COMPLIANCE ECONOMIC REVIEW
Pursuant to section 120.745(5), Florida Statutes
RULES 69L-5.204, 69L-5.206, 69L-5.208, 69L-5.210,
69L-5.218, 69L-5.219 and 69L-5.225, FLORIDA ADMINISTRATIVE CODE
RULES FOR SELF-INSURERS UNDER THE WORKERS’ COMPENSATION ACT
DEPARTMENT OF FINANCIAL SERVICES
DIVISION OF WORKERS’ COMPENSATION
April 11, 2012
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JUSTIFICATION FOR THE RULE
Section 440.38, Florida Statutes, mandates that the Division adopt rules to allow employers to
obtain workers’ compensation coverage under the self-insurance program. The Division cannot
meet its statutory obligations without establishing rules to describe the procedures by which
employers can self-insure and the obligations for maintaining their self-insurance privilege.
Furthermore, specific requirements are necessary to make certain that entities electing to selfinsure are financially capable to fund their present and future workers’ compensation liabilities.
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STATEMENT OF ESTIMATED REGULATORY COSTS
1.
Direct or indirect economic impact:
a. Adverse impact on economic growth, private sector job creation or
employment, or private sector investment, which is more than $1 million
over five years;
b. Adverse impact on business competitiveness, including the ability of persons
doing business in Florida to compete with persons in other states or
domestic markets, which is cumulatively more than $1 million over five
years;
c. Likelihood of the regulatory cost, including transactional costs, of more than
$1 million cumulatively over five years.
BACKGROUND:
Rule Chapter 69L-5, F.A.C., entitled "Rules for Self-Insurers Under the Workers' Compensation
Act,” interprets and implements provisions of Chapter 440, Florida Statutes, for employers selfinsuring the payment of compensation for Florida employees. Section 440.38(1)(b), Florida
Statutes, authorizes employers to self-insure the payment of compensation by providing proof
to the Florida Self-Insurers Guaranty Association, Inc. ("Association") that they have the
financial strength necessary to ensure timely payment of all current and future claims and
receiving authorization from the Department to pay such compensation directly. The
Association is a private, non-profit corporation established by section 440.385, Florida Statutes,
responsible for guaranteeing that injured workers of insolvent self-insurers who are members
of the Association continue to receive workers' compensation benefits after insolvency. All
current self-insurers, other than government entities and public utilities, are required to be
members of the Association. Section 440.385, Florida Statutes, along with section 440.38(1)(b),
Florida Statutes, establish regulatory requirements for the self-insurers and set guidelines for
the relationship between the Department and the Association.
Rule 69L-5.204 – Maintenance of Payroll Records, Review and Audit.
Purpose and Effect: The purpose of the rule is to outline requirements by which self-insurers
are required to maintain payroll records, which must be accurately divided by the classification
codes designated by the National Council on Compensation Insurance (“NCCI”). The records
must be retained for five (5) years from the end of the payroll period, and the Department may
audit the records for accuracy.
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Economic Analysis: The estimated cost for maintenance of payroll data cannot be ascertained
due to diverse models of business operations, although the Division made several inquiries to
private self-insured entities to obtain this information. During fiscal year 2010-2011, there
were 413 approved individual self-insured employers in Florida. During fiscal year 2010-2011,
the Division audited payroll records of 27 self-insurers and 59,758 payroll records (see Exhibit
1); however, all 413 approved individual self-insured employers were required to maintain
payroll records. The Division estimates that a typical data collection software license and
maintenance containing financial modules that can maintain payroll data will costs in excess of
$2,400 per year. On this basis, the Division estimates that on average payroll data can exceed
$1 million in cost for 413 self-insured employers in Florida over a five-year period. An
estimated cost is $2400/year x 413 employers x 5 years = $4,956,000.
Rule 69L-5.206 – Maintenance of Loss Data Records, Review and Audit.
Purpose and Effect: The purpose of the rule is to ensure claims reports are available for
inspection and audit. The rule requires self-insurers to maintain all loss records supporting their
Unit Statistical Report due to the Division annually, and to be available to the Division for audit
purposes for five (5) years from the last date the claims data was used. The Division estimates
that it audits these records every three to five years to identify any payroll, loss, or classification
deficiencies.
Economic Analysis: The estimated cost for maintenance of loss data records cannot be
ascertained due to diverse models of business operations, although the Division made inquiries
to two (2) Qualified Servicing Entities to obtain this information. Due to the volume of claims
handled by self-insurers and qualified servicing entities which the Department estimates will
exceed 15,000 in a given year, it is very likely that the cost could exceed $1 million cumulatively
over five years.
Rule 69L-5.208 – Maintenance of Outstanding Liabilities Records, Review and Audit.
