coverage from the assigned risk plan, who has, in good faith, sought United States longshore and harbor workers' coverage from at least two of the authorized insurers writing such coverage in Washington and has been declined such coverage by all insurers from which it has sought coverage. "Applicant" does not include employers seeking coverage through the plan solely because of the lack of availability of maritime employers' liability coverage.

     (3) "Authorized insurer" means any insurance company licensed to write workers' compensation insurance on a direct basis in this state.

     (4) "Commissioner" means the commissioner of insurance of the state of Washington.

     (5) "Governing committee" means the committee responsible for administering the assigned risk plan. It shall consist of thirteen members, who shall be appointed by the commissioner. The director of the department of labor and industries shall be one member. The remaining members shall be selected to insure equal representation of each of the following interest groups; authorized insurers writing primary or excess workers' compensation insurance, insurance producers, organized labor, and maritime employers.

     (6) "Maritime employers' liability" means that liability imposed by 46 U.S.C. 688 (the Jones Act) and general maritime law for bodily injury including death of a master or member of the crew of any vessel.

     (7) "Servicing carrier" means any authorized insurer designated by the assigned risk plan and approved by the commissioner and the United States Department of Labor to issue workers' compensation policies. It shall issue policies on behalf of the assigned risk plan, provide safety engineering, handle claims incurred by those covered by the assigned risk plan, provide premium audits, perform underwriting functions, and perform other duties as defined by the governing committee in its operating procedures.

     (8) "State industrial insurance fund" means that entity defined in RCW 51.08.175 which provides primary workers' compensation insurance on a direct basis in this state.

     (9) (("Underwriting results" means the assigned risk plan's revenues less incurred claims plus net operating expenses, net of reinsurance, during its period of operation.

     (10))) "United States longshore and harbor workers' compensation coverage" means that workers' compensation coverage required of employers by the United States Longshore and Harbor Workers' Compensation Act, 33 U.S.C. Secs. 901 through 950. It is hereinafter referred to as USL&H coverage.

     (((11))) (10) "Written premium" means gross direct premiums (excluding premiums on risks written ceded to the assigned risk plan), within the state of Washington, charged during the first preceding calendar year with respect to United States Longshore and Harbor Workers' insurance, less return premiums, dividends paid or credited to policyholders, or the unused or unabsorbed portions of premium deposits.

[Statutory Authority: RCW 48.02.060. 93-20-019 (Order R 93-17), § 284-22-050, filed 9/24/93, effective 10/25/93. Statutory Authority: RCW 48.02.060 and 1992 c 209. 92-19-095 (Order R 92-12), § 284-22-050, filed 9/16/92, effective 10/17/92.]

     (3) Each authorized insurer writing United States Longshore and Harbor Workers' insurance shall by September 1 of each calendar year make a report to the governing committee identifying the amount of its written premium in the preceding year applying to United States Longshore and Harbor Workers' coverage and the amount applying to excess workers' compensation coverage.))

     (2) Any assessments and distributions declared by the governing committee of the plan shall be allocated in accordance with RCW 48.22.070, fifty percent to the industrial insurance fund and fifty percent to the insurer participants as a group. Assessments and distributions shall be allocated amongst the eligible insurer participants according to their relative subject premium volumes as determined by the governing committee, subject to a reasonable de minimus premium threshold established by the governing committee for each assessment or distribution.

     (3) For purposes of assessments and distributions, "subject premium" shall be for each authorized and eligible insurer its primary and excess written premiums for risks in the state of Washington covered under United States Longshore and Harbor Workers' Act compensation insurance, and maritime employer's liability insurance incidental to that workers' compensation insurance, for the relevant time periods as determined by the governing committee. If any insurer fails to provide its subject premium data in an accurate and timely manner upon request by the plan, the governing committee may, in its sole discretion, substitute that insurer's direct written premiums for workers' compensation reported or reportable in its statutory annual statement as statutory page fourteen data for the state of Washington, or the governing committee may, in its sole discretion, substitute a zero amount for that insurer.

     (4) Timing and amount of assessments and distributions shall be at the discretion of the governing committee, subject to the commissioner's approval. Assessments shall be based upon a demonstrable need to obtain additional funds to safeguard the operations of the plan in a financially sound and responsible manner, including, but not limited to, fully funding all of the plan's current and long term financial obligations. The governing committee may request approval for distributions to plan participants from time to time, of surpluses incurred which exceed amounts deemed necessary by the governing committee to safeguard the operations of the plan in a financially sound and responsible manner, including, but not limited to, fully funding all of the plan's current and long term financial obligations. Notwithstanding any prior distributions which may have been approved or directed by the commissioner, if the plan has been terminated by the legislature, then the plan shall be required to distribute, in accordance with RCW 48.22.070, any surplus of funds after payment or provision for payment of all of the plan's liabilities.

[Statutory Authority: RCW 48.02.060. 93-20-019 (Order R 93-17), § 284-22-060, filed 9/24/93, effective 10/25/93. Statutory Authority: RCW 48.02.060 and 1992 c 209. 92-19-095 (Order R 92-12), § 284-22-060, filed 9/16/92, effective 10/17/92.]

     (2) The commissioner shall approve rate and form filings made by the servicing carrier(s) on behalf of the plan using the same standards that would apply to an insurance program designed and filed with the commissioner by an authorized insurer.

     (3) The commissioner shall approve the assigned risk plan's requests for interim and regular assessments, and requests for distributions from time to time, upon receipt of evidence that such assessments are necessary ((to insure its)), or such distributions are prudent, and that such assessments or distributions ensure the plan's continued operation in a sound and competent manner.

[Statutory Authority: RCW 48.02.060 and 1992 c 209. 92-19-095 (Order R 92-12), § 284-22-080, filed 9/16/92, effective 10/17/92.]

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