Monday, December 21, 2009

New Study on CA Workers Comp Market

There's been a recent study done jointly by the Rand Corporation and Navigant Consulting on the California Workers' Compensation market. The study was commissioned by the Commission on Health and Safety and Workers Compensation.

The study found six factors that have contributed to the price volatility of the California Workers Compensation market since rate deregulation happened back in 1995:

• inaccurate projections of claim costs;
• pricing below expected costs;
• reinsurance contracts that gave insurers and reinsurers insufficient stake in the profitability of the policies they wrote;
• managing general agents who had little financial interest in the ultimate profitability of policies;
• underreserving for claim costs by insurers; and
• insurer policyholder surplus that was inadequate to provide a cushion against adverse events.

For those interested in understanding the underlying dynamics of what has been creating the market turmoil in California, this report makes fascinating reading (but for those who don't have that interest, of course, not so much.) The study digs fairly deeply into the specific mistakes, misjudgments, and missteps made by carriers and regulators that have contributed to the problem in the Golden State.

Wednesday, December 9, 2009

Federal Court: No Premium For Independent Contractors in Alabama

The 11th Circuit Court of Appeals has ruled that Workers Compensation premiums are not owed for independent contractors in Alabama. In Continental Casualty Co. v. Alabama Emergency Room Administrative Services, No. 09-12385, 12/3/09 it has been held that insurers are not entitled to charge premiums for independent contractors, as Alabama law stipulates that Workers Compensation benefits are payable only to employees.

The particular dispute in the case was over physicians sent to emergency rooms by a medical staffing company. Although premiums were paid for other workers who were employees of the company, the staffing company disputed additional premium charges sought by Continental Casualty, saying that the physicians were independent contractors who were not eligible for Alabama WC benefits.

Continental argued that because they could possibly be responsible for claims for these doctors, they were entitled to charge premiums. The court rejected that view, holding that since only employees are entitled to Alabama WC benefits, premium could not be charged for independent contractors.

Tuesday, December 8, 2009

Georgia Insurance Commissioner John Oxendine has confirmed that legal action is planned against M. Clark Fain III, founder of Southeastern U.S. Insurance Company (SEUS), now in liquidation. Records indicate that Fain had made some contributions to Oxendine's campaigns for insurance commissioner and governor, and Oxendine indicated the planned legal action in response to questions raised about the contributions.

SEUS specialized in writing Workers Compensation insurance for the PEO (employee leasing) industry, and was shut down after Fain had attempted to remove a key real estate investment subsidiary from the insurance company.

Interestingly, our company had it's own little encounter with both Fain and Oxendine's office a year or two ago, when we filed a complaint against SEUS with the Georgia department of insurance over a classification dispute. The Georgia Department sided with SEUS on what seemed (to us) flimsy grounds.

Perhaps the problem was that we hadn't contributed to Oxendine's campaign funds.

That may seem a cheap shot, but Oxendine's accepting campaign money from the owner of an insurance company also seems cheap--something along the lines of providing Georgia with the best insurance commissioner money can buy, and at Wal-Mart prices to boot.

At the very least, it gives the appearance of impropriety. Georgia law prohibits insurance companies from donating to insurance regulators, but allows employees of such insurers to make contributions. A loophole large enough, it would seem, to drive a truck through.