Employers join a workers compensation self-insurers fund in order to
pool their liabilities with other employer members. This is done with the understanding that each
member is liable for the workers compensation obligations of each and every member of the group which
were incurred during the
employer’s period of membership
Last year, officials with the Louisiana Department of Insurance held several months of discussion with
the then-management of Employers Self Insurers Fund (ESIF). On October 6, 2005, the Department ordered ESIF
to assess its members and former members to eliminate deficits incurred for the fund years
ending in 1998, 1999, 2000, 2001, 2003, 2004 and 2005
On October 27, 2005, the service company, administrator and trustees of ESIF resigned and
current management took over. The assessment ordered by the Department was prepared by new management and the
accounting firm of Postlethwaite & Netterville, effective
January 15, 2006.
For more information regarding the assessment, please scroll down or click on the links below:
Legal Basis for Assessment
Reasons for Assessment
Assessment Calculations
Premium Audit Balances
Assessment Notice Errors
Legal Basis for Assessment
Louisiana Revised Statutes, Title 23, Part 1, Subpart J governs group self-insurance funds for workers’ compensation.
R.S. 23:1196 F. provides: “A fund member shall be liable in solido for liabilities of the fund incurred by the
fund after the inception of the fund year in which the employer becomes a member of the fund.”
R.S 23:1196 H. provides:
“If a deficit exists in a fund year, the fund shall eliminate the deficit or submit a plan for elimination of the deficit
to the department pursuant to regulations promulgated by the department.”
Regulation 42, promulgated by the Department pursuant to R.S. 23:1196, requires that a fund make up any deficit,
and in Section 15 C. states: “If the fund fails to assess its members, otherwise make up such a deficit, or submit a plan …
the Commissioner shall order assessment of the members of the fund.”
The Agreement and Declaration of Trust of Employers Self Insurers Fund provides:
“The Members of this Trust do agree that they are liable in solido for all obligations of Employers Self Insurers
Fund contained in that certain document entitled Employers Self Insurers Fund Indemnity Protection (the Indemnity Agreement) …”
The ESIF Indemnity Agreement, provided to every member, states that each member agrees:
“To be bound by the terms and provisions of the Indemnity Agreement and/or amendments thereto
filed or to be filed with the Louisiana Commissioner of Insurance, and to assume all obligations
imposed upon members as set forth therein or the Louisiana Workers’ Compensation Act, including but not limited to,
joint and in solido liability for payment of lawful awards against any member of the Fund and to pay all premiums and
lawful assessments within 30 days of the date the same shall become due.”
Furthermore, the Membership Acknowledgement, signed by each member, states:
“Due to the nature of self insurance workers’ compensation, in the event that losses exceed Loss Fund, additional premium may be billed, as group self insurance is assessable.”
The Department asserts, and we agree, that the assessment is based on the contract you signed, and
under the law the fund has up to 10 years to enforce the terms of the contract.
Reasons for Assessment
Group self insurance funds typically charge lower premiums than regular insurance companies.
Although their rates are reviewed and approved by actuaries, they usually have lower overhead than insurance companies, and they are not designed to make a profit. However, if claims are worse than projected, and there is not enough surplus carried over from other years, they must collect additional
premium from their members through assessments.
Many people have asked why ESIF waited so long to assess them for deficits in the
early years of the fund’s operation. We can only assume that prior management was unrealistically
optimistic that they would eventually have years with enough surplus to cover the previously unfunded obligations.
It should be noted that the Louisiana Department of Insurance conducted an extensive examination of ESIF in 2001, and in current management’s opinion, should have ordered assessments then to cure the deficits up to that point, as well as rate increases and/or other changes to avoid deficits thereafter.
The bottom line is that the current assessment is the result of inadequate rates,
failure to aggressively collect premium audit balances,
and adverse development of claims beyond actuarial projections.
Assessment Calculations and Weighting Factors
Current management of ESIF, after taking over at the end of October, 2005, initially proposed
a staged assessment, with the first stage assessing only those members and former members who had extremely high loss ratios. In other words, we wanted to first assess those employers for whom ESIF had paid out far more in claims than they had paid in premiums. The Department rejected that proposal
and ordered us to assess everyone equally.
We then argued in favor of a weighted assessment as a means to give the maximum relief possible to
those employers who had few or no claims of significant cost to the fund. After initially rejecting the idea,
the Department relented and allowed us
to develop a weighting mechanism for the assessment.
Under the weighting system used by ESIF, the higher your loss ratio, the more you were
assessed per dollar of premium that you paid for any given year. In other words, if your loss ratio was 150%,
meaning that ESIF paid out one and a half times your premium to cover your losses, then you were assessed less per dollar of premium you paid than someone whose loss ratio was 300%. This system allowed us to shift as much of the burden to
those employers with excessive losses as the Department would permit.
If you had no claims during the time you were covered by ESIF, you are being assessed at the lowest rate permissible
Premium Audit Balances
Your assessment notice may have included notice of premium audit balances due ESIF. That audit balance is s
eparate from the assessment. Pursuant to law and your contract with ESIF, the fund contracts with outside auditors to
perform premium audits following any given fund year. These audits determine whether your company payroll changed during the fund year, and whether your premium for that fund year should be adjusted in arrears. For example, if during a particular year a member employer grew from 10 employees to 15 employees, the premium audit would reflect additional premium due for that year. State law gives the fund up to three years following a fund year to audit that fund year. All premium audits were done timely, but not all audit balances were actually collected. If you dispute your premium audit balance, you have a
right to review a copy of the audit in question.
Assessment Notice Errors
We are aware that some of you have received assessment notices that contain errors.
A small percentage of employer/members’ notices show them as members during years when they
actually had coverage from other companies. The records that current management inherited were not
all in perfect order, and we have now learned that those errors primarily occurred where a member, or their
agent, placed a deposit or application for a new fund year, but ultimately moved their business to another provider.
Some of those computer entries indicating membership were not properly deleted from the system. In that situation, you should provide us with evidence that you were covered elsewhere during a particular year, and we will adjust your assessment accordingly.
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