Wednesday, April 11, 2012

Keystone State Blues

There have been a couple of nasty news stories recently that focus on problems on SWIF-the Pennsylvania State Workman's Insurance Fund.  SWIF is a state fund for Workers Compensation that competes with private insurers.  Just in the past sixty days, a supervisor at SWIF was charged with fraudulently lowering Workers Comp premiums for employers, in return for significant kickbacks.  The supervisor, James McDonnell, allegedly ran his scheme for more than a decade, from 1999 to 2011.  According to news reports, McDonnell was also accused of sexually harassing another SWIF worker.  According to these news stories, SWIF failed to take those charges seriously at the time.

The other news story is that SWIF overpaid in the millions for an outsourced claims software program.  So it would appear that the Pennsylvania agency has been performing in a manner consistent with a lot of folks' worst stereotypes of a bloated government  bureaucracy.

Tuesday, April 10, 2012

Employees vs. Independent Contractors

There's an important article in the April 2012 issue of Best's Review about the liabilities of insurance producers and other financial professionals under state laws governing the mis-classification of workers as independent contractors.  The article noted that a recent change in California law creates joint and several liability for anyone who advises an employer to improperly classify a worker as an independent contractor.

It's not only insurance producers who have cause for concern here--other advisers, notably accountants, may well have exposures here.  And of course, employers themselves have more cause than ever  to be very careful on this subject, in many states besides California.

Even if other states have not added the joint and several liability for advisers, the potential penalties for employers who misclassify employees as independent contractors are substantial and growing.

A lot of states have been enacting statutory penalties for employers who, in the state's eyes, try to make employees into independent contractors.  States have been busy detailing specific criteria for distinguishing between employees and true independent contractors, and creating penalties for employers who get it wrong.

And of course, this issue is often the cause of unexpected increases in Workers Compensation insurance premiums, as insurers pay increased attention to situations where the use of uninsured independent contractors or sub-contractors entitles the insurer to charge premium.

Again, it can be vital to check into the specific requirements of a particular states, as the rules can vary significantly from one state to another.  A number of states have created registrations where sole proprietors or partnerships can opt out of the Workers Compensation requirements, so that companies that use their services do not incur Workers Comp insurance liabilities.  But other states offer no such protections, and these differences can trip up unwary policyholders.

Wednesday, February 29, 2012

New Experience Mod Formula Coming

For many companies, their Experience Modification Factor is more than just an important element of their Workers Comp insurance premium charges.  For many in the construction trades, the Experience Mod is also a critical benchmark used by customers and potential customers.  A mod higher than 1.00 can prevent a company from even bidding on certain projects.

Starting next year, NCCI (National Council on Compensation Insurance) will be changing the formula they use to calculate experience modifiers.  Since most states use NCCI as their Workers Comp rating bureau, this means that most employers will be affected by this change.  Our initial analysis indicates that the changes will lower mods for some employers, and raise them for others.

The bottom line is that companies that control Workers Comp claims will probably benefit from the new NCCI formula, while companies that have more significant claims costs in their history will see mods increase dramatically.

What NCCI is doing to create these changes is to alter the threshold at which a claim is discounted in the rating formula.  The old formula discounts any single claim over $5,000, so that only the first $5,000 of any claim is fully counted in calculating the experience modifier.  But the new formula will increase that threshold in graduated steps, so that by 2015 the threshold will be $15,000.

You can find a more technical explanation of the upcoming changes in NCCI modifier calculations at: