Cost Control Gone Wrong

According to California prosecutors, some former managers at a Smurfit-Stone Container facility in Salinas went too far in their efforts to hold down Workers Comp costs. Those managers have pleaded no contest to charges that they deprived workers of their rights under California Workers Compensation law.

Reportedly, an incentive program at the facility led the managers to deny some 20 workers their statutory rights. The full story is here.

"Statewide, this is getting to be a bigger and bigger problem," Managing Deputy District Attorney Ed Hazel said of the rising number of workers' compensation violations. "There's the pressures of trying to keep medical and insurance costs down. Sometimes, people figure they can cut corners and take shortcuts."

A lesson here for all those who are straining to control Workers Compensation costs: be careful that financial incentives contain controls to make sure that managers aren't inadvertently encouraged to cross the line into illegal activity.

Update on South Carolina

I've just been informed that the President Pro Tempore of the South Carolina Senate, Glenn McConnell, has been given a copy of yesterday's CompWatch entry (along with other information) about the refusal of the NCCI Appeal Board to hear our appeal on behalf of South Carolina employers who were overcharged because their insurers failed to properly report Second Injury Fund reimbursements to NCCI. This failure by the insurance companies made the employers' experience modifiers higher than they should have been, and thus made their Workers' Comp insurance premiums higher than proper.

Perhaps the South Carolina legislature can focus the attention of NCCI and the SC Appeal Board on the need to correct these problems for employers. Stay tuned for further developments as they happen.

NCCI Appeal Board to SC Employers: Drop Dead

Okay, okay, I know that's a melodramatic headline. I've just always wanted to use a variant on that famous NY Post headline, "Ford to NY: Drop Dead" and now I've done it. But even though it's a little strident, I think it fairly summarizes what the NCCI's South Carolina Dispute Resolution board just told us (and four of our South Carolina clients).

Here's the deal: we've been working for years now on the issue of Second Injury Fund reimbursements in South Carolina, and how insurance companies have often failed to properly report those SIF reimbursements they get. You see, when an insurance company gets reimbursed by SIF for a Workers' Comp claim that the insurer has paid on behalf of a policyholder, the insurance company is supposed to report those reimbursements to NCCI. That way, the experience modification factor for the employer gets adjusted downward to reflect the fact that the claim's cost is lower than earlier reported.

But we found out years ago that insurance companies were routinely failing to make those corrected reports to NCCI, and that NCCI had been making no effort to police such reporting failures. As is often the case, the insurance industry was happy to just let the employers pay the inflated costs for the failure of insurance companies to follow their own rules.

We've been working with a number of South Carolina employers to get these abusive overcharges corrected and refunded, and we've had considerable success with our efforts.

But for some affected employers, there was a problem. The errors had occurred just long ago enough that NCCI rules did not allow for the routine correction of these experience mods. So NCCI suggested that we ask this Dispute Resolution board that NCCI operates for South Carolina for an exception for these cases.

Today we got the letter from that board. They flatly refused to hear our appeals for these employers. They wouldn't even let us make our case before them. Like I said in our headline, they said, in essence, "Drop Dead".

Now, we're not exactly willing to accept this back of the hand treatment. We're already working with our various contacts down in South Carolina, including the South Carolina Small Business Chamber of Commerce, to see what redress may be available once the South Carolina legislature and the South Carolina Department of Insurance are apprised of the situation.

It's just frustrating that it should be so bloody difficult to get this all fixed. The insurance industry makes a great hue and cry over situations that they feel defraud them of proper Workers Compensation insurance premiums. Insurance companies do not hesitate to seek criminal sanctions against those they feel have cheated on Workers Comp premiums. So you would think that the insurance industry would want to be particularly scrupulous to correct situations where the shoe is on the other foot, where it is the insurance companies that have defrauded their policyholders.

Such is not the case for these defrauded South Carolina employers. Not yet, at any rate.

Putting The Compensation in the State Compensation Insurance Fund

Interesting news item today about California's State Compensation Insurance Fund, or SCIF. SCIF is the California Workers' Compensation fund, a public-private hybrid that competes with private insurance companies to write Workers' Compensation insurance in the Golden State.

The news report is about Janet Frank, a recently-departed "reformer" who had been brought in to attempt to clean up some earlier scandals at SCIF. It turns out that Ms. Franks' own compensation for her work was considerable, something like $1.6 million for two years work. Ms. Franks left SCIF then, saying she needed to care for her mother. But two months after leaving SCIF, she took a job as President of Zenith National Insurance, a SCIF competitor.

At a time when California, like many states, is closing schools and laying off employees in droves, this is an interesting tale of how one person managed to do quite well working for the state, at least for a while. Nice work if you can get it, I guess.

AIG Subpoenas Other WC Carriers

Insurer AIG (or whatever they're calling themselves currently) has now issued subpoenas against other major Workers Compensation carriers, to determine if they were guilty of the same kind of abuses they say AIG engaged in for years.

Some background: a year or two ago, the NCCI (National Council on Compensation Insurance) filed suit against AIG in federal court for a billion dollars, alleging that AIG had dodged out of paying the assessments and fees that are part of the Workers Compensation system. NCCI charged that the other member insurance companies that make up NCCI therefore had to pick up the slack, to the tune of that aforementioned billion dollars.

That suit eventually got tossed out because the judge ruled that NCCI lacked standing--so several of those other insurance companies filed their own suits over the same issue. AIG has always contended that what they did was common practice at other insurance companies. And now AIG has been granted the right by the court to subpoena the records of those other insurance companies to see if this was really so.

Should be interesting to see what dirty laundry (if any) AIG finds at its competitors.

New Article in Risk & Insurance

I've been quoted in a recent article in Risk & Insurance. It's all about how widespread the problems are with overcharges in Workers Comp insurance premiums--a subject I've been speaking and writing about for several decades.

Interesting Response From an Insurer

Sigh. Sometimes insurance company people say the darndest things. Today, my son (and partner in my consulting practice) is talking to someone at a major insurance company about how they didn't report claim data properly to NCCI for use in a client's experience modifier. This person, whose job it is to report unit statistical data to NCCI, said that she didn't have a copy of the NCCI unit statistical reporting manual. This was by way of explanation for why they hadn't included important and pertinent information in their reporting of claim data to NCCI (an error which had made our client's experience modification factor significantly higher than it should have been.)

I swear, sometimes it seems as if the insurance industry is actually trying to create a need for our particular consulting services.