When Applied Underwriters filed a petition against the New Jersey Department of Banking and Insurance (NJDOBI) on March 5th, the company placed the ability for businesses in the state to choose captives for risk retention squarely on the table. At its core, the issue is about the limiting of choices available to New Jersey business owners to provide for their companies' statutorily required workers' compensation coverage in full compliance and in a manner that is both dollar-wise for them and beneficial to the safety and care of their employees.
The essence of the NJ DOBI's position is that, should a business retain risk, which by definition changes the ultimate cost of risk for that business, any retention vehicle will have, in effect, changed the rating of the policy in violation of the state's right to review and approve insurance policy rates and forms. The target, specifically, was a program named EquityComp delivered by Applied from 2008 to 2016 to the general satisfaction of businesses and their professional insurance agents in the state.
The essence of the conflict here lies in the Department's disregard of the use of captive reinsurance; that is, the NJDOBI would forbid the use of a captive to retain risk. That's it in a nutshell, as we see it. The Department is holding that it has extraterritorial jurisdiction over any reinsurance transaction that follows a Newjersey policy.
We hold that the Department has a fair point, albeit a relatively small one: there is the need for oversight of policy rates and forms, for sure, but we feel that as long as a New Jersey workers' compensation policy remains in full compliance and is fully insured by the financial strength of an admitted insurer, business owners should be free to retain any amount of risk they desire through subsequent reinsurance.
The Department's position seems to counter a long-standing practice and a growing trend. Rewind back to 2012 when the New Jersey Compensation Insurance Rating Bureau-a separate body from the NJDOBI that is responsible for workers' compensation rates and forms-reviewed and...