AIG is in the news today again, as Joseph Cassano
(former head of the Financial Products Division)
testified in Washington that he believes the
disastrous derivatives trades that destroyed the
company would have ultimately worked out just fine,
if only the U.S. had not unwound them so quickly
when the Feds had to rescue AIG. I dunno, that does
seem to ignore the fundamental point that, if those
trades were all so hunky-dory, why exactly did the
government have to invest $80 billion or so in loose
change to keep the company from going under?
But AIG is (once again) on my radar screen today for
another reason as well. I just received a phone call
and email from a former policyholder of AIG's who
wanted to alert me to another instance (so he says,
anyway) of AIG playing fast and loose with the
rules.
This former AIG policyholder says that AIG failed to
apply the maximum payroll caps that applied on
payroll his company paid to New York workers. It was
only when he independently learned of these payroll
caps from another employer that he was able to get
AIG to correct the audits and return the premium
overcharges.
Now, it seems to me that knowing what the particular
payroll maximums are in a given state is something
that premium auditors at AIG should have known
about. It was certainly their responsibility to know
about that. But beyond the overcharges that happened
to this individual employer, he raised an important
point to me: how many other New York employers were
overcharged by AIG in this manner?
This is a question I cannot answer at present, but I
would certainly encourage all New York employers
with highly paid individual employees to look into
this issue.
There has been an interesting court ruling in
Minnesota that illustrates the importance of getting
the Named Insured correct and exact on a Workers
Compensation insurance policy. The case, STATE AUTO
PROPERTY AND CASUALTY INSURANCE COMPANY v. MEYER,
was decided in June by the Court of Appeals there.
And although it might appear to some to be splitting
hairs, in fact the decision makes clear the vital
importance of getting the Named Insured exactly
right.
In this decision, the Court of Appeals reverses the
lower court ruling that a Workers Comp policy that
insured "Timothy Pearson DBA Park Rapids Funeral
Home," insured Timothy Pearson individually and thus
would also have covered a ranch owed by Mr. Pearson.
The Appeals Court ruled that the policy did NOT also
insure Timothy Pearson as an individual, and thus
did not provide coverage for a worker at the ranch
owned by Mr. Pearson. But the details of the case
are a bit complicated.
It turns out that Park Rapids Funeral Home was a
corporation, not a sole proprietorship. The Appeals
Court points out in its decision that if the funeral
home had been a sole proprietorship, then the d/b/a
language WOULD have also covered Mr. Pearson as an
individual. But, the court decided, since a
corporation is a separate legal entity, in this
instance the Named Insured language did not extend
coverage to Mr. Pearson as an individual.
To further complicate things, the injured worker
involved worked at both the funeral home and the
ranch, and at the time of injury was doing work that
involved both workplaces. The Appeals Court ruling
only means that the policy does not insure the ranch
for Workers Comp. If it turns out that the worker is
eligible for benefits from the funeral home, then
the policy would cover the claim, as the policy
clearly covered all workers of the funeral home.
The problems could have been avoided, of course, if
the Named Insured on the policy had been set up to
properly and accurately reflect the actual needs of
the client. The policy should have had as Named
Insured the proper corporate name of the funeral
home, and the individual owner of the ranch
(assuming that Mr. Pearson intended to also cover
his ranch operations.)
A Workers Comp policy provides coverage for all
workers of the named insured, but getting the named
insured right and complete is a basic, but
important, aspect of setting up the policy. And it
is not uncommon for a WC policy to mistakenly fail
to name all the various separate legal entities that
should be named (including land trusts, if
applicable.
Georgia has enacted
a law that
allows employers who were left stranded by the
collapse of Southeastern US Insurance Company to buy
coverage from the state's insolvency pool. The
collapse of SEUS had left a lot of Georgia employers
with Workers Comp claims that were unexpectedly
uninsured, as SEUS had not been required to
participate in that insolvency pool.
Some private insurers are upset with this
development, though. They don't like the idea of
giving a break to employers who had chosen to
insured with SEUS (which was a captive
insurer)instead of with regular insurers (who were
contributing to the insolvency fund.)
There has been a recent ruling in California that
could put a serious crimp in the trend of former NFL
players filing for California Workers Comp benefits.
For those who came in late, former NFL players have
been successfully pursuing California Workers Comp
claims in recent years, taking advantage of some
California rules that are more lenient in some
regards than the rules in other states. Thus,
players who may have only played a single game in
California (or who just participated in a single
practice in the Golden State) have been deemed
eligible for disability benefits that stem from
their professional football careers.
But a recent ruling by the California Workers
Compensation Appeals Board may change that. The
decision reportedly would require players who played
for teams based outside California to make their
Workers Comp claims under the statutes of those
"home" states. And in many cases, the rules in those
other states would not appear to be as friendly to
the players' claims as those of California (that's
why the players have been making their claims in CA
in the first place.)
More information can be found here.
WCIRB, the New York equivalent of NCCI, has filed
for a 7.7% increase in loss costs. Loss costs are
the major component of manual rates, so if this is
approved by NY insurance regulators, Workers Comp
rates (and thus insurance premiums) will be
increasing in the near future.
This increase is reportedly based mainly in an
increase in weekly indemnity benefits that had been
approved back in 2007.
It's not a sure thing yet that this full increase
will be approved by regulators, as Workers Comp rate
increases are always a political football, but it
sounds as if it is likely New York state employers
may be heading for a rate increase.
Quite the news
story today
from Utah. Authorities there are looking into a
situation where, reportedly, "thousands" of Utah
construction workers have been forced to become
"owners" of their own businesses, and thus
responsible for their own Workers Comp and
Unemployment Comp costs. Of course, as "owners" they
still don't get to set their own hours, or where
they work, and can even be fired from the worksite.
This clever little bit of "reclassification" is
orchestrated by a company in Utah that sells it's
services to interested employers. By using their
services, employers change their employees into
"owners" of the other company, and thus they all
become responsible for their own payroll taxes,
unemployment, and Workers' Comp.
This is done by making the former employees "owners"
of an LLC--on paper, at least. The LLC that these
folks become "owners" of is the company selling the
service to their former employer.
Given the way of the world, I would expect this neat
little trick to spread to other jurisdictions, if it
isn't snuffed out fast. Mind you, I suspect that
ultimately this chicanery won't pass muster with the
authorities, but before that happens there will be
ample opportunities for people to be maimed and
killed without having proper Workers Comp coverage.
Over in Rhode Island, a VP for Beacon Mutual (the
dominant Workers' Comp carrier in the state) has
been acquitted in a criminal case over preferential
premium breaks for certain politically connected
companies. The VP had been charged with failing to
reveal to insurance regulators that Beacon
maintained this "VIP" list of certain companies who
would be favored with low premiums, but was
acquitted because regulators had not asked for such
a list.
It does rather beg the question, does it not, of how
regulators would know to ask for such a list? Maybe
regulators need to add some generalized, blanket
questions to their market conduct examinations.
Something like, "Please list any improper, blatantly
unethical, sneaky and underhanded practices that you
don't want us to know about."
I guess Rhode Island operates under a special kind
of "Don't Ask, Don't Tell" policy for insurance
companies.
I see today, in my Google News page, that an
employer in Sacramento has been charged with
fraud for "misrepresenting fact to obtain insurance
at less than proper rate".
Allegedly, this roofing contractor failed to report
proper payrolls for use in computing WC premium.
