HOUSE DOCKET, NO. 1440        FILED ON: 1/18/2017

HOUSE  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  No. 1031


The Commonwealth of Massachusetts



Paul McMurtry


To the Honorable Senate and House of Representatives of the Commonwealth of Massachusetts in General
Court assembled:

The undersigned legislators and/or citizens respectfully petition for the adoption of the accompanying bill:

An Act relative to fair workers' compensation rates.






Paul McMurtry

11th Norfolk

Chris Walsh

6th Middlesex

HOUSE DOCKET, NO. 1440        FILED ON: 1/18/2017

HOUSE  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  No. 1031

By Mr. McMurtry of Dedham, a petition (accompanied by bill, House, No. 1031) of Paul McMurtry and Chris Walsh relative to workers' compensation rates.  Labor and Workforce Development.


The Commonwealth of Massachusetts



In the One Hundred and Ninetieth General Court



An Act relative to fair workers' compensation rates.


Be it enacted by the Senate and House of Representatives in General Court assembled, and by the authority of the same, as follows:

SECTION 1. Section 53A of Chapter 152 is hereby amended by adding the following language immediately preceding subsection (1):

Section 53A. For the purposes of this section, the following words shall have the following meanings:

"Rate" shall mean the cost of insurance per exposure unit, whether expressed as a single number or as a prospective loss cost multiplied by a loss cost multiplier to account for the treatment of expected expenses (other than loss adjustment expense), profit and variations in company loss experience as compared with the experience of the industry as a whole, prior to any application of individual risk variations based on loss or expense considerations, and does not include minimum premiums.

"Prospective loss cost" shall mean that portion of a rate that does not include provisions for expenses (other than loss adjustment expenses), profit or variations in company loss experience as compared with the experience of the industry as a whole; and that is based on historical aggregate losses and loss adjustment expenses adjusted through development to their ultimate value and projected through trending to a future point in time.

"Loss cost multiplier (“LCM”)” shall mean that provision in rates, as determined by any particular company or as calculated for the reinsurance pool, for such company’s or pool’s (i) projected expenses, other than loss adjustment expense; (ii) profits; and (iii) variations in loss experience or loss adjustment expense as compared with the loss experience of the industry as a whole, that are associated with writing workers’ compensation and employers’ liability insurance.  LCMs shall be expressed as decimals to be applied equally and uniformly to the prospective loss costs approved by the Commissioner for use by the filer across all hazard and industry groups.  The LCM does not include assessments collected on behalf of the residual market or to support any trust funds created pursuant to section sixty-five.

SECTION 2. Section 53A of Chapter 152 is hereby further amended by striking out subsection (1), and inserting in place thereof the following:-

(1) Any insurance company authorized to transact business in this commonwealth under subclause (b) and (e) of clause Sixth of section forty-seven of chapter one hundred and seventy-five may, except as provided in clause (c) of section fifty-four of said chapter one hundred and seventy-five, insure the payment of the compensation provided for by this chapter, and when any such company insures such payment, it shall file with the commissioner of insurance, or, if it is a member of or subscriber to a rating organization under section fifty-two C, authorize such rating organization to file with the commissioner on its behalf its classification of risks and projected loss costs relating thereto. 

(2) The commissioner shall designate a rating organization, duly qualified under section fifty-two C, to file with the Commissioner proposed loss costs and classifications of risks associated with writing workers’ compensation and employers’ liability insurance in the commonwealth, both in the voluntary market and in the reinsurance pool established pursuant to section sixty-five C.   Said rating organization shall annually file industry-wide classifications of risks, prospective loss costs, minimum premium determination rules, and an LCM for the Pool, on or before July 31 of the year the filing is made.  Prospective loss costs and classifications of risk shall be developed for the entire insured workers’ compensation market without regard to whether individual risks are insured voluntarily or are assigned risks. The designated rating organization may also file any desired changes to rating plans or other adjustments that may be applied to the rates and classifications within the voluntary market or reinsurance pool.  Non-rating organization members making individual company prospective loss cost filings under this section may restrict their data, analyses and projections to one or more subsets of the Massachusetts market only so long as the data submitted are uniformly credible and the proposed classifications are consistent with that used by the designating rating organization as set forth below. 

Within thirty days after any filing under this Section the commissioner shall initiate a hearing to ensure that (i) the proposed classifications are reasonable and equitable, and (ii) the proposed loss costs fall within a range of reasonableness and are not excessive, inadequate or unfairly discriminatory for the risks to which they apply.

In the case of a bureau filing, the commissioner shall also ensure that the proposed LCMs for the reinsurance pool have been appropriately calculated.

The classification of risks and prospective loss costs approved by the commissioner shall be used by insurers who are members or subscribers of the designated rating organization and shall also be applicable to risks within the reinsurance pool.  The classification system approved for the industry as a whole in accordance with this section shall be the uniform classification system and shall be adopted by every insurer.  Each industry-wide loss cost filing and reinsurance pool LCM filing will, if approved, be effective as of January first of the year following completion of the hearing.

Any hearing on projected loss costs shall be completed within sixty days of its commencement and a written decision thereon shall be issued within thirty days of the close of such hearing.  If, after said hearing, the commissioner disapproves any part of the filing, the reasons for the disapproval shall be specified in the decision which shall also indicate what changes would be necessary to make any refiling approvable.  Any projected loss cost filing shall be deemed approved if the commissioner does not commence the hearing within thirty days of receipt, complete the hearing within sixty days of its commencement, or issue a written decision within thirty days of its completion.  The rating organization, non-member company that has made an individual prospective loss cost filing, or other aggrieved party to a proceeding may seek review of the Commissioner's decision before the Supreme Judicial Court.

