Be it enacted by the Legislature of the State of Arizona:

Section 1. Section 23-961, Arizona Revised Statutes, is amended to read:

START_STATUTE23-961. Methods of securing compensation by employers; deficit premium; civil penalty

A. Employers shall secure workers' compensation to their employees in one of the following ways:

1. By insuring and keeping insured the payment of such compensation with an insurance carrier authorized by the director of insurance to write workers' compensation insurance in this state.

2. By furnishing to the commission satisfactory proof of financial ability to pay the compensation directly or through a workers' compensation pool approved by the commission in the amount and manner and when due as provided in this chapter.� The requirements of this paragraph may be satisfied by furnishing to the commission satisfactory proof that the employer is a member of a workers' compensation pool approved by the commission pursuant to section 23‑961.01.� The commission may require a deposit or any other security from the employer for the payment of compensation liabilities in an amount fixed by the commission, but not less than one hundred thousand dollars for workers' compensation liabilities. If the employer does not fully comply with the provisions of this chapter relating to the payment of compensation, the commission may revoke the authority of the employer to pay compensation directly.

B. An employer may not secure compensation to comply with this chapter by any mechanism other than as provided in this section.� No insurance, combination or other program may be marketed, offered or sold as workers' compensation that does not comply with this section.� An employer violates this chapter if the employer purchases or secures its obligations under this chapter through a substitute for workers' compensation that does not comply with this section.

C. Insurance carriers that transact the business of workers' compensation insurance in this state shall be subject to the rules of the director of insurance.

D. The director of insurance shall not issue to an insurance carrier a certificate of authority that authorizes the insurance carrier to transact workers' compensation insurance until the insurer deposits with the state treasurer, through the director of insurance, cash or securities.� The amount of cash or securities required under this subsection shall be at least equal to the greater of the following amounts:

1. One hundred thousand dollars.

2. The sum of subdivisions (a) and (b) of this paragraph less credits for approved reinsurance computed as of the preceding December 31 or other time as requested by the department of insurance for workers' compensation insurance written subject to the laws of this state:

(a) The aggregate of the present values at six per cent interest of all determined and estimated future direct reported loss and loss expense payments on compensation claims incurred more than three years immediately before the preceding December 31 or other time as requested by the department of insurance.

(b) The aggregate of the amounts determined for each of the three years immediately before the preceding December 31 or other time as requested by the department of insurance that equals the greater of the following:

(i) Sixty‑five per cent of the earned premiums for the year less all direct reported loss and loss expense payments made on compensation claims incurred in the corresponding year.

(ii) The present value at six per cent interest of all determined and estimated future direct reported loss and loss expense payments on compensation claims incurred in that year.

E. On or before April 15 and on any date that the department of insurance specifically requests, an insurance carrier shall file with the department of insurance the information necessary to compute the required amount to be deposited pursuant to subsection D of this section and shall deposit any required additional amount.

F. An insurance carrier shall maintain at all times a deposit of cash or securities with the state treasurer, through the director of insurance, in an amount that is not less than the amount required under this section.

G. Cash or securities deposited pursuant to this section are subject to approval by the director of insurance at all times.� The director of insurance shall hold the cash or securities for fulfillment of the obligations of the insurance carrier, including an insurance carrier acting as a reinsurer, under this chapter.� The commission shall have a lien against the cash or securities deposited to the extent the special fund is liable to pay the obligations secured by the cash or securities.

H. Except in the event of nonpayment of premiums, each insurance carrier shall carry a risk to the conclusion of the policy period unless the policy is cancelled by the employer or unless one or both of the parties to a professional employer agreement terminate the agreement.� The policy period shall be agreed upon by the insurance carrier and the employer.

I. At least thirty days' notice shall be given by the insurance carrier to the employer and to the commission of any cancellation or nonrenewal of a policy if the cancellation or nonrenewal is at the election of the insurance carrier.� The insurance carrier shall promptly notify the commission of any cancellation by the employer or failure of the employer to renew the policy.� The failure to give notice of nonrenewal if the nonrenewal is at the election of the insurance carrier shall not extend coverage beyond the policy period.� An insurance carrier shall notify the commission on a form prescribed by the commission that it has insured an employer for workers' compensation promptly after undertaking to insure the employer.

J. Every insurance carrier on or before March 1 of each year shall pay to the state treasurer for the credit of the administrative fund, in lieu of all other taxes on workers' compensation insurance, a tax of not more than three per cent on all premiums collected or contracted for during the year ending December 31 next preceding, less the deductions from such total direct premiums for applicable cancellations, returned premiums and all policy dividends or refunds paid or credited to policyholders within this state and not reapplied as premiums for new, additional or extended insurance.� Every self‑insured employer, including workers' compensation pools, on or before March 31 of each year shall pay a tax of not more than three per cent of the premiums that would have been paid by the employer if the employer had been fully insured by an insurance carrier authorized to transact workers' compensation insurance in this state during the preceding calendar year.� The commission shall adopt rules that shall specify the premium plans and methods to be used for the calculation of rates and premiums and that shall be the basis for the taxes assessed to self‑insured employers.� for the purposes of calculating any tax or assessment to be paid after calendar year 2015, a self‑insured employer or workers' compensation pool shall determine the deviation rate by either submitting its underwriting to the commission for review and approval or using an average of the deviation rate filed by each of the top three insurance carriers as measured by market share authorized to transact workers' compensation insurance in this state that filed a deviation with the department of insurance pursuant to section 20‑359 during the preceding year.� The tax shall be not less than two hundred fifty dollars per annum and shall be computed and collected by the commission and paid to the state treasurer for the credit of the administrative fund at a rate not exceeding three per cent to be fixed annually by the industrial commission.� The rate shall be no more than is necessary to cover the actual expenses of the industrial commission in carrying out its powers and duties under this title. Any quarterly payments of tax pursuant to subsection L of this section shall be deducted from the tax payable pursuant to this subsection.

K. An insurance carrier may reduce the amount of premiums paid by an employer by up to five per cent if all of the following apply:

1. The insured employer complies with the drug testing policy requirements prescribed in section 23‑493.04.

2. The insured employer conducts drug testing of prospective employees.

3. The insured employer conducts drug testing of an employee after the employee has been injured.

4. The insured employer allows the employer's insurance carrier to have access to the drug testing results under paragraphs 2 and 3 of this subsection.

L. Any insurer that, pursuant to this section, paid or is required to pay a tax of two thousand dollars or more for the preceding calendar year shall file a quarterly report, in a form prescribed by the commission, accompanied by a payment in an amount equal to the tax due at the rates prescribed in subsection J of this section for premiums determined pursuant to subsection J of this section or an amount equal to twenty‑five per cent of the tax paid or required to be paid pursuant to subsection J of this section for the preceding calendar year.� The quarterly payments shall be due and payable on or before the last day of the month following the close of the quarter and shall be made to the state treasurer.

M. If an overpayment of taxes results from the method prescribed in subsection L of this section the industrial commission may refund the overpayment without interest.

N. An insurer who fails to pay the tax prescribed by subsection J or L of this section or the amount prescribed by section 23‑1065, subsection A is subject to a civil penalty equal to the greater of twenty‑five dollars or five per cent of the tax or amount due plus interest at the rate of one per cent per month from the date the tax or amount was due.

O. An insurance carrier authorized to write workers' compensation insurance may not assess an employer premiums for services provided by a contractor alleged to be an employee under section 23‑902, subsection B or C, unless the carrier has done both of the following:

1. Prepared written audit or field investigation findings establishing that all applicable factors for determining employment status under section 23‑902 have been met.

2. Provided a copy of such findings to the employer in advance of assessing a premium.

P. Notwithstanding section 23‑901, paragraph 6, subdivision (i), a sole proprietor may waive the sole proprietor's rights to workers' compensation coverage and benefits if both the sole proprietor and the insurance carrier of the employer subject to this chapter for which the sole proprietor performs services sign and date a waiver that is substantially in the following form:

I am a sole proprietor, and I am doing business as (name of sole proprietor) .� I am performing work as an independent contractor for ��(name of employer)� .� I am not the employee of ��(name of employer)� �for workers' compensation purposes, and, therefore, I am not entitled to workers' compensation benefits from ��(name of employer)� .� I understand that if I have any employees working for me, I must maintain workers' compensation insurance on them.

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Sole proprietor Date

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Insurance carrier DateEND_STATUTE