News stories such as this one are a daily item in my
Google News page (which I have set up to scan for
news items about Workers Compensation insurance). In
fact, today's Google News page has items not just
about this California case, but also about employers
in New York and Louisiana being charged with Workers
Comp premium fraud. Employers should take heed of
this trend.
I suppose there have always been some employers who
have felt it ok to try to "fudge" their payroll
numbers, thinking it's just a hardball negotiating
tactic with their insurer, with no downside risk.
Employers need to realize that they run the risk of
criminal penalties when they engage in such
activities.
I've served as an expert witness in several criminal
cases involving these issues, and I have observed
how devastating such criminal charges can be to a
business person.
Employers need to protect themselves from excessive
Workers' Comp premium charges--my consulting work
has found that insurance companies often overcharge
employers--but they also need to resist the
temptation to reduce premium improperly. Otherwise,
they may end up as another sad news story on Google
News.
As reported in WorkCompCentral,
my company, Advanced Insurance Management (AIM) is
currently trying to get the South Carolina
legislature to close a loophole that has allowed
insurance companies to get away with overcharging
some South Carolina employers on Workers Comp
insurance.
At the moment, the effort to close the loophole is
struggling, I fear. (That old adage about not
wanting to see how sausage and legislation gets
made---very true.) The SC legislature is winding
down its current session, and there are a lot of
other issues clamoring for the attention of the wise
solons of SC. But we're not finished yet, so stay
tuned.
This all relates to our ongoing work to recover
overcharges for South Carolina employers who were
victimized by insurance companies not properly
reporting to NCCI claims reimbursements they got
from the Second Injury Fund. Although we've been
able to get the money back for a number of
employers, in some cases the rip-off (sorry--error)
occurred long enough ago that current NCCI rules
prohibit correcting the experience modifiers now. Of
course, the reason that the problem wasn't addressed
sooner was that the insurance companies ignored NCCI
rules in years past, and NCCI didn't police their
own rules. So it wasn't until AIM got involved,
years later, that this little scheme was uncovered.
It's funny--insurance companies expend a lot of time
and effort in catching policyholders who aren't
following the rules (and not paying proper Workers
Comp premiums). But apparently, when it is the
insurance companies themselves who benefit from
breaking the rules, they are not so scrupulous in
insisting that things be made right. And that surely
undermines the integrity of the entire Workers Comp
There are a few interesting bits of news today from
the wide world of Workers' Comp. First off,
Arizona's governor has signed a bill that mandates
the Arizona state fund morph into a private
insurance company by 2013. This is part of a larger
trend that's been happening in many states with
Workers Comp funds. Changing over to an independent
insurance company enables these insurers to branch
out and offer coverage in other states (a la
Accident Fund from Michigan) and it also removes the
loss reserves from the possible reach of state
legislatures desperate for easy funds.
Over in the great Commonwealth of Massachusetts,
regulators there have just approved lower rates for
Workers Comp insurance, starting in September.
Insurers were disappointed, employers pleased,
understandably.
Finally, Florida-based NCCI (National Council on
Compensation Insurance) announced that John T.
Leonard, President and CEO of MEMIC Group (a group
of insurance companies based in the Northeast) has
been elected the 2010 Board Chair of NCCI. NCCI is
the organization that computes experience modifiers,
creates and maintains the Workers Compensation
classification system, and writes the manual rules
for Workers Comp insurance for most states. Although
a lot of folks act as though NCCI were some kind of
regulatory agency or independent body, it is in fact
a creation of insurance companies, and the majority
of NCCI's board members are insurance company
executives. So while NCCI is technically separate
from the insurance industry, there is a great deal
of shared DNA.
My new book, Workers
Compensation: A Field Guide for Employers, is
now available on Amazon.com. Readers
who found my previous book,
Ultimate Guide to Workers Compensation Insurance,
a useful resource may appreciate this new tome. It
contains all the information that so many found
helpful in Ultimate
Guide, but it's been updated and expanded.
The NCCI (National Council on Compensation
Insurance) has just announced that the U.S. Workers
Compensation insurance industry is in a "precarious
position". The overall combined ratio of U.S. WC
insurers in 2009 rose to 109% (up from 101% in
2008). That's the biggest jump since the mid-1990's.
This means that for every $100 of premiums they took
in, WC insurers had $109 in losses and expenses.
It should be noted, though, that three percentage
points of that increase came from a single (unnamed)
insurer adding a billion dollars to its loss
reserves. Poor investment income is also adding
stress to Workers' Comp carriers, who rely on
investment income to make up for thin (or
nonexistent) underwriting profits.
Factors contributing to this development have
included premium declines due to the economic
downturn (lower payrolls equal lower WC premiums)and
a continuing soft market for commercial insurance.
But a 109 combined ratio may change that soft market
in the near future. At the very least, it will mean
insurers will keep the pressure on when doing
audits, to make sure they find every possible bit of
premium they think they are entitled to. And sadly
for employers, they may well occasionally try to
find premium that they are not really entitled to
under the rules.
The Illinois Department of Insurance has just
recently made a determination in a legal hearing
that has important implications for every employer
in the state. In this hearing, the Department has
officially held that an insurer may not
retroactively adjust the schedule credits or debits
on a Workers Compensation insurance policy to offset
a premium refund owed to the policyholder.
I testified at this hearing back in 2005 (although
the ruling was only made recently in 2010) about the
past policy of the Department of Insurance in the
regard. In my experience as a consultant, the
Department had always held that an insurer could not
retroactively change schedule credits or debits just
to offset a refund owed to the policyholder. But in
the instance of this one particular policyholder, an
official at the Department of Insurance had ruled in
favor of Liberty Mutual and allowed an exception in
this one instance, for unspecified reasons.
This legal determination by a hearing officer at the
Department of Insurance has ruled that it was
improper of Liberty to make this change in schedule
credits, as Liberty's filing with the Department
about schedule rating had made it clear that
specific criteria would be used as the basis for
such adjustments. The ruling upholds that earlier
informal policy that an insurance company may not
adjust schedule credits and debits just to
manipulate premiums and avoid making a return of
premium that is otherwise owed.
In this particular case, Liberty had used the wrong
governing classification for several years to
compute Workers Comp premiums. After NCCI ruled that
a less expensive classification was really correct
for this company, Liberty was asked to recalculate
premiums and refund the overcharge (as required by
Illinois law).
Liberty refused, saying they would just adjust
schedule credits to offset the return premium owed
because of any classification change. So a complaint
was filed with the Illinois Department of Insurance.
But this time an exception was allowed, for reasons
that were never made clear.
That triggered a request for a formal legal hearing
at the Department. And even though it took five
years for the final determination to be made, that
ruling is now out. Liberty was wrong to
retroactively change schedule credits to offset
these premium refunds, as Liberty's filing with the
Department about schedule rating made it clear that
such schedule adjustments were to be based on very
specific criteria, not just Liberty's desire to
manipulate premium charges.
Private Insurance For
Washington WC?
April 18, 2010--The builders' association in Washington
state is pushing a ballot campaign to allow private insurers to
write Workers Compensation insurance in that state. Currently,
Washington is one of the few states that maintain a so-called
"monopoly" state fund for Workers Comp.
The association had
recently failed to persuade the state legislature to make such a
change, but they are not yet ready to throw in the towel.
Convinced that the state-run monopoly fund is excessively expensive,
they are trying to allow private insurers to compete with the state
fund. Some legislators are convinced that the insurance
industry is the real force behind the drive to allow private
insurance in the state.
More info on this
here.
AIG Skyscraper Going Condo
February 2, 2010--I saw a news item the other day that
AIG's headquarters on Pine Street in Manhattan has been sold and
will be turned into a condo development. That's a sad chapter
in the story of AIG. I've been deposed by AIG lawyers once or
twice at 70 Pine, and it really feels like the passing of an era to
read this news item.
I've certainly been critical over
the years of some aspects of AIG's operations, and I've been very
outspoken over the disastrous collapse of AIG's Financial Products
division and the hubris that seemed to drive that division.
But there is no pleasure to be derived from the decline of this
storied insurance company, now struggling to survive and be reborn.
Ask not for whom the bell tolls...
Changes Coming in
California Experience Mod Formula
December 8, 2009--The California
Insurance Commissioner recently rejected a rate increase in that
state, but did approve changes in the formula used to compute
experience modification factors for California employers.
California has its own rating bureau, this bureau (WCIRB) computes
experience modifiers that apply only in California, and are not
integrated with other state's data.
These changes mean that, for some California employers, their 2010
experience modifiers will be going up, even if loss experience
hasn't really changed.
Overall, the statewide average experience modifier is not expected
to change under the new formula. But for some employers, this
likely will not be the case. This is particularly important
for employers in certain industries, where maintaining a mod of 1.00
or lower is critical to the ability to bid on some jobs.
For
such employers, it may be advisable to have their 2010 modifier
calculated in advance, to determine what impact the new formula will
have on them.
Insurance Group Questions
Study on State Funds
November 18, 2009--The Property Casualty Insurers
Association of America has questioned the conclusions of a recent
study by Conning Research and Consulting. The study had found
that state Workers Comp funds operated more efficiently that
insurance companies.
PCIAA essentially says that these
state funds get the benefits of various hidden subsidies from that
account for their lower expenses--things like getting the use of
state facilities and not paying taxes or commissions.
While these objections may be
valid, I think they kind of obscure the fundamental point of the
original study--that the state fund model delivers Workers
Compensation coverage at lower cost for employers, and thus also
operate to create competitive pressure on insurers to hold down
premiums.
From an employers' perspective,
then, it may not matter so much if these funds have certain
advantages not generally available to insurers. It's results
that count, I suspect, when the results involve lower Workers
Compensation costs for employers.
Calling Kanye West
October 27, 2009--Well, the
nominations have been announced. And once again, this writer
has been overlooked by the academy---errr, by Lexis Nexis.
They've announced their
nominations for best Workers Comp blog. You can see the list
here. And try as I might, I cannot find my own humble
efforts (such as this very page, or my other
blogs) listed.
Surely this is merely an oversight
on the part of the judges. Somehow, my rants--I mean, my
informed ruminations--on the Workers Compensation scene must be
worthy of consideration, n'est ce pas?
The only thing to do, I figure, is
to read all those other blogs and steal all
their good ideas learn from their examples, so I can improve
my own efforts.
And if that doesn't work, there's
always the Chicago way.
Seriously, congratulations to all
those folks out there who are obviously doing a better job of this
than I am. But just wait until next year.
Greenberg Building 'AIG
2.0'?
October 27, 2009--There's a fascinating
report in today's New York Times that ousted AIG chief Maurice
"Hank" Greenberg is busy assembling what might be called "AIG 2.0".
Greenberg, who grew AIG into an insurance giant, was deposed back in
2005 after a much-publicized run-in with Eliot Spitzer.
Now AIG itself is a ward of the
federal government, and the Feds have put harsh limits on executive
pay for the ailing insurer. But Greenberg is free to poach
talent from AIG, because his new operation isn't subject to such
constraints.
Whoever said that there are no
second acts in American public life clearly didn't know Hank
Greenberg.
The "new" Greenberg company, C.V.
Starr & Company, is actually a predecessor of sorts to AIG, closely
linked to AIG in the past but technically separate. And the
Starr company is privately held, correcting what Greenberg
reportedly came to view as a mistake he made decades ago in taking
AIG public.
Time will tell if the wily but
aging Greenberg can pull this off one more time. Having
recently read a fascinating history of AIG and Mr. Greenberg (Fallen
Giant, by Ron Shelp) I can only conclude that if anyone
could do this, it would be Maurice R. Greenberg.
CA Commissioner Questions
Proposed WC Rate Hike
October 26, 2009--California insurance
Commissioner Steve Poizner held a public hearing recently on the
request by WCIRB (the California rating bureau) for a 22.8% rate
hike. Poizner has pointed out (rightly, I think) that such a
rate hike would be a devastating blow for California businesses
trying to deal with the current economic downturn.
Poizner had disapproved an earlier
23.7 rate increase sought by WCIRB. More details can be found
here.
Public Option for WC Doing
Well: Study
October 21, 2009--With all the
debate over the "public option" in health insurance, it's
interesting to note a new study that finds the public option working
well in the Workers Compensation arena.
According to a
report in The Insurance Journal, this study by Conning Research
and Consulting finds that state funds for Workers Comp "perform
better than the private market in a number of performance
categories".
For states that don't operate such
funds, this study would appear to suggest that the public option for
WC offers some attractive benefits.
Derivatives and the
Insurance Market
October 20, 2009--I recall having
written, perhaps twelve or fifteen years ago, about my concerns over
the potential dangers posed by derivative investments, and how these
might impact insurance companies. At the time, I was assured
by insurance regulators I spoke with that insurance companies'
exposures to these investments were limited, thanks to the
limitations placed on insurance companies by regulators.
That was true then, and remains
technically true even today. Yet of course derivative
investments played a major role in nearly destroying the largest
insurance company in the world, and in devastating the values of
other investments held by other insurers as well. I would feel
a little smug about my foresight if it weren't for the fact that the whole country
has been wounded by the current economic calamity.
What regulators back then didn't
anticipate was that the barriers between insurance companies and
other kinds of financial institutions would be removed, so that a
company such as AIG could get heavily involved in financial
"insurance" instruments such as credit default swaps to such an
extent that the viability of the combined enterprise would be
compromised. The traditional insurance operations of AIG
weren't involved in this, but when the Financial Products division
of AIG cratered it created such horrendous losses that all the AIG
companies were impacted.
And those regulators also never
anticipated that the widespread use of these "weapons of financial
mass destruction" (as Warren Buffett so memorably described them)
would devastate the entire economy so thoroughly that financial
markets generally were crippled, and create the worst economic
crisis since the 1930's.
I thought about my long-ago
concerns about derivatives as I read the newest Matt Taibbi article
on this subject in
Rolling Stone. Now, Taibbi doesn't appear to be the most
restrained commentator on the financial crisis, so there can be a
bit of hyperbole in his writings on the subject. Nonetheless,
there would seem to be some genuine issues raised by him that need
to be taken seriously. Most fundamentally, it raises the issue
of how to separate out the legitimate uses of derivatives from the
abusive and dangerous ones.
New Delaware Law on
Independent Contractors in Construction Biz
August 4, 2009--Delaware governor Jack Markell has signed a
bill that levies fines on employers in the construction business
that repeatedly misclassify workers as independent contractors.
The fines can range up to $20,000 and the law also allows
authorities to shut down repeat offenders. It also allows
employees to file suit against employers over this issue if state
regulators fail to act.
AIG: A Hollow Giant?
July
31, 2009--There's a disturbing news
article today in the New York Times about America's favorite
insurer, AIG. According to the story, the weakness at AIG
isn't limited just to the notorious Financial Products unit that
nearly cratered the world financial system a while ago, but instead
may afflict the various insurance entities that make up the
insurance company.
