Closer Look: Workers’ Compensation

The savings varies by state and other factors but in 2005 the average risk in pilot states placed in the VCAP program saved $646 compared to what it would have been charged if placed in the residual market.

Agent and brokers accustomed to sending tough workers’ compensation risks to the residual market may want to consider another solution. The National Council on Compensation Insurance, which prepares workers’ compensation rates and manages residual market plans in many states, has a new program that offers agents and brokers an opportunity to place high risk business with a voluntary provider and avoid the residual market.

Jim Nau, CPCU, ARM, who is NCCI general manager of residual markets, agreed to answer questions about this Voluntary Coverage Assistance Program for Insurance Journal.

What’s the idea behind NCCI’s Voluntary Coverage Assistance Program?

VCAP Service provides an additional source of statutorily required workers’ compensation coverage for employers prior to entering the residual market. It benefits the policyholder by providing a last chance to find workers’ compensation coverage.

VCAP Service benefits the workers’ compensation industry by preventing or slowing the repopulation of the residual market and reducing operating losses.

How does it work?

VCAP Service applies to all employers seeking coverage through the residual market in which NCCI is the Plan Administrator; it is offered through NCCI’s Residual Market Application Processing System (RMAPS Service). Through this free, Internet-based application, voluntary coverage providers will have the opportunity to evaluate potential employers that submit applications through the residual market.

All applications (electronic, phone-in, or mail-in) submitted to NCCI as Plan Administrator are reviewed to determine if they match the pre-selected criteria specified by a participating voluntary coverage provider. Producers and employers submitting applications will receive a real-time electronic notification if a voluntary coverage provider is interested in providing coverage.

The producer and voluntary coverage provider work together to negotiate a “reasonable offer of voluntary coverage.” Producers and employers are required to accept any “reasonable offer of voluntary coverage” or the employer becomes ineligible for coverage in the VCAP. The first voluntary coverage provider to receive acceptance of an offer from the producer will confirm coverage and issue the policy. Once accepted, the effective date is determined based on the date the policy would have been effective in the residual market.

What states is it available in?

NCCI recently filed VCAP Service to be effective July 1, 2006, in Alabama, Alaska, Arizona, Arkansas, Connecticut, the District of Columbia, Georgia, Idaho, Illinois, Iowa, Kansas, Nevada, New Hampshire, New Mexico, Oregon, South Carolina, South Dakota, Vermont, and Virginia. Georgia approved VCAP Service for use effective Feb. 1, 2006. VCAP Service has been operating as a pilot program in Alabama, Connecticut, the District of Columbia, Illinois, New Hampshire, and Vermont since 2004.

How many providers participate?

There are currently five registered VCAP Service voluntary coverage providers, with more carriers showing interest as the program expands.

How do producers access it?

Producers work directly through RMAPS Service or telephonically or through facsimile with an analyst in NCCI’s Assigned Risk Department. RMAPS Service provides the producer the status of an application through the entire VCAP Service process by indicating whether there is a match, and if an offer was made through a work list as well as e-mail notifications.

How much business has matched up with voluntary carriers criteria so far?

In 2005 during the pilot program in six states, 9,532 or 27.2 percent of the 35,068 applications processed in RMAPS Service matched in VCAP Service.

What percentage of applications ends up with voluntary market policies?

During Calendar Year 2005, 4.1 percent of the number of applications NCCI processed was placed in the voluntary market rather than the residual market.

What are some classes and typical premium sizes that VCAP handles?

Classifications and premium sizes are determined by the VCAP Service voluntary coverage provider and vary by state.

What’s the rate? How much do VCAP risks save compared to the residual market?

During Calendar Year 2005, total savings of $891,477 on 1,380 VCAP Service bound applications in the pilot states or an average of $646 per VCAP Service bound application was achieved. This number varies by state.

What commissions do producers receive on VCAP business?

VCAP Service program requires that the commission rate be negotiated directly between the producer and voluntary coverage provider. The producer commission should not be less than the amount of the producer fee that would be paid had the policy been written through the residual market.

How can producers find out more?

Producers can monitor www.ncci.com or contact NCCI’s Customer Service Center at (800) NCCI-123 for more information.

Topics Workers' Compensation Talent