Ownership, Combinability and On-line Submission of Changes in Ownership

Ownership, Combinability and On-line Submission of Changes in Ownership Presented by the WCIRB and IIABCal Rod Libbe Quality Assurance Director March 13, 2018 T he Webinar Will Begin Shortly

+Your Presenter Rod Libbe Quality Assurance Director

ANTITRUST NOTICE Webinar Agenda NOTICE & COPYRIGHT This training presentation was developed by the Workers' Compensation Insurance Rating Bureau of California (WCIRB) for informational purposes only. The WCIRB shall not be liable for any damages of any kind, whether direct, indirect, incidental, punitive or consequential, arising from the use, inability to use, or reliance upon information provided in this presentation. 2018 Workers Compensation Insurance Rating Bureau of California. All rights reserved. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including, without limitation, photocopying and recording, or by any information storage or retrieval system without the prior written permission of the Workers Compensation Insurance Rating Bureau of California (WCIRB), unless such copying is expressly permitted by federal copyright law. No copyright is claimed in the test of statutes and regulations quoted within this work. The WCIRB and IIABCal continue to partner to provide workers comp webinars specifically for agents and brokers. Today s presentation will explain: 1. How Ownership of Entities is Determined 2. Combination of Entities 3. WCIRB Resources 4. On line Ownership Change Submission 5. Question & Answer Session Each WCIRB member company (Company) is authorized to reproduce any part of this work solely for the purpose of transacting workers compensation insurance. This reproduction right does not include the right to make any part of this work available on any website or on any form of social media. Workers Compensation Insurance Rating Bureau of California, WCIRB, WCIRB California, WCIRB Connect, WCIRB CompEssentials, X-Mod Direct, escad and the WCIRB California logo (WCIRB Marks) are registered trademarks or service marks of the WCIRB. WCIRB Marks may not be displayed or used in any manner without the WCIRB s prior written permission. Any permitted copying of this work must maintain any and all trademarks and/or service marks on all copies. To seek permission to use any of the WCIRB Marks or any copyrighted material, please contact the Workers Compensation Insurance Rating Bureau of California at customerservice@wcirb.com.

Welcome How to Ask a Question During Today s Webinar? Asking a Questions You may submit questions using the Questions PANEL 3

01 How Ownership of Entities is Determined

01. How Ownership of Entities is Determined How Ownership Impacts Experience Rating Experience rating is a merit-based rating program that provides employers a direct financial incentive to reduce work-related accidents. It uses an employer s past claim experience to help forecast the future cost of claims that the employer is likely to incur. The purpose is to modify an employer s workers comp insurance premium by applying a factor that represents their individual experience compared to similarly sized employers within the same industry. 5

01. How Ownership of Entities is Determined How Ownership Impacts Experience Rating The management of an entity is vested in its ownership. The owners have: 1. Control over the procedures and practices of the business; 2. Resources to acquire state-of-the-art machinery and equipment with enhanced safety features; and 3. Responsibility for creating a safe workplace. Therefore, the experience of an employer is vested in its ownership. 6

01. How Ownership of Entities is Determined Determining an Entity s Ownership Section II, Rule 9 of the Experience Rating Plan Individual - Sole proprietor 100% Partnership - General partners equal shares Limited Partnership - General partners equal shares Limited Liability Company (LLC) - Members equal shares Corporation - Percentage of issued voting stock 7

01. How Ownership of Entities is Determined Determining an Entity s Ownership Section II, Rule 9 of the ERP The owners of limited liability companies and partnerships are treated equally regardless of financial interest or agreements stating otherwise. Smith s Shoe Repair, LLC Brad Smith - Managing Member Joe Jones - Member Sue Doe - Member 91% equity ownership no equity ownership 9% equity ownership Since each Member is considered an equal owner Brad Smith 33.3% Joe Jones 33.3% Sue Doe 33.3% Example 8

01. How Ownership of Entities is Determined Determining an Entity s Ownership When a business owned by an entity in whole or part-proportional ownership by each person s ownership interest in the entity. Isn t This Fun, Inc. owned by: Yes It Is, Inc. 80% And No It s Not, Inc. 20% Yes It Is, Inc. 80% Actual % by Individual Eric 50% 40% (50% of 80%) Robin 50% 40% (50% of 80%) Exercise No It s Not, Inc. 20% Jon 100% 20% (100% of 20%) 9

