DATE:  November 5, 2002

TO:  Montana Board of Regents of Higher Education

FROM:  Rod Sundsted, Associate Commissioner for Fiscal Affairs

SUBJECT:  Workers' Compensation

The enclosed documents are being provided in response to the board's request for information regarding self-insurance as an option for providing workers'compensation insurance for employees of the Montana University System.

I have enclosed two documents.� The first is a letter from Jeff Lapham of the Self-Insurance Unit of the Employment Relations Division of the Department of Labor and Industry.� This letter indicates that the MUS has met all the actuarial requirements for self-insurance.� The letter also states that the department will not accept funding at the �expected scenario� and strongly recommends a funding level that is between the �75% confidence level� and the �90% confidence level�.� This level of funding is recommended because the MUS would need to build reserves over time because of the increased risk exposure associated with self-insurance.�


The second document is an �Evaluation of Self-Insurance Option for Workers� Compensation Exposures� that was prepared by Millman USA for the Montana University System.� This document is the actuarial report referenced in the letter from Jeff Lapham.�


The current rates in our contract with the Montana State Fund will result in an estimated premium of $1,743,261 for FY03 for all units of the Montana University System.� The actuarial report identified needed funding for the same period of $1,720,000 for the �Expected Scenario�, $1,870,000 for the �75% Scenario�, and $2,040,000 for the �90% Scenario�.� Because we would need to fund the self-insurance program at a level between the 75% and 90% scenarios, the rates we would charge ourselves under self-insurance would actually be higher than the fully insured rates, at least during the time when we would be building reserves to cover the increased exposure.� In addition, our risk exposure would be significantly increased as the actuarial report assumed no aggregate reinsurance and individual reinsurance at the level of $500,000 per occurrence.� While I believe most of the MUS staff responsible for safety and risk management think self-insurance is the best long-term option for controlling costs, there are clearly additional short-term costs.� In addition, any long-term savings would not accrue automatically as a result of self-insurance.� They would have to be generated through increased effectiveness of safety, early return to work, ergonomics, and educational and training programs that would result in reduced claims.