"The dozens
of insurance companies that make up the
American International Group show signs of considerable weakness
even after their corporate parent got the biggest bailout in
history, a review of state regulatory filings shows." New York
Times, July 31, 2009
Reportedly, the problem
lies in massive intercompany reinsurance dealings and stock
investments between different AIG companies. This
enabled AIG to play a shell game with state regulators, shuffling
assets and liabilities among different entities that were examined
by different state regulators.
Someone I know who used to
be a fairly high-level manager at AIG once told me that "Hank"
Greenberg, former emperor of AIG*, used to view insurance regulators
as a minor annoyance, and their regular fines of AIG as just
"speeding tickets" and that it was much cheaper just to pay the
tickets than to change the way AIG operated.
The real legacy of Mr.
Greenberg is that, now that the truth is emerging about how his
empire operated, real oversight of the insurance industry (perhaps
at the federal level) might come to pass. If what the NY Times
is reporting is accurate, it would be long overdue and badly needed.
Good News in South
Carolina
July 27, 2009--NCCI
and the South Carolina Department of Insurance have agreed, in
response to prodding from AIM, that older experience modification
factors that should have been corrected but weren't can be
corrected, as long as the cause of the problem was an insurance
carrier not filing corrected reports on a timely basis.
This opens the door for AIM to
obtain refunds for even more SC employers that were overcharged
because of the widespread problems with insurers reporting Second
Injury Fund reimbursements.
The New South Carolina
SNAFU
June
19, 2009--We've been reporting since 2006 on the problems in
South Carolina. Now there's a new development. NCCI is
balking at fixing some older experience modifiers for victimized
employers.
Our 2006 study broke the
scandal in the first place--that insurance companies were often not
reporting to NCCI reimbursements they received from the Second
Injury Fund. This meant that employers' experience
modification factors were inflated, and thus the employers were
being overcharged for their Workers Comp insurance.
We've been working now to
recover those overcharges for affected employers. But now NCCI
is balking at correcting some older experience modifiers.
We would point out that
NCCI rules required insurance companies to report these
reimbursements to NCCI on a timely basis. But in over half the
cases, insurers failed to do so.
Now that AIM is getting
those insurers to belatedly make those reports, NCCI is claiming
that it's now too late to fix some of the older modifiers, and thus
the affected employers can't recover the overcharges.
We don't think it's right
that employers should be penalized for the failures of NCCI and
NCCI's member insurance companies. And we're continuing to
work with NCCI and SC regulators to overcome this Catch-22.
We'll keep you posted on
further developments.
AIG & The Talented Mr.
Greenberg
May
18, 2009--There's a fascinating new
article published by The Sunday Times of London.
The article examines the early warnings about AIG that were
suppressed and heatedly disputed by AIG and others.
"Towards the end, it looked much
like a Ponzi scheme, 'yet the Obama administration still thinks of
AIG as a real company that simply took excessive risks'. In other
words, there was never a chance AIG would honour its contracts: its
income was nowhere near enough to cover the payouts. "--Sunday
Times article.
In recent months, former AIG
emperor Maurice "Hank" Greenberg* has sought to
characterize the collapse of his former fiefdom as something that
resulted from changes that occurred after Greenberg was booted out
of AIG. This article strongly suggests that this is a
self-serving and misleading characterization, and that AIG insurance
operations had problems for a long time. This article
certainly seems to make it difficult for Greenberg to deny
responsibility for the financial troubles of AIG, as they would appear to be the direct result of
management decisions that happened on his watch. And Mr.
Greenberg was always famous for being a very, very hands-on kind of
guy.
And now, of course, we all get to
see our tax dollars shoveled into Mr. Greenberg's former company, in
a desperate attempt to prevent his black hole from swallowing the
entire financial system. Most frighteningly, the black hole
analogy may be apt: it may be impossible to save oneself by feeding
the beast. Like a real black hole, AIG may just suck
everything down into its maw and grow into an ever larger, ever more
voracious, abyss.
The New Book
April 10, 2009--The
new updated book is done! It took longer than I thought it
would, but the successor to Ultimate Guide to Workers
Compensation is complete. The new and updated tome,
Workers Compensation Insurance: A Field Guide for Employers & Others,
will be available soon from Amazon in book form. It's
available right now,
though, as a CD-Rom or pdf via email, through our own webpage.
Ultimate Guide
had gone out of print early this year, and the publisher wasn't
interested in printing an updated edition. So we did it
ourselves, (in conjunction with BookSurge, Amazon's publishing arm.
Amazingly, we were getting
reports that some folks were offering their used copies of Ultimate
Guide online for over $100. Sorry to deflate that market, but
the new book contains lots of updated information and some expanded
new stuff too. So if you liked Ultimate Guide (or my
earlier book CompControl) you'll love the new updated
Field Guide.
Rotten At The Core: New
York's Comp System
March 31, 2009--There is a terribly revealing, terribly
depressing
expose in the New York Times about how the New York state
Workers Compensation system manages to combine high costs for
employers with lousy benefits for injured workers. Apparently,
New York hired Franz Kafka to design their system of compensating
seriously injured workers, with predictable results. Many
states have problems with their Workers' Compensation systems, of
course, but the conditions described in this article are appalling
and frightening.
South Carolina Has A
Terrible Idea
February 18, 2009--Legislators in South Carolina are
proposing a terrible idea--to cut Workers Comp benefits for illegal
aliens.
It's a terrible idea
because it would reward employers who hire illegal aliens, and
simultaneously lessen incentives to maintain safe workplaces.
While the proposed bill
would still have the Comp system pay medical bills for injured
illegals, it would deny those workers disability payments.
That means that serious claims would cost insurance companies less
if they happen to illegal workers. And that means that the
employers who hire them would benefit from lower experience
modification factors on future policies. So the cost of
Workers Compensation insurance would be lower for employers who use
illegal workers than it would be for employers who don't, all other
things being equal.
Additionally, this
legislation would reduce the financial incentive for such employers
to operate a safe workplace. If serious claims have a much
lower impact on your future premiums, the financial incentive that's
built into the WC system would be seriously eroded for employers
using illegals.
So not only would it
create a system that tends to increase the workplace risks for
illegal workers, it would also increase the workplace risks for
legal employees who work alongside illegals.
All in all, it's a really
terrible idea.
AIG: Too Big To Save?
November 3, 2008--There are alarming
reports that the federal bailout of insurance giant AIG isn't
working. According to these published reports, even the $143
billion the U.S. government has committed isn't sufficient to fill
the financial black hole that's at the heart of AIG.
If true, it raises
the prospect that AIG, rather than being too big to fail, may in
fact be too big to save, even for the feds. And it means that
there is a horrendous financial mess lurking just over the horizon,
if AIG can't be stabilized.
What hath greed
wrought?
Small Biz & WC Group
Trusts
October 7, 2008--A new
survey finds that many small business owners really don't
understand the potential pitfalls of group self-insurance trusts for
Workers compensation. And that's certainly consistent with my
own experience--these programs were often marketed in ways that
downplayed the downsides of such programs. Many small business
people perceived these programs to be essentially interchangeable
with traditional Workers Comp insurance, and that's just not the
case.
In recent years group self
insurance programs have collapsed in a number of states,
including Illinois, New York, Kentucky, and California. And
it's only then that employers learn that, as members of the group,
they' re responsible for helping make up the shortfall for the
entire group.