02 Combination of Entities

02. Combination of Entities Combination of Entities Section IV, Rule 2 of the ERP Risk (WCIRB Number) Separate entities shall be combined for experience rating purposes when the same person or persons own a majority interest in each of the entities. 11

02. Combination of Entities How Ownership Impacts Experience Rating Entities are considered to be commonly owned when the same person or persons own a majority (in excess of 50%) interest in each of the entities. Commonly owned entities may be on the same or separate policies. Commonly owned entities must be combined for experience rating. For experience rating purposes, ownership is defined in the ERP, Section II, Definitions, Rule 9, Ownership. 12

02. Combination of Entities Combination of Entities Poll Question #1 Exercise Farmer Fred s Pigs - Farmer Fred (partner) 30% equity owner - Elmer Fudd (partner) 70% equity owner Exercise and Elmer Fudd s Hogs - Elmer Fudd (individual) * Yes * No Are they combinable? 13

02. Combination of Entities Combination of Entities Poll Question #1 Answer Farmer Fred s Pigs - Farmer Fred (partner) 50% - Elmer Fudd (partner) 50% Answer and Elmer Fudd s Hogs - Elmer Fudd (individual) 100% * Yes * No Are they combinable? 14

02. Combination of Entities Combination of Entities Poll Question #2 Exercise Big Cattle (Corporation) - Elmer Smith 99% voting stock - Fannie Smith 1% voting stock Exercise and Elmer s Vegetables (Corporation) - Elmer Smith 1% voting stock - Fannie Smith 99% voting stock * Yes * No Are they combinable? 15

02. Combination of Entities Combination of Entities Poll Question #2 Answer Big Cattle (Corporation) - Elmer Smith 99% - Fannie Smith 1% Answer and Elmer s Vegetables (Corporation) - Elmer Smith 1% - Fannie Smith 99% * Yes * No Are they combinable? 16

02. Combination of Entities Combination of Entities Section IV, Rule 2 of the ERP If two or more different combinations are possible, the combination producing the greatest amount of expected losses during the experience period shall be made. Sam s Trucking, Inc. Perkin s Moving, Inc. Sam Perkins - 50% Sam Perkins - 40% Sue Perkins - 50% Sue Perkins - 40% Dave John - 20% John s Storage, Inc. Sue s Truck Repair, Inc. Dave John - 60% Sue Perkins - 80% Molly John - 20% Molly John - 15% Sam Perkins - 20% Dave John - 5% Legend Red line - Sam & Sue Blue line - Sam & Dave Orange line - Sue & Dave 17

02. Combination of Entities Combination of Entities Poll Question #3 Exercise American Phone Service, LLC - Tyler Managing Member - Jennifer Member Exercise and Tyler Messenger Service, Inc. - Tyler 90% voting stock - American Phone Service, LLC 10% voting stock * Yes * No Are they combinable? 18

02. Combination of Entities Combination of Entities Poll Question #3 Answer American Phone Service, LLC - Tyler Managing Member 50% - Jennifer Member 50% Answer and Tyler Messenger Service, Inc. - Tyler 90% - American Phone Service, LLC 10% * Yes * No Are they combinable? 19

03 WCIRB Resources

03. WCIRB Resources How Are Changes in Ownership Communicated? WCIRB Connect Insurers and agents submit information about changes in ownership on electronic Form 601 Notification of Change in Ownership and/or Combination of Entities Form - paper copies no longer accepted Licensed agents and brokers can access the experience rating worksheet (authorization required) Subscribe to receive X-Mod Direct email alerts when modifications are published or revised 21

03. WCIRB Resources WCIRB Connect wcirb.com/wcirb-connect 22

03. WCIRB Resources WCIRB Connect wcirb.com/wcirb-connect 23

03. WCIRB Resources Agent and Broker Ownership Process Flow in WCIRB Connect Broker Connect Policyholder Details Screen Submit Ownership Information action Purpose of Request Insurer Details Determination Question Combine Separate Form 1. Combine Separate Info Name Change Ownership Change Form 2. Narrative Information Message & DONE 1. Prerequisites 4. Seller Information 7. Change in Operations 3. Finalize Request 2. Buyer/Seller Info 3. Family Rule 5. Change in Employees 6. Buyer Information 8. Narrative 9. Finalize Request After Finalize Request, the submission goes to the Insurer to review and Approve/Deny. 24

