Wednesday, September 17, 2008

AIG Nationalized--End of an Era?

Everybody who can read or turn on a radio probably already knows that AIG--American International Group--has just been rescued by the Federal Reserve for $85 billion. The U.S. government has taken a 79.9% ownership stake in the world's largest insurer, to prevent a truly catastrophic meltdown in the world financial markets. So AIG has been nationalized--by a Republican administration that once wanted to privatize Social Security and have us all invest in the stock market.

I suspect it will only be a matter of time before federal regulation of large national insurance companies if finally enacted. And the collapse of AIG certainly makes the case that more strenuous oversight of such companies is absolutely needed.

The era of state regulation of insurance in the U.S. may be about to finally end. We'll have to be careful not to throw the baby out with the bathwater, as many states have enacted truly important protections for insurance consumers. But state insurance regulators have seen their staffs, budgets, and authority eroded in recent decades, as many state governments bought into the idea that insurance should be more deregulated to encourage "innovation" and "efficiency".

Now we all get to pay for all the "innovation" and "efficiency" that was going on at AIG.

I just hope that as the Feds take over ownership of Mr. Greenberg's former imperial duchy, they check out all the dirty little secrets that were rumored to be hidden in the closet of Mr. Greenberg's office. The NCCI (National Council on Compensation Insurance) apparently figured out some of those secrets, as they filed a billion dollar lawsuit against AIG in the past year, claiming that AIG systematically dodged their fair share of taxes and assessments meant to maintain the Workers Comp Assigned Risk system. I suspect that was only the tip of the iceberg over at AIG.

Since the various states have not been able to do the job of regulating these mutating financial behemoths, and since these once arrogant empires are now begging for corporate welfare to save them, methinks it may be time to actually start exercising some real oversight over their activities. It's the Golden Rule, after all. He who has the Gold makes the Rules.

Thursday, September 4, 2008

California Bracing for Comp Cost Jump

California is a tough state to do business in. Just ask anyone trying to run a small or medium sized business in the Golden State, and you'll hear plenty of reasons. Workers Comp costs are likely to be near the top of their lists, and now there's new reason for California employers to groan: a proposed 16% rate increase for next year.

California employers suffered through horrendous rate increases after the WC rules were changed back in 1995 to deregulate rates. Then, more recently, there were some significant rate reductions after benefits rules were changed. But California is still an expensive state for Workers' Comp, and the 16% rate increase being proposed by the WCIRB (California's version of the NCCI) will really ratchet up the pain levels for employers who are already trying to survive the current economic headwinds.

To make matters even worse, California has the worst rules and regulations concerning Workers' Comp overcharges and refunds--it is significantly more difficult to get refunds of premium overcharges under California rules, and those rules do not allow employers to recover overcharges for as many past years as other states allow.

All in all, Workers Comp remains a compelling reason for California employers to consider moving to Arizona. And it's about to get worse.