SECTION 4. Section 53A of Chapter 152 is hereby further amended by striking out subsection (4), and inserting in place thereof the following:-

Subsequent to the approval of an industry-wide prospective loss cost filing, each company that is a member of the bureau duly designated by the commissioner to make such filings, shall submit to the division of insurance LCM filings upon which it desires its workers’ compensation rates to be based.  Prospective loss cost filings must be made by individual companies not belonging to said rating bureau  and also must make separate filings of their LCMs subsequent to approval of the use of such lost costs.  In making LCM filings, due consideration shall be given by an insurer to its past and prospective loss and loss adjustment expense experience within and outside this commonwealth, to catastrophe hazards, if any, to a reasonable margin for underwriting profit and contingencies, and to past and prospective expense both countrywide and those specially applicable to this commonwealth, and to all other relevant factors within and outside this commonwealth, including the experience or judgment of the insurer.

In addition, any insurer wishing to write retrospectively rated or large deductible policies must include a table of expense ratios—excluding taxes and including profit and contingencies—by standard premium size, reflecting the premium discount used by the filer.

An insurer’s final rates shall be determined by applying loss cost multipliers to approved loss costs, and any retrospectively rated or large deductible policies written and derivable from the LCM filing approved for such company.  Loss cost multipliers shall be effective twenty-one days after receipt by the Division of Insurance; provided, however, that if, within such twenty-one day period, the state rating bureau asserts in writing to the company and the commissioner of insurance that there is one or more defects in the form or manner of any such filing; that such filing would tend to impair or threaten the solvency of the filer; would likely create a monopoly in the market, or is expected to produce any rates, classifications or premiums that are in any respect unfairly discriminatory, the company may not use its filed LCMs and may either revise its filing or request a hearing to review the prohibition of its use.  Upon receipt of any company request for a hearing, the date upon which the filing may be used, if not disapproved after a hearing, shall be extended an additional forty-five days. 

The commissioner shall, by written decision, disapprove the filing after the hearing if and only if she finds that such filing contains one or more of the substantive or formal failures set forth above.  Any such decision shall be issued no later than  twenty-one days following the commencement of the hearing.  Whenever the commissioner of insurance disapproves an LCM filing in accordance with this section, she may, in her sole discretion, authorize the insurer to use either those LCMs in effect for such insurer prior to the disapproved filing or those LCMs in effect for the reinsurance pool.  Effective LCMs, whether placed on file by the division as submitted or authorized by the commissioner pursuant to a hearing as set forth above shall remain in effect for at least one year.  Companies need not refile subsequent to approved changes in prospective loss costs; provided, however, , the commissioner may at any time after any particular company’s LCMs have been in effect for a year, require such company to file new LCMs, indicating what changes are deemed to be required. 

Insurers shall have the right to appeal any decision of the commissioner of insurance regarding LCMs pursuant to section fourteen of chapter thirty A, except that all such appeals shall be filed with the appeals court of the commonwealth.

SECTION 5. Section 53A of Chapter 152 is hereby further amended by striking out subsection (5), and inserting in place thereof the following:-

(5) Insurers’ LCM filings shall be in such form and manner as will enable the commissioner of insurance to ensure that all filed LCM components are within the constraints provided by section 4 of this chapter.

For purposes of this section, a company’s LCMs shall be considered unfairly discriminatory if they would produce rates that are not uniform within any classification of risks written by such company or if unequal rates within any classification as between two insurance companies within the same company group are not in accordance with previously filed objective and unbiased criteria for placing risks in particular companies within such group.  Nothing in this paragraph shall be construed to prohibit companies from utilizing policyholder dividend plans that return diverse dividends within any class at the close of a policy period based on company or individual risk performance; provided, however, that no specified dividend amounts may be promised to policyholders in advance of annual declarations. 

The commissioner may promulgate rules or regulations as deemed necessary to carry out the provisions of this section.

SECTION 6. In January of any year in which the Hirsch-Herfindahl Index of market concentration index rose above 1,500 during the prior year, the Commissioner, may hold a hearing on workers’ compensation market competition.  If, however, the primary determinant of non-competitiveness is solely a function of either the residual market pool’s contribution to the Hirsch-Herfindahl Index of more than 30% or a significant change in the residual market load borne by voluntary market carriers, the commissioner shall not be required to hold a market competition hearing, but may instead address the matter through an adjustment to the Pool profit and contingency multiplier at the next loss cost proceeding . Decisions following a market competition hearing held pursuant to this section shall be issued no later than February 15th of the year in which such hearing is held. If the commissioner finds based on clear and convincing evidence produced at such hearing, both that competition as allowed by this section has not sufficiently protected both broad industry and consumer interests during the prior year and that administered pricing would better serve such interests, the commissioner shall order that the rating bureau designated to file LCMs under this section to instead file overall rates on behalf of the entire industry on the next filing date.  In such instances, all companies shall be required to utilize only approved industry-wide rates during that rate year. The hearings on such bureau rate filings shall be conducted within the same time frames as those set forth for prospective loss cost filings in this chapter. After such period, prices shall again be determined through the use of prospective loss cost filings and company LCMs as set forth herein.  Market competition hearings under this section shall not be held during any year following the issuance of an industry-wide rate approval.

This act shall apply to all new and renewal policies to be effective on or after January 1, 2014; provided, however, that rates and classifications in effect prior to that date shall remain in effect thereafter until new rates and classifications become effective pursuant to the provisions of this act.