04 On line Ownership Change Submission

04. On-line Ownership Change Submission Submission of Ownership Information by Agent/Broker Submit Ownership Information To start, access the Policyholder Details screen for your Bureau Number by 1. Enter the Bureau Number in the header and clicking Go, navigate to the Policyholder Details screen. 2. From the Policyholder Details screen, click the Submit Ownership Information ribbon icon. 26

04. On-line Ownership Change Submission Submission of Ownership Information by Agent/Broker Purpose of Request 1. Select the answer that best matches what you are reporting. For the first three choices, you will be directed to work with the insurer to process a name change for the policy, not the ownership information process. 2. Help: The? symbol on many screens link to explanation detail to assist you in completing the submission. 1 2 27

04. On-line Ownership Change Submission Submission of Ownership Information by Agent/Broker 1. Using the drop down, select the insurer/policy effective year for your submission. The insurer you select will receive the submission for review/approval. For Insurer Name/Policy Effective Year, all insurers for the Bureau Number for the past two years will be listed in the drop down. If the insurer you are looking for is not listed, either the policy is older than two years and therefore does not qualify or the WCIRB does not have the policy on file for the risk. 1 28

04. On-line Ownership Change Submission Submission of Ownership Information by Agent/Broker ( continued) 1. Select the answer that best matches what you are reporting. Based on your selection, you will navigate to the Ownership Change Form or the Combine/Separate Form. 1 29

04. On-line Ownership Change Submission Ownership Course Objectives Use the ERP to determine an entity s ownership for experience rating purposes Determine when separate entities can and cannot be combined on the same policy, and when they must be combined for experience rating Explain to policyholders that when they sell an operation, their payroll and loss experience prior to the change in ownership is still used in their X-Mod for any remaining or new operations Explain to policyholder that when they buy a business, they may inherit the prior owner s payroll and loss experience to be used in their X-Mod Determine when the current insurer and the WCIRB must be notified of an entity s change in ownership Use WCIRB Connect to submit Ownership information 30

04. On-line Ownership Change Submission Course Overview 1 2 3 4 Why each X-Mod is based on the payroll and loss experience of all entities that share majority common ownership How the ownership of entities is determined for the calculation of X-Mods When separate entities must be combined for experience rating, and when they can and cannot be covered on the same policy How the ERP defines a change in the ownership, what constitutes a material change in ownership, and what happens to the prior owners experience after a change 31

04. On-line Ownership Change Submission Course Overview 5 6 7 8 How to determine if a material change in ownership was accompanied by a material change in employees or operations How to apply the ERP rules using a decision tree to determine the impact of a change in ownership on the employer s X-Mod How to notify the WCIRB of a change in ownership using the ownership submission tool in WCIRB Connect Which X-Mods may be revised by the WCIRB as a result of the combination or separation of entities or a change in ownership 32

04. On-line Ownership Change Submission Classes Currently Available CompEssentials is the WCIRB s innovative online education program offering insurance professionals access to on-demand, self-paced courses explaining the fundamentals of workers compensation insurance. Classification Basics Experience Rating Fundamentals On-demand online courses that allow you the flexibility to start, stop and resume lessons on your own schedule Full narration, comprehensive content, interactive elements and knowledge checks enable you to immediately apply concepts as you learn them Glossary to view definitions of key terms Eligible for 5 continuing education credits toward a California property-casualty license IIABCal agents and brokers should register at iiabcal.org/education/workers-comp 33

04. On-line Ownership Change Submission How much? Classification Basics Experience Rating Fundamentals Contact training@wcirb.com for discounted bulk enrollment pricing.» Enroll and get more information here wcirb.com/compessentials Note: To qualify for the discounted pricing, bulk course transactions (30 or more enrollments) must be purchased at the same time. Prior individual course purchases cannot be applied toward a bulk discount. 34

05 Question & Answer Session

05. Question and Answer Session Question & Answer Session? Asking a Questions You may submit questions using the Questions PANEL 36