Purpose and Effect: The purpose of the rule is to ensure that supporting documentation is
maintained for inspection and audit by the Department, the Association, or an Authorized
Representative. The rule requires self insurers to maintain all records supporting the Report of
Outstanding Workers’ Compensation Liabilities, which shall be available for inspection and
audit for five (5) years after closing a claims file.
Economic Analysis: The estimated cost for maintenance of outstanding liabilities records
cannot be ascertained due to diverse models of business operations, although the Division
made several inquiries to private self-insurers to obtain this information. Due to the volume of
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claims handled by self-insurers which the Department estimates will exceed 15,000 in a given
year, it is very likely that the cost could exceed $1 million cumulatively over five years.
Rule 69L-5.210 – Actuarial Reports.
Purpose and Effect: The purpose of the rule is to ensure current and former self-insurers have
the financial strength to pay worker’ compensation claims. Self-Insurers, other than
governmental entities, that do not have investment grade credit ratings are required to submit
actuarial reports yearly or within 90 days of the date requested. Actuarial reports must include
current and future loss reserves.
Economic Analysis: The estimated cost associated with providing actuarial reports to the
Florida Self-Insurers Guaranty Association (“FSIGA”) and/or the Division is estimated at $7,500
per report. Furthermore, the Division estimates that the costs of the actuarial reports for selfinsurers over a five-year period could exceed $37,500 per self-insurer. Thus, it is likely that the
cost could exceed $1 million cumulatively over five years. According to the Florida Self-Insurers
Guaranty Association, there were ten self-insurers that were downgraded from investment
grade credit ratings in FY 2010-11 and are required to provide actuarial reports. (See Exhibit 4).
$37,500/report/year x 10 self-insurers x 5 years = $1,875,000.
69L-5.218 – Security Deposits.
Purpose and Effect: Private self-insurers are required to maintain a minimum $100,000 security
deposit in the form of a surety bond or letter of credit. These security deposits protect injured
employees with existing claims in the event a self-insured becomes insolvent. Currently, there
are approximately 305 private self-insurers with security deposits posted with the FSIGA. The
self-insurers are to maintain the security deposit until there is no remaining value to its selfinsured workers’ compensation claims.
Economic Analysis: Under the rule, the security deposit is tied to the company's credit rating.
Companies with an investment grade credit rating must maintain a $100,000 security deposit.
Some regulated entities in the industry have asserted that companies that do not have an
investment grade credit rating must maintain a security deposit in an amount equal to the
greater of the actuarially determined outstanding loss reserves discounted to present value,
using a four percent (4%) discount rate, or the actuarially determined outstanding loss reserves
forecasted to a date one year in the future, discounted to such forecast date using a four
percent (4%) discount rate, as calculated in its Actuarial Report. Some regulated self-insurers in
the industry have asserted that this standard added to the rule in 2010 resulted in a much
higher security deposit for some companies including current self-insurers that have not had an
issue with the timely payments of claims. According to the Florida Self-Insurers Guaranty
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Association, there are ten self-insurers that do not have investment grade credit ratings and are
required to provide a security deposit greater than or equal to the actuarially determined
outstanding loss reserves. (See Exhibit 4). Security deposits posted for private self-insurers in
the calendar year 2012, as of February 23, 2012, total $186,440,363. There are 305 private selfinsurers with security deposits posted.
Rule 69L-5.219- Excess Insurance.
Purpose and Effect: Private self-insurers are required to maintain an excess insurance policy of
$50 million dollars.
Economic Analysis: The cost for securing an excess policy (with retention of $500,000 or 1% of
the self-insurer’s net worth) is determined based on the review of each self-insurer’s financial
statements. There are approximately 305 private self-insurers with security deposits posted.
The Division was unable to obtain the cost of excess policies because the cost is usually
determined by the deductible amount selected by the self-insurer for high exposure risks. The
risks vary based on the type of industry.
69L-5.225- Requirements for Self-Insurance Process for Florida Self Insurers Guaranty
Association Members.
Purpose and Effect: In order to apply for self-insurance, entities must show a financial capacity
to pay their claims either through a surety bond or letter of credit. The value of the surety
bond/letter of credit must be $100,000.
Economic Analysis: The cost to obtain a surety bond is estimated at 1 – 5% of the bond’s value.
(See Exhibit 2). The cost to obtain a letter of credit is estimated at 2 – 3% of the letter’s value.
(See Exhibit 3). There are 413 approved self-insured employers in Florida. The Division
estimates there are 302 bonds or letters of credit posted for private self-insurers in the
calendar year 2012, as of February 23, 2012, totaling $186,440,363.
2.
Types and numbers of individuals or entities likely to be required to comply
with these rules: There are currently 413 active self-insurers that are required
to comply with these rules. During fiscal year 2010-2011, the Division approved
four new self-insurance entities. (See Exhibit 1.) The Division estimates that the
number of self-insurers that are required to comply with these rules could
increase to 430 in the five year period beginning July 1, 2011.