In this recent survey, 58%
of small business owners were unaware that members of such groups
remain liable for the financial shortfalls of the entire group, even
after they leave the group.
These group self-insurance
programs often offer savings in the short run, but can create long
term liabilities for participants that are poorly understood by
many.
AIG Nationalized
September 17, 2008--As most
folks know by now, AIG has been rescued by a loan of $85 billion
from the Federal Reserve. In return, the U.S. government owns
79.9% of AIG. AIG has, in effect, been nationalized, in an
unprecedented attempt to stave off a cascade of really bad
things in the global financial sector.
Keep in mind that AIG
wasn't even regulated by the federal government. But now it's
being run by them. And I suspect it won't be all that long
before federal regulation of large national insurers finally comes
to pass, thanks to this spectacular failure of the world's largest
insurance company. Even though it wasn't the insurance company
part of AIG that turned into a financial black hole--not traditional
insurance, anyway--this monumental debacle provides powerful
incentive for the Feds to make sure nobody else screws up like this
ever again.
Will this permanently shut
up those who believe that unregulated free markets are the
last, best hope for humanity? Probably only for a
generation or two, just like after the Great Depression. It
took a long time for America to forget the lessons of 1929, and now,
just a few years after we dismantled some of the important reforms
from that era, we're learning them anew. And it's only costing
us $85 billion here, and $40 billion there, and...
AIG: Next Domino?
September 15, 2008--Regular readers of
this blog know that I have often been critical of insurer AIG in the
past. The company has long been loved by Wall Street, but not
always by some policyholders and regulators. Now AIG is
fighting for its corporate life, struggling to avoid the fate of
Lehman Brothers and Bear Stearns on the ash heap of financial
history.
AIG is seeking a $40
billion bridge loan from the Fed to stave off the consequences of an
anticipated ratings downgrade. Without that, AIG may be toast.
And if AIG is toast, the insurance marketplace will be scrambling to
replace many, many policies on short notice.
UPDATE--It is now being reported that the New York State will
suspend certain insurance regulations to enable AIG to borrow $20
billion from other AIG-owned business units. It is also
reported that the Federal Reserve is arranging $70 -$75 billion in
loans from the private sector to shore up AIG's capital.
New Website for Injured
Workers
September 14, 2008--An advocacy group for injured workers in
California has gone national with the
National Organization of Injured Workers.
These folks are up in arms
over what they perceive as systemic wrongdoing when it comes to
taking care of injured workers. And the cases they cite would
seem to back up their case, that injured workers are not being
properly helped by the Workers Comp system.
They're pretty hard on
insurance companies, (but then I've been known to be a little hard
on them at times myself.) Certainly, insurers have a tendency
to focus single-mindedly on the things that increase their costs.
And it's been my experience while consulting on errors in premium
computation that insurers make a lot of mistakes that are
conveniently beneficial to themselves. So it doesn't surprise
me that insurers may similarly be so obsessed with fighting
exaggerated or fraudulent claims that they get carried away and
sometimes aren't fair or just to genuinely injured workers.
Take a look at the
NOIC website for examples of the
kind of problems that are the exact opposite of the usual insurance
company focus on claims fraud. The NOIC language is a little
shrill, and they tend to see everything in a simplistic "good
guy/bad guy" way, but they also highlight a real problem.
Insurance companies have
been very successful in recent years in getting government's
attention and resources focused on claims fraud by workers and
premium fraud by some employers. But there hasn't been much
attention or publicity on the other side of the coin--improper
actions on the part of insurers to overcharge premiums and avoid
legitimate claims.
Just as free market
advocates appear to have gone overboard in dismantling regulation
and oversight of the banking and financial systems -and look what a
fine mess that's caused- oversight and regulation of insurance
companies has been diminished by those same kinds of advocates.
Insurance regulators in most states just don't have the staffing,
budgets, or regulatory power they once did. And employers (who
pay the premiums) and workers (who rely on the system to take care
of them) may have gotten the short end of the bargain.
Florida Breaks Up WC
Certificates Fraud Ring
September 11, 2008--An investigation by insurance fraud
investigators at the Florida Department of Financial Services has
uncovered a major fraud ring that utilized a well known check
cashing company to launder payments to workers. The workers
were employed by companies that obtained fraudulent certificates of
insurance through shell companies, but avoided paying premiums by
means of running payments through the check cashing company.
More details can be found
here.
Arrests have been made,
charges filed, and various people who (allegedly) were too clever
for their own good are now in jail and looking for good lawyers.
Some days, reporting on Workers Comp developments feels more like
working the crime beat than the financial beat.
California and
"Independent Contractors"
September 10, 2008--There
are interesting developments going on out in California over the
issue of "independent contractors". CA Attorney General Jerry
Brown has filed suit against trucking companies that he says
misclassify employees as independent contractors. In
California, a company that uses true independent contractors is not
liable for Workers Comp claims if those contractors don't carry
their own coverage. That's different than in many other
states, but the catch is that the contractors have to be truly
independent businesses, not engaged in the main business of the
policyholder. It's an area that's often the subject of
contention, as the criteria for determining true independent
contractor status are numerous and not always clear cut.
Misclassifying workers as independent contractors not only cheats on
WC premiums, it also dodges unemployment taxes. So a lot of
states are cracking down on what they see as abuses by employers of
independent contractor status of workers. But California is
particularly serious on this subject, and a battle may be brewing
between former governor (current AG) Jerry Brown and current
governor (former Terminator) Arnold Schwarzenegger on the issue.
What's even more
interesting about California is that the legislature has recently
passed legislation that holds consultants legally liable if they
advise employers to misclassify employees as independent
contractors. The new legislation hasn't yet been sent to the
governor for signing, so it isn't in force at the moment.
But it looks to be a major battleground issue in the coming months.
Prosecutors Allege AIG Reinsurance
Scam Cost Shareholders $1.4 Billion
September 9,
2008--Back in February, an executive of AIG insurance and
several executives of General Re Corp. were convicted in federal
court over a reinsurance deal that boosted AIG loss reserves and
artificially inflated AIG share prices.
Now the federal prosecutors are
seeking harsher sentences for the convicted executives, claiming
that the reinsurance scam cost shareholders $1.4 billion. That
number is being contested by the executives and their legal teams,
and soon the experts will be dueling in court over how the numbers
should properly be crunched.
A copy of the prosecutors'
sentencing memorandum can be found
here.
Pay As You Go: Next Big Thing in
WC?
August 29,
2008--There's a relatively new development in the field of
Workers Comp insurance: "pay as you go." It offers significant
benefits to small and medium sized employers, in that it eliminates
the large down payment usually required by insurance companies.
And it means employers can have their WC premiums adjust week by week
along with payroll fluctuations.
Just this month, the New York
Professional Insurance Agent's Association announced the start up of
a pay as you go program through their member agents. And some
payroll services like Paychex have been offering pay as you go WC to
their clients.
Pay as you go WC makes the Workers
Comp premiums part of a weekly or bi-weekly billing that tracks
directly from actual payrolls. So if an employer's payrolls
decline during the course of a year, the WC charges decline in real
time in tandem with the payrolls. It also means no nasty audit
surprises, as increases in payrolls would also adjust premiums in
real time.
It's not clear at this point how
classification disputes might manifest under such programs, or how
they would be resolved. But it's a very interesting
development, although perhaps not good news for premium auditors
generally. After all, pay as you go WC would greatly reduce
the need to perform payroll audits.
