Retention Limits

A retention limit is similar to an insurance deductible dollar amount. The Association reimburses members for all statutory workers’ compensation loss payments in excess of the chosen retention limit.

Currently, there are four retention options: a low, a high, a super, and a jumbo retention. The low retention is $500,000 with the high retention at two times the low, or $1,000,000, the super retention at four times the low, or $2,000,000, and the jumbo retention at ten times the low, or $5,000,000. The WCRA Board of Directors may change these retention limits over time, subject to approval by the Commissioner of Labor and Industry.

Before 2016, the low retention was indexed to the statewide average weekly wage and rose gradually over time as a result of increasing wages in the state.  The high retention was set at two times the low retention while the super retention was set at four times the low retention.  Before 1996, there were only two retention levels, with the low retention indexed to the statewide average weekly wage and the high level fixed at $200,000 higher than the low retention.

The WCRA reimburses members for individual claim losses exceeding a member’s chosen retention limit. In making your selection, carefully review the financial liability for each limit. When selecting the high, super, or jumbo retention level over the low retention level, your organization will want to carefully consider the substantial additional liability your organization will have to assume if you experience any serious workers’ compensation claims.

A number of factors can influence a member’s choice among the low, high, super, or jumbo retention levels.

1. WCRA Reinsurance Premium. Premiums for each year are based on the member’s exposure base and the premium rate which corresponds with the member’s selected retention level.
2. Member Financial Resources. A member’s annual budget and financial resources influence the relative value of choosing an additional layer of retained loss exposure. Members should also consider the nature and frequency of anticipated injuries, the payout pattern of expected claims, and their tolerance for risk. Medical costs and indemnity benefits of the Minnesota workers’ compensation laws may result in a very fast claim payout pattern on some types of injuries, which could be a significant consideration for some members.
3. Reinsurance on a Per-Occurrence Basis. The fact that the WCRA retention limit is generally applied on a per-occurrence basis rather than a per-claimant basis is another important consideration. For example, if several employees were simultaneously injured in the same industrial accident, the retention limit would be applied once to the entire claim, rather than individually for each employee injured in the accident. An exception to this policy occurs where several members of an affiliated group of insurers sustain losses in a single occurrence, in which case those members may choose to aggregate their claims and seek reimbursement for losses in excess of the WCRA’s highest retention limit in effect on the date of the injury. Occupational disease is another exception to this rule. In such cases, a separate retention limit applies for each claimant for purposes of claim reimbursement.
4. Limitations on Member Purchase of Reinsurance. Members who select the low retention level are free to purchase reinsurance from other organizations for losses below that limit. However, Minn. Stat. § 79.34, subd. 2, specifies that members who select the high, super, or jumbo retention levels may not purchase reinsurance from other reinsurance organizations for losses below their selected retention limit. Exceptions: The statute lists five exceptions under which this prohibition does not apply:

• A WCRA member may purchase reinsurance from another WCRA member which is controlled by or under common control with the member.
• Aggregate stop loss reinsurance may be purchased to cover the portion of claims payments below the selected retention limit for which the WCRA would not be responsible. Such purchases are permissible if the total of all claims paid or incurred by the member (i.e., claim costs on all workers’ compensation up to the selected retention limit) exceed a dollar amount or a percentage of the member’s premiums written or earned as stated in the reinsurance agreement.
• An insurer member may purchase reinsurance through a pooling arrangement with other insurers as long as the workers’ compensation reinsurance provided is incidental to participation in the pool and not a result of providing workers’ compensation insurance directly.
• An insurer member may purchase reinsurance from a captive reinsurer of a single one of the member’s insureds when the member’s insured is controlled by or under common control of the insured as long as that reinsurance is limited to all claims of the member’s insured. If the captive reinsurer subsequently makes a retrocession agreement (reinsurance purchased by a reinsurer), the retrocession must be consistent with the first three bulleted items above.
• A self-insurer member may purchase reinsurance from a reinsurer that is part of the same conglomerate or holding company as the self-insurer member. If the reinsurer subsequently makes a retrocession agreement, the retrocession must be consistent with the first three bulleted items above.

5. Penalties. The statute provides that the Commissioner of the Minnesota Department of Labor and Industry may impose certain financial sanctions against a WCRA member that has purchased reinsurance in a manner inconsistent with these provisions. After giving the member notice and an opportunity for a hearing, a member found to be in violation may be required to pay the State of Minnesota a penalty no greater than twice the difference between the WCRA’s reinsurance premium charged to the low retention level and the selected retention level that applies to the member for the year(s) for which the prohibited reinsurance was in effect. In addition, the member will be required to continue its membership in the WCRA at the selected retention level.

Every autumn the WCRA informs members of the retention limits available in the upcoming year. If a member wishes to change its retention level for the upcoming coverage year, the WCRA must receive the Retention Level Change form postmarked by December 1. Self-insurers are required to obtain approval from the Minnesota Department of Commerce prior to electing to increase their WCRA retention limit. If no form is returned, or it is postmarked after December 1, the retention level currently in effect is retained for the upcoming year. Members are not allowed to change retention levels during the coverage year.

New WCRA members are notified of their retention level options as part of the licensing process conducted by the Minnesota Department of Commerce. The Department will not approve self-insurer authority until the WCRA receives a completed retention level form.

Members select a retention limit, with a corresponding premium rate, for each calendar year. Every autumn, the WCRA informs members of the retention limits available in the upcoming year. Members must then choose by December 1 which retention level they prefer for the next year.

The retention limit in effect for the year in which the employee’s injury occurs applies to the claim, regardless of when the claim is reported to the WCRA.