Pursuant to section 120.745(5), Florida Statutes
RULES FOR QUALIFIED SERVICING ENTITIES UNDER THE WORKERS’ COMPENSATION ACT
DEPARTMENT OF FINANCIAL SERVICES
DIVISION OF WORKERS’ COMPENSATION
April 11, 2012

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 is also required to adopt rules by which entities may become qualified to provide underwriting, claims-adjusting, loss control and safety engineering services to self-insurers. Therefore, these rules provide specific requirements on how entities may obtain approval to become a qualified servicing entity (QSE), in addition to stating the provisions for entering contractual arrangements with self-insurers after approval is granted.

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 self insuring 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 by then 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. Sections 440.38(1)(b), 440.385, and 440.525, Florida Statutes, establish regulatory requirements for the self-insurers and their qualified servicing entities.
Rule 69L-5.229 – Application Process.
Purpose and Effect: This rule consists of reporting requirements for qualified servicing entities requesting approval of applications to become a qualified servicing entity to provide claimsadjusting, loss control or safety engineering services for self-insurers. The requirements stipulate that an entity must submit documentation to the Division for approval to act on behalf of the self-insurer in reporting data to the Division. Such requirements include submission of the following: application, background investigation of owners, biographical statements for owners, claims adjusters’ licenses, proof of location in Florida, and letters of recommendation.
Economic Analysis: The Division estimates that the regulatory cost for submission of the required application and supporting information is 48 man hours with an estimated $25.00

hourly rate, totaling $1,200 per business. This estimate is based on the hours and rate if the activities listed above were performed by staff in the Division. A company approved by the
National Association of Insurance Commissioners (NAIC) has estimated that $185 to $220 per person is the cost or value of the typical independent background investigation report on the owners and management, for which NAIC must approve the investigation firm according to
Rule 69L-5.229(1)(c). There are currently 98 active qualified servicing entities in Florida. The
Division estimates that 70 to 75 qualified servicing entities have been in existence for more than five years and thus the impact on the businesses predates the term under review (the fiveyear period beginning July 1, 2011). The Division estimates that only three to five companies per year in the industry might enter the market in a given year. The regulatory cost for submission of the required information is unlikely to exceed $1 million due to the fact that only a one time approval is needed for authorization to provide services in the state of Florida.
Rule 69L-5.230 – Contracting with a Qualified Servicing Entity.
Purpose and Effect: The requirements of this rule consist of qualified servicing entities reporting each contract with a self-insurer and maintaining the self-insurer’s claim files. The claim files records must be of sufficient accuracy and completeness for the Department to audit for repeated questionable claims handling techniques, or a pattern or practice of unreasonable delay in the handling of claims, or of repeated unreasonably controverting claims, or of a repeated practice of failing to pay compensation orders as required by statute, or of a repeated practice of arbitrarily or unreasonably disallowing or reducing payments to healthcare providers pursuant to section 440.13(7)(f), Florida Statutes.
Economic Analysis: Whether the rule is likely to have an adverse impact on business competitiveness, including the ability of persons doing business in the state to compete with persons doing business in other states or domestic markets, productivity, or innovation in excess of $1 million in the aggregate within five years after July 1, 2011 is not clear. However, due to the volume of claims handled by qualified servicing entities, which the Department estimates will exceed over 51,000 claims in a given year, it is very likely that the cost could exceed $1 million cumulatively over five years. The estimate is based on claims that include a
Qualified Servicing Entity Division ID number at the time of filing. The estimate does not include any claim not required to be filed with the Division, such as medical only claims. Medical Only
Claims usually outnumber the number of claims that are required to be filled with the Division.
The estimate does not include filed claims that neglected to include the Qualified Servicing
Entities’ Division ID numbers. If it can be assumed each claim costs $5.00 to process, $1,000,000 over a five year time period will be exceeded.
The impact threshold might be triggered just by the qualified servicing entities’ time to input the data into their electronic systems over the period that the rule requires. The Division estimates that the regulatory cost for submission of

the required form for reporting each contract entered into is 24 man hours with an estimated
$22.00 hourly rate, totaling $528.00 per business. This estimate is based on the hours and rate if the activities listed above were performed by staff in the Division.
2.
Types and numbers of individuals or entities likely to be required to comply with these
rules: There are currently 98 active qualified servicing entities that are required to comply with these rules.
3.
Cost to the Division and other state or local governments to implement and enforce the
rules: The Division currently has five employees to implement and enforce the rules. Those employees consist of an Administrator, two Auditors, a Governmental Analyst and one support staff employee. Annual salaries for the positions listed total $167,398.
The Division also contracts with the Florida Self-Insurers Guaranty Association to receive, monitor and review forms, reports and documents for private self-insurers. Section
440.385(6), Florida Statutes, requires the Department to contract with the Association for services which may include processing applications from self-insurers, collecting and reviewing financial statements, processing compliance documentation, and inspecting and auditing payroll records of individual self-insurers. The cost to the Division for these services is $230, 569 annually.
4.
Effect on state or local revenues: All self-insurers are required to report claims data to the
Division. This can be done by in-house staff of the self-insurer or by contracting with a qualified servicing entity. This rule has no known impact on state or local revenues.
TRANSACTIONAL COSTS: Transactional costs for qualified servicing entities contracting with self-insurers are determined by the following: claims volume of the self-insurer, license adjusters (salary/benefits), administrative cost, case management staff (salary/benefits), Florida location, etc. Contact by the Division was made with several qualified servicing entities that are currently servicing claims for self-insurers; however, the cost for these services could not be ascertained due to the diverse models of the business operations.
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 costs for small governmental self-insurers consist of having competent staff to process claims in-house or contracting with a qualified servicing entity.

7.
Additional information:
The National Association of Insurance Commissioners (NAIC) must approve the contractor performing a background investigation of prospective qualified servicing entities.
No regulatory alternatives were submitted.
The average cost for qualified servicing entities to comply with record maintenance could not be ascertained due to the diverse models of business operations. The Division contacted several qualified servicing entities and learned that the cost for record maintenance is separate and distinct based on the company’s business model, and is not negatively impacted by this rule requirement. There are currently 98 active qualified servicing entities providing services for insurers and self-insurers.
The Division currently has five staff members monitoring the self-insurance program.
Consequently, the cost to implement and enforce the self insurance rules and statutes averages
$13, 949 per month. Total annual cost is approximately $167,398. In addition, the Division’s cost for services provided by the Florida Self-Insurers Guaranty Association is estimated at
$230,569 annually.
The five year total for these two expenses is $1,989,835.