Parent of Large PEO Filing for
Bankruptcy
May 30, 2008--The
parent company of what used to be one of the country's largest PEOs
(Professional Employer Organization) --aka employee leasing--has
filed for Chapter 11 bankruptcy protection. Mirabilis
Ventures, parent company of Presidion Solutions, lists significant
debts to the IRS and to its Workers Compensation insurance carrier
in its Chapter 11 filing.
Before Presidion went
out of business, they had reported almost 2000 client companies and
nearly 30,000 workers, mostly in Florida.
Reportedly, there are
also criminal charges pending against Presidion co-founder John
Burcham, and forfeiture actions pending against Mirabilis principal
Frank Amodeo.
Wall Street Journal Gets It Wrong
on AIG
May 30, 2008--Earlier
this month, in the Wall Street Journal editorial pages, Assistant
Editor James Freeman wrote that AIG stockholders were pining away
for exiled chief Hank Greenberg, and blasted former prosecutor (and
former governor) Elliot Spitzer for "prosecutorial excess."
In the column, Freeman
questioned the charges that Spitzer had brought against AIG for
avoiding proper fees and assessments by mischaracterizing Workers
Compensation premiums as being other kinds of liability insurance
premiums. Freeman noted that insurance regulators in
Washington and North Dakota had questioned whether their states were
entitled to part of the $343 million settlement that AIG had made
over those charges.
What Mr. Freeman and
the WSJ failed to report, in their zeal to rehabilitate Mr.
Greenberg, was that the basis for Washington and North Dakota's
reluctance was not any question about the wrongdoing by AIG, but
rather that those two states were monopoly fund states for Workers
Compensation. That is, Washington and North Dakota did not
allow private insurance for Workers Compensation, unlike most
states, and thus AIG could not have harmed their states with its
schemes.
But this in no way
changes what AIG did, it is merely a reflection of the fact that
those two states may not be entitled to a share of the restitution
provided by AIG.
Of course, Wall Street
types loved Mr. Greenberg, because AIG under his stewardship always
made money--lots of money. Insurance regulators I've spoken
with privately have not always held Mr. Greenberg's insurance
company in that same high esteem. But now that Elliot Spitzer
has managed to destroy his political career with self-destructive
sexual scandals, defenders of Mr. Greenberg are hoping that
Spitzer's disgrace can somehow be used to restore Greenberg's
reputation and standing.
That would be a
mistake, in my view. Mr. Spitzer's personal failings (and they
were spectacular, to be sure) do not change the serious and systemic
wrongdoings by AIG and Greenberg that were uncovered by the former
New York Attorney General.
NCCI v. AIG: Now It Gets
Interesting
02/22/08--The
latest development in the legal battle between the National Council
on Compensation Insurance and American International Group is
that AIG wants to find out if other major insurers also
underreported premiums.
For those who came in late, NCCI
has filed suit against AIG (for a billion dollars) alleging that AIG
underreported Workers Comp premiums to avoid assessments for
assigned risk plans administered by NCCI. AIG has already paid
a fine in excess of a billion dollars as settlement of similar
charges brought by Elliot Spitzer a few years ago (while admitting
no wrongdoing, naturally.)
The questions AIG wants to put to
other major insurers are very, very interesting:
-
Did you write Workers Comp using
unfiled or unapproved rating plans?
-
Did you fail to report to NCCI
increased premiums that came in from loss sensitive plan
adjustments?
-
Did you pass through to voluntary
market policyholders expenses for assigned risk business via
non-regulated policies or side agreements?
The answers to all of those
questions would be very, very interesting. And potentially
very, very embarrassing for those major insurers.
Insurers & The
Credit Crunch
02/12/08--The next shoe in the
ongoing financial crisis may be dropping. Both AIG and CNA
have been in the news in recent days, reporting dramatic problems
related to the subprime/credit crunch debacles. Historically,
dramatic reversals in the larger financial environment have usually
led to higher commercial insurance rates. So these two major
commercial insurers may be the proverbial canaries in the coal mine.
In other words, employers should probably start bracing for higher
Workers Comp premiums on their next renewals.
New Hampshire Small Contractors
Get Increase
10/22/07--
Small
contractors in New Hampshire that utilize LLC status to reduce
Workers Comp costs are getting a rude shock from a new law. In
the past, an LLC could exclude up to 3 members from WC coverage.
So many smaller construction firms would exclude their principals,
and only cover subcontractors. But a new law that went into
effect in mid-September requires that everyone working at any
construction site be covered for Workers' Comp.
The law apparently didn't
register on the radar screens of many affected employers until it
was too late, and now insurance producers in the Granite State are
scrambling to let affected policyholders know about the significant
premium increases they are facing.
New York Moving to Competitive
Rating
09/12/07--
New York
insurance commissioner Eric Dinallo has recommended that the state
move to a form of competitive rating for Workers Compensation
insurance. Under Dinallo's
proposal, the New York Compensation
Rating Bureau would develop loss costs for the various
classifications, and then insurers would add their own multipliers
to add on their charges for expenses and profits. Thus,
different insurers could develop their own manual rates for WC,
competing on price. Many states have adopted some form of
competitive rating in recent years, where insurers can develop their
own set of manual rates, but some states have retained the older
system of having set rates that are used by all insurers.
Under reforms enacted by Governor Elliott Spitzer, the current
system of NYCRB setting uniform rates ends next February.
In a related development, NY
insurance agents have called for NCCI to be used in the future to
develop the loss costs for the state's competitive rating system,
rather than the New York Compensation Rating Bureau.
New Mexico Regulator Charged
08/31/07-- Former Deputy Insurance
Commissioner Joseph Ruiz has been charged in a federal indictment
with offering lower fines against insurance companies in exchange
for contributions to a non-profit health care organization operated
by former New Mexico Insurance Commissioner Eric Serna.
The shakedowns
allegedly occurred during a 30-month period that began in July 2002,
and includes a telling instance where Ruiz allegedly pressured an
insurer over an auto accident claim on behalf of a New Mexico state
senator.
The insurer complained, and Ruiz is supposed to have told the
official "it looked like he was understanding how politics works in
New Mexico," according to the indictment.
Ruiz himself didn't
personally profit from the scheme, according to the charges, but
children's books he had authored were purchased by the non-profit
with "donations" from the insurance companies.
Task Force Probing California
Fund
07/26/07--The
California Department of Insurance has announced that it has formed
a task force (together with the Highway Patrol and the San Francisco
County District Attorney) to investigate possible financial
misconduct on the part of some former employees of the State
Compensation Insurance Fund (SCIF). SCIF is the California
Workers' Compensation Fund, the largest writer of Workers'
Compensation coverage in the state (it competes with private
insurance companies).
The department says the
misappropriated amounts could total as high as a billion dollars.
The Department of Insurance so
far isn't giving out many details about this investigation, but it
may be connected to the class action against SCIF that we recently
reported on.
--more--
New Jersey WC Changes
07/26/07--There have
been some recent
changes that impact Workers Compensation coverage in New Jersey.
In response to recent court decisions, policy language has been
changed so that insurance companies are not liable for bodily injury
caused or aggravated by an intentional wrong committed by the
employer.
Dispute Brewing Over PEO
Experience Mods
06/25/07--
It
looks like there may be a significant dispute on the horizon over
how PEO (Professional Employer Organization, aka employee leasing)
companies use experience modification factors to compute Workers'
Compensation insurance charges for clients.
