NCCI Sues AIG--For A Billiion Dollars

There's been an extraordinary development in the world of Workers' Compensation insurance in the past few days--the NCCI has sued American International Group (AIG) for a billion dollars. NCCI, the National Council on Compensation Insurance, is the insurance industry group that writes the classification and audit manuals used for Workers' Compensation insurance in most states. NCCI is essentially owned by insurance companies that write Workers' Compensation insurance, so it's an unprecedented event for this organization to file suit against a member insurer such as AIG--and for a billion dollars, no less.

The suit stems from something that had been uncovered by New York Attorney General Elliot Spitzer: AIG had for years been reporting a lot of Workers' Compensation premium as if it were other kids of liability insurance premium instead. This enabled AIG to avoid its fair share of Assigned Risk Workers' Compensation business, which tends to be unprofitable. And NCCI administers the national pool that makes the Assigned Risk system work in most states. Thus, AIG's deceptive practices made other insurers pick up more than their proper share of this Assigned Risk business. The suit by NCCI charges that the damages to other insurers was a billion dollars.

AIG, for its part, has responded that its settlement with Spitzer for $300 million dollars should have closed the book on this matter, but NCCI doesn't seem to agree.

A lot of insurance industry professionals have pooh-poohed Spitzer's investigations of their business, but this lawsuit would seem to suggest that there was even more to the story than even Spitzer documented.

Former Ohio WC Exec Sentenced for Fraud

Terrence Gasper, who until not so long ago was the chief financial officer of the Ohio Workers' Compensation fund (a monopoly state fund) has been sentenced to a bit over five years in prison for his role in an investment scandal. This is the well-reported scandal involving an investment fund in rare coins that had been promoted and managed by Tom Noe, who is currently serving a 18 year prison sentence for his part in the scheme.

The Ohio WC fund lost $13 million in the investment fraud, along with a fair chunk of its credibility.

California WC Premiums Decline

The latest report from the WCIRB (California's equivalent of the NCCI) indicates that statewide premiums for Workers' Compensation insurance have declined significantly in 2006. The report states that California WC premiums totalled $16.5 billion in 2006, down by $5 billion, or 23%, from 2005. The total is down $7 billion, or 30%, when compared to 2004 figures.

This is certainly good news for California employers, who had been subjected to horrific rate and premium increases in recent years. Of course, part of the reason current premium totals show such dramatic decreases is that prior years' totals were at record high levels. Still, California businesses are glad for the relief. California labor groups are far less happy with the reforms that are largely behind the decreases, of course, and there are some loud rumblings coming from that camp that the recent reforms may have gone too far in reducing benefits for injured workers.

Workers' Compensation in California clearly remains a political football match between employers' interests and workers' interests--as it is in every state.