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3.
Cost to the Division and other state or local governments to implement and
enforce the rules: To implement and enforce the rules, the Division currently
has five staff employees. Those employees consist of one Administrator, two
Auditors, a Governmental Analyst and one support staff employee. Annual
salaries for positions listed total approximately $167,398. The Division also
contracts with the FSIGA to receive, monitor and review forms, reports and
documents for private self-insurers. Annual cost to the Division for these services
is $230,569. A five year cost for these two expenses is $1,989,835.
4.
Effect on state or local revenues: These rules have no known impact on state or
local revenues.
Transactional costs for 69L-5.218: Estimated transactional costs for security deposits currently
on file for private self-insurers total $5,593,210. Attempts were made to contact small
governmental entities that are self-insured to determine transactional costs for administration
of their self-insurance programs. We were unsuccessful in obtaining this information.
Security deposits posted for private self-insurers in the calendar year 2012, as of February 23rd,
total $186,440,363. The average cost is between 1 – 5% of the cost of the surety bond or letter
of credit.
5.
Impact on small businesses: There is no impact to small businesses due to the
minimum net worth requirements for being a private self-insurer.
6.
Impact on small counties and small cities:
There is a minimal impact on governmental entities. The transactional cost for
small governmental self-insurers consists of salary for staffing and payment into
the Division’s Trust Funds. Small governmental entities are not exempt from
Rule 69L-5.204 and 69L-5.206, F.A.C.
Additional information:
The Division is responsible for ensuring that private self-insurers maintain the
financial strength to pay workers’ compensation claims for injured employees.
The decision to self-insure is a choice made by an employer. Pursuant to section
440.38(6), Florida Statutes, governmental agencies and other political
subdivisions are deemed to be self-insured unless they purchase a workers’
compensation insurance policy. If governmental agencies purchase a workers’
compensation insurance policy, the reasonable assumption is that the
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governmental agency would pay higher premiums for total payroll reported for
workers’ compensation coverage versus a percentage of that premium for
payroll under the self-insurance program.
REGULATORY ALTERNATIVES SUBMITTED
No regulatory alternatives were submitted.
METHODOLOGY
The average cost for private self-insurers to maintain payroll records (Rule 69L-5.204, F.A.C.),
loss records (Rule 69L-5.206, F.A.C.), and records supporting the Report of Outstanding
Workers’ Compensation Liabilities (Rule 69L-5.208, F.A.C.), was estimated based on the
Division’s contact with qualified servicing entities, private self-insurers and the Florida SelfInsurers Guaranty Association. The average cost for private self-insurers to obtain actuarial
reports (Rule 69L-5.210, F.A.C.) and security deposits (Rule 69L-5.218, F.A.C.) was provided by
the Florida Self-Insurers Guaranty Association. This average cost is based on the 305 private
self-insurers with security deposits on file with FSIGA. The average cost for private self-insurers
to maintain insurance (Rule 69L-5.219, F.A.C.) and a surety bond or letter of credit (Rule 69L5.225, F.A.C.) was based on data provided by the Florida Self-Insurers Guaranty Association.
The average cost to the Division for staffing is $13,950 per month to implement and enforce the
self-insurance rules and statutes. The Division currently has five staff members that monitor the
self-insurance program. The annual cost for staff is approximately $167,398. The cost to the
Division for services provided by the FSIGA is estimated at $230,569 annually.
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EXHIBIT LIST
Exhibit 1 – Division of Workers' Compensation Fiscal Year 2010/2011 Accomplishments
(attached)
Exhibit 2 - websites for cost of surety bonds - http://www.buysurety.com/surety-bond-cost/
and www.suretybonds.com.states/florida.html.
Exhibit 3 – www.creditmanagementworld.com and click on Standby letters of credit
Exhibit 4 – Email correspondence from FSIGA regarding self insurers with investment grade
ratings. (attached)
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Exhibit 1
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Exhibit 4
From: Renn Vickers [mailto:RennVickers@fsiga.org]
Sent: Monday, April 09, 2012 10:35 AM
To: Dwayne Manning
Cc: Brian Gee
Subject: RE: Phone Message
Hey Dwayne,
Here is the information that you requested:


Total number of current or former members with an investment grade credit rating – 195
Number of members that were downgraded from investment grade to non-investment grade
during the FY 2010-2011 – 10
Please give me a call if you have any questions. Have a great day!
Renn
Renn Vickers
Florida Self-Insurers Guaranty Association
1427 E. Piedmont Dr., 2nd Floor
Tallahassee, FL 32308
(850) 222-1882
(850) 222-2926 Fax
rennvickers@fsiga.org
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