The National Council of
Insurance Legislators (NCOIL) has released their latest version of a
model law, which would require that employers that don't have their
own experience mods could not use a modifier that had been
calculated for a PEO. This model law, if adopted by the
various states, would close a loophole that allows PEOs to offer
Workers' Compensation coverage to clients calculated with an
experience mod lower than the client company is eligible for on
their own.
Currently, an employer that is
too small to have an experience mod calculated can obtain a 'credit"
modifier by contracting with a PEO. In such a case, the small
employer gets premiums adjusted by the mod calculated from past
experience of the PEO. Insurance producers have complained in
the past that this gives PEO's unfair advantage in pricing Workers'
Compensation coverage, and legislators have been concerned for along
time that it's not right to allow companies to get the benefit of
credit modifiers that aren't based on their own past experience.
Already, some states have
enacted limitations on such PEO experience modifier disparities.
But this new model law would prohibit such disparities outright, and
could be used as a model for many states' regulations.
NAPEO, the National Association
of Professional
Employer Organizations, is fighting against this proposed model law.
Class Action Suit Against
California State Fund
06/15/07-- A class
action lawsuit has been filed against California's State
Compensation Insurance Fund (SCIF) which is that state's Workers'
Compensation fund. SCIF isn't a "monopoly" fund, so it
competes against private insurance companies in the Workers' Comp
insurance market, but SCIF is the largest writer of Workers'
Compensation coverage in California.
The lawsuit alleges that that
there was "self-dealing" by SCIF and some of its top executives, and
seeks $25 million in compensatory damages and $50 million in
punitive damages. The suit charges that there were improper
payments made to some safety groups operated by former board members
of SCIF.
Lead plaintiff in the case is
Acro Constructers, Inc. of Burbank, and the law firm involved is
Pearson, Simon,
Soter, Warshaw & Penny, LLP. in Sherman Oaks. It is reported
that potentially there could be 250,000 members of the class action
among California employers.
NCCI Sues AIG for $1 Billion
May 24, 2007--The
National Council On Compensation Insurance (NCCI) the Workers' Comp
rating bureau used in most U.S. jurisdictions, has filed a federal
lawsuit against American Insurance Group (AIG) alleging that the
insurer defrauded other member insurance companies via a scheme to
dodge AIG's fair share of Assigned Risk business by misrepresenting
that significant numbers of Workers' Compensation insurance policies
were other kinds of liability policies. Insurance companies
are assigned pro-rata share of the Assigned Risk pool based on how
much Workers' Comp insurance they write on a voluntary basis.
Misrepresenting how much Workers' Comp insurance was actually
written by AIG allowed the company, according to the NCCI lawsuit,
to avoid their fair share of the Assigned Risk business, thus
causing other insurers to shoulder an more than their appropriate
share. The lawsuit charges that the amount of the fraud could
equal one billion dollars.
AIG had earlier reached a
settlement with New York Attorney General Elliot Spitzer over such
allegations, and AIG is now responding to the NCCI lawsuit by
claiming that their settlement with Spitzer precludes further action
on the subject. NCCI clearly disagrees.
It really is highly unusual
(perhaps unprecedented) for NCCI to file suit against one of its
member companies, and for a billion dollars, no less. After
all, NCCI is essentially owned by insurance companies, including
AIG. But AIG appears to have really ticked off the other
insurers that make up NCCI--to the tune of a billion dollars.
Of course, it's one thing to
make accusations in a lawsuit, and another to actually prove them.
Only time will tell how much merit there actually is to NCCI's
allegations. Whatever the outcome, the case may end up
shedding light on some murky aspects of Assigned Risk Workers'
Compensation that affect many smaller employers.
Stay tuned for further
developments. AIG's already tarnished reputation may be about
to take another significant hit. And if NCCI gets its way, so
will AIG's bank balance.
Workers' Comp Insurers Have
Record Year
May 10,
2007--The National Council on Compensation Insurance has
announced that the Workers' Compensation insurance industry has had
its
best year in 30 years during 2006. NCCI announced at its
Annual Issues Symposium that the combined ratio for 2006 was 96.5,
meaning that losses and expenses were 96.5 percent of premiums.
This is the first overall underwriting profit reported by the
industry since 1995. (Keep in mind, though, that insurers make
a fair bit of money from their investments, money that isn't
reflected in the combined ratio.)
A large factor in this has been the dramatic
turnaround in the California market, where recent reforms appear to
have the desired effect of reducing the claims costs there.
Overall, this is probably good news for employers as well, as it
means that insurers will be more inclined to keep rates and premiums
from rising, and probably be more competitive for business.
Increased competition normally translates into lower premium costs
for employers, although the market for Workers' Comp can and does
vary considerably from state to state.
South Carolina Rate Increases
Proposed Again
May 3, 2007--The National Council on
Compensation Insurance (NCCI) is proposing to again increase the
Workers' Comp manual rates for South Carolina, this time by 23.7%.
This is on top of a double-digit increase at the end of last year,
so it's no wonder SC employers are feeling a bit stressed.
NCCI is an independent organization with close
ties to insurance companies (it's essentially owned by insurers,
although operationally it is independent.) And NCCI and member
insurers have been fighting for years to increase the rates used for
Workers' Comp in South Carolina.
Interestingly, our company performed a very
interesting study of one aspect of South Carolina's Workers' Comp
pricing last year. We reviewed how the savings from that
state's second injury fund were reflected in the experience mods of
small employers. Our findings were
that most small businesses received no rate credit for
reimbursements to their insurers from the second injury fund.
The question that hasn't been answered (to my
knowledge at least) is whether or not NCCI's rate making system
reflects this windfall to insurers. Interestingly, the
insurance companies have been lobbying to eliminate the second
injury fund, as they object to the cost of the assessments made on
them to fund the second injury fund. But that doesn't answer
the question of whether or not NCCI's rate calculations fully
reflect the effect of higher premiums for small employers who don't
get any benefit from reimbursements paid by the fund.
The only thing certain is that the political
fighting over Workers' Comp rates in SC are far, far from over.
Study Finds Many NY Employers
Evading WC
February
7, 2007--A report from a Florida consulting firm
concludes that more than a quarter of New York state employers
aren't paying the Workers' Comp premiums for their workers.
The study compared unemployment coverage with Workers' Compensation
coverage, and found significant discrepancies. The report also
alleges that many employers misclassify workers to get lower rates
and premiums.
If accurate, this report is certainly
disturbing. I haven't had the chance to read the details of
the report, so I'm naturally curious to see if the consultants made
proper allowances for self-insured employers and those who aren't
required to obtain Workers' Comp insurance. More information
about the report is available
here.
MO Decision on WC Benefits
Upsets Business
January 22,
2007--The Missouri Supreme Court has ruled that
certain Workers' Comp benefits don't end with the death of the
worker. Instead, benefits payable when a worker is ruled
permanently and totally disabled should continue to surviving
dependents.
Some business groups have expressed dismay over
the ruling, fearing that it will lead to significant increases in
Workers' Comp insurance rates in Missouri. Missouri had only
recently enacted changes in their Workers' Comp benefits that had
been credited with producing lower rates.
It's difficult to tell at this early stage how
much truth there is in those fears, and how much may be mere
rhetoric. Sometimes the anticipated effects of such rulings
are greater than what actually materializes. Employers are
understandably concerned about anything that increases the already
considerable cost of their Workers' Compensation insurance (as we
here at AIM know well.) At the moment, employers in Missouri
are wondering just how much of an impact on insurance rates the
insurance industry will make out of this ruling.
January
17, 2007--I recently read an
excellent book on how the Workers' Compensation system came to be in
the United States. It's entitled
The Accidental Republic, by John Fabian Witt, and it's a
fascinating examination of how the modern system of Workers'
Compensation arose, in somewhat abrupt fashion, early in the 20th
century. Definitely recommended for anyone with an interest in
the American system of Workers' Comp and how and why it came to be.
Interview with AIM Founder Ed
Priz
January
15, 2007--I recently was interviewed for a Webinar on
contractorselling.com.
The wide-ranging interview covered recent developments in Workers'
Compensation that affect contractors and other employers and can be
heard here. Thanks to Joe Crisara
of contractorselling.com for doing such a great job with the
interview.
AIM Competitor Appears to Be Out
of Business
January 1, 2007--Information from the Better
Business Bureau indicates that WCA Consultants of Plainville, MA is
no longer in business, although their website is still up and
running. According to a BBB reliability report dated
10/31/2006 that was recently forwarded to AIM, mail sent to WCA was
returned by USPS as "business no longer in operation".
WCA Consultants, according to
their website, offered services similar to those offered by AIM--to
review Workers' Compensation insurance charges for employers to find
and recover overcharges. According to other reports on the
internet, WCA charged independent contractors an upfront fee to
become an sales representative for WCA. According to these
reports, WCA may have left a number of such independent
representatives high and dry, having taken the upfront money but not
producing refunds for the cases sent in.
If this information is accurate,
it underscores something we have been stressing for a long time: it
is vital to select a Workers' Comp review firm with care.
Since there is no regulation or licensing of such firms, anyone can
create a website and claim to be an expert in this field.
2007 is the 20th year of
Advanced Insurance Management helping employers to find and recover
Workers' Compensation premium overcharges, making us one of the
oldest and most experienced firms in this field. Unlike many
others (such as the apparently defunct WCA) Advanced Insurance
Management is a member of the Better Business Bureau.
If your company has been waiting
for the results of a WCA review of your Workers' Compensation
insurance charges, it appears that you are not likely to be
receiving any good news in the foreseeable future about refunds
being forthcoming. If you still think that a review of
Workers' Comp charges by a competent professional is a good idea
(and it is) you might consider letting AIM
review your documents to see what potential there is for a
refund.
Idaho WC Rates to Decline
December
27, 2006--Workers' Comp rates are set to decline in idaho
in 2007, as the Idaho Department of Insurance has accepted an NCCI
recomendation to reduce rates by 5.7% overall. Insurers who
wish to deviate further from these recommended rates must obtain the
approval of the Idaho Department of Insurance, and a number of
carriers (including the Idaho State Fund) have already obtained
approval for deviations greater than the NCCI recommendation.
Class Action Settlement Over
Loss-Sensitive WC Policies
November 11, 2006--A court in Georgia has
approved a settlement in a class action lawsuit initiated years ago
over certain Loss-Sensitive Workers' Compensation insurance policies
written by a number of insurers from January 1, 1984 through
December 31, 2003. A settlement fund of $16 million has been
approved, and any employer who had coverage from one of these
policies can make claim for a portion of the money.
Details can be found at :
www.losssensitiveworkerscomp.com.
The suit charged that insurers
had sold policies that were not properly filed with or approved
by state insurance regulators, or that the terms of the policies
were not consistent with what had been approved by regulators.
Some documentation will be
required for an employer to be approved to receive funds from
the settlement, so employers who may be eligible should start
now to determine what documentation is needed and if they have
it in their records.
AIG to Refund $13.6 Million in
Florida
October
2, 2006--American International Group is going to refund
$13.6 million in Workers' Comp premium charges to Florida
policyholders as part of a settlement with that state's insurance
regulators. The disputed charges were for Terrorism Risk
Insurance Act coverage. More than twenty states questioned the
particular rate structure AIG used for this coverage, but only
Florida was threatening to hold hearings on the subject.
Of course, if major insurers like AIG and
Liberty Mutual get their way and are allowed the option of being
federally chartered (as is being proposed in Congress) then they
could get away from all this pesky state oversight of insurance
rates. And they've got their pet experts ready to swear that
state oversight of insurance is inefficient (which it is, although
they're working to reduce this) and harms consumers (which is a
different argument altogether). Inefficient it may be, but
state oversight also provides invaluable limitations on the
abilities of major insurers to overcharge policyholders--something
that might well be sadly lacking in whatever federal oversight gets
approved by the best national legislature money can buy. And
the insurance industry has plenty of money to spread around the
halls of Congress for something as big as freeing them from state
insurance regulations.
Welcome To The Jungle, 21st
Century Style
September
15, 2006--Remember Upton Sinclair's book, The Jungle?
A lot of us read this famous muck-raking expose in school, as an
example of the kind of workplace abuses that led to the creation of
much of our modern regulatory apparatus to watchdog industrial food
production. And as we shuddered over the gruesome industrial
landscape depicted in the book, we could at least take solace in the
knowledge that nowadays such rank workplace malfeasance and abuse
couldn't take place. But it looks like we were wrong.
Sad to say, greed and indifference to human
suffering have not been banished from our workplaces, in spite of
all the regulations and lawsuits that have occurred since the days
of The Jungle. For proof, consider the sobering stories
recounted in recent weeks in such publications as the
Chicago Tribune and the
McClatchy Washington Bureau, about how employers hire
undocumented immigrant workers to perform hazardous work, and how
these workers are later unable to obtain Workers' Compensation
benefits when they are injured on the job. Sometimes the workers
themselves are afraid to make the claims, sometimes insurance
companies fight to deny them benefits on the grounds that their
undocumented status means they are not eligible.
Thus the economic interests of unscrupulous
employers and short-sighted insurance company practices combine to
treat human beings as disposable, dispensable non-entities.
The anti-cruelty laws of most states would preclude treating animals
in such a manner, but undocumented workers apparently have no such
protections. In the name of saving money, human beings are
left crippled, maimed, burned, or dead, and the employers and
insurance companies who are supposed to at least make compensation
for such injuries laugh all the way to the bank.
Employers are certainly right to be concerned
about the costs of Workers' Compensation insurance. And
insurance companies need to be vigilant against fraudulent claims.
But neither of those legitimate interests can be accepted as a
license to exploit vulnerable people and leave them mangled and
suffering, without recourse to the very Workers' Compensation system
we have created to ease that suffering. Clearly, we need to
change our laws and our insurance regulatory system to end these
practices, and we need to do it now.
South Carolina to Issue WC
Refunds After All
August 26, 2006--The South Carolina Department of
Insurance has reversed their earlier decision and has ordered
insurers to make refunds to employers of premium overcharges that
occurred due to ratemaking errors by NCCI.
Previously, the SC Department of
Insurance had decided to allow insurers to make up for the
overcharges by making adjustments to future rates. But
criticism from business groups in the state has led regulators to
change their minds and mandate refunds to employers in the state.
Regular readers of this page may
remember that AIM has been active in spotlighting the errors by NCCI
over several past years that caused rates for some classifications
in a number of states to have been miscalculated. Originally,
NCCI and the National Association of Insurance Commissioners had
attempted to keep these ratemaking errors by NCCI low-profile.
For more information about this
story, scroll down and take a look at earlier entries on this
subject in CompWatch. For more information on the South
Carolina story, check
here.
For older entries, check our
archive
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