An Interesting Rip-Off--I Mean, Approach, in Utah

Quite the news story today from Utah. Authorities there are looking into a situation where, reportedly, "thousands" of Utah construction workers have been forced to become "owners" of their own businesses, and thus responsible for their own Workers Comp and Unemployment Comp costs. Of course, as "owners" they still don't get to set their own hours, or where they work, and can even be fired from the worksite.

This clever little bit of "reclassification" is orchestrated by a company in Utah that sells it's services to interested employers. By using their services, employers change their employees into "owners" of the other company, and thus they all become responsible for their own payroll taxes, unemployment, and Workers' Comp.

This is done by making the former employees "owners" of an LLC--on paper, at least. The LLC that these folks become "owners" of is the company selling the service to their former employer.

Given the way of the world, I would expect this neat little trick to spread to other jurisdictions, if it isn't snuffed out fast. Mind you, I suspect that ultimately this chicanery won't pass muster with the authorities, but before that happens there will be ample opportunities for people to be maimed and killed without having proper Workers Comp coverage.

File This Under WTF

Over in Rhode Island, a VP for Beacon Mutual (the dominant Workers' Comp carrier in the state) has been acquitted in a criminal case over preferential premium breaks for certain politically connected companies. The VP had been charged with failing to reveal to insurance regulators that Beacon maintained this "VIP" list of certain companies who would be favored with low premiums, but was acquitted because regulators had not asked for such a list.

It does rather beg the question, does it not, of how regulators would know to ask for such a list? Maybe regulators need to add some generalized, blanket questions to their market conduct examinations. Something like, "Please list any improper, blatantly unethical, sneaky and underhanded practices that you don't want us to know about."

I guess Rhode Island operates under a special kind of "Don't Ask, Don't Tell" policy for insurance companies.

Another Employer Charged With Fraud

I see today, in my Google News page, that an employer in Sacramento has been charged with fraud for "misrepresenting fact to obtain insurance at less than proper rate".

Allegedly, this roofing contractor failed to report proper payrolls for use in computing WC premium. News stories such as this one are a daily item in my Google News page (which I have set up to scan for news items about Workers Compensation insurance). In fact, today's Google News page has items not just about this California case, but also about employers in New York and Louisiana being charged with Workers Comp premium fraud. Employers should take heed of this trend.

I suppose there have always been some employers who have felt it ok to try to "fudge" their payroll numbers, thinking it's just a hardball negotiating tactic with their insurer, with no downside risk. Employers need to realize that they run the risk of criminal penalties when they engage in such activities.

I've served as an expert witness in several criminal cases involving these issues, and I have observed how devastating such criminal charges can be to a business person.

Employers need to protect themselves from excessive Workers' Comp premium charges--my consulting work has found that insurance companies often overcharge employers--but they also need to resist the temptation to reduce premium improperly. Otherwise, they may end up as another sad news story on Google News.

The South Carolina Situation

As reported in WorkCompCentral, my company, Advanced Insurance Management (AIM) is currently trying to get the South Carolina legislature to close a loophole that has allowed insurance companies to get away with overcharging some South Carolina employers on Workers Comp insurance.

At the moment, the effort to close the loophole is struggling, I fear. (That old adage about not wanting to see how sausage and legislation gets made---very true.) The SC legislature is winding down its current session, and there are a lot of other issues clamoring for the attention of the wise solons of SC. But we're not finished yet, so stay tuned.

This all relates to our ongoing work to recover overcharges for South Carolina employers who were victimized by insurance companies not properly reporting to NCCI claims reimbursements they got from the Second Injury Fund. Although we've been able to get the money back for a number of employers, in some cases the rip-off (sorry--error) occurred long enough ago that current NCCI rules prohibit correcting the experience modifiers now. Of course, the reason that the problem wasn't addressed sooner was that the insurance companies ignored NCCI rules in years past, and NCCI didn't police their own rules. So it wasn't until AIM got involved, years later, that this little scheme was uncovered.

It's funny--insurance companies expend a lot of time and effort in catching policyholders who aren't following the rules (and not paying proper Workers Comp premiums). But apparently, when it is the insurance companies themselves who benefit from breaking the rules, they are not so scrupulous in insisting that things be made right. And that surely undermines the integrity of the entire Workers Comp system.

Workers Comp News Bits

There are a few interesting bits of news today from the wide world of Workers' Comp. First off, Arizona's governor has signed a bill that mandates the Arizona state fund morph into a private insurance company by 2013. This is part of a larger trend that's been happening in many states with Workers Comp funds. Changing over to an independent insurance company enables these insurers to branch out and offer coverage in other states (a la Accident Fund from Michigan) and it also removes the loss reserves from the possible reach of state legislatures desperate for easy funds.

Over in the great Commonwealth of Massachusetts, regulators there have just approved lower rates for Workers Comp insurance, starting in September. Insurers were disappointed, employers pleased, understandably.

Finally, Florida-based NCCI (National Council on Compensation Insurance) announced that John T. Leonard, President and CEO of MEMIC Group (a group of insurance companies based in the Northeast) has been elected the 2010 Board Chair of NCCI. NCCI is the organization that computes experience modifiers, creates and maintains the Workers Compensation classification system, and writes the manual rules for Workers Comp insurance for most states. Although a lot of folks act as though NCCI were some kind of regulatory agency or independent body, it is in fact a creation of insurance companies, and the majority of NCCI's board members are insurance company executives. So while NCCI is technically separate from the insurance industry, there is a great deal of shared DNA.

New Book Now Available on Amazon

My new book, Workers Compensation: A Field Guide for Employers, is now available on Amazon.com. Readers who found my previous book, Ultimate Guide to Workers Compensation Insurance, a useful resource may appreciate this new tome. It contains all the information that so many found helpful in Ultimate Guide, but it's been updated and expanded.

Work Comp Insurers Under Stress

The NCCI (National Council on Compensation Insurance) has just announced that the U.S. Workers Compensation insurance industry is in a "precarious position". The overall combined ratio of U.S. WC insurers in 2009 rose to 109% (up from 101% in 2008). That's the biggest jump since the mid-1990's. This means that for every $100 of premiums they took in, WC insurers had $109 in losses and expenses.

It should be noted, though, that three percentage points of that increase came from a single (unnamed) insurer adding a billion dollars to its loss reserves. Poor investment income is also adding stress to Workers' Comp carriers, who rely on investment income to make up for thin (or nonexistent) underwriting profits.

Factors contributing to this development have included premium declines due to the economic downturn (lower payrolls equal lower WC premiums)and a continuing soft market for commercial insurance.

But a 109 combined ratio may change that soft market in the near future. At the very least, it will mean insurers will keep the pressure on when doing audits, to make sure they find every possible bit of premium they think they are entitled to. And sadly for employers, they may well occasionally try to find premium that they are not really entitled to under the rules.

New Book Out

My new book, Workers Compensation: A Field Guide for Employers is now available. As a real book, I mean. It's been available for a while as an e-book, but now the actual physical book is available.

For those interested in the backstory, my earlier book, The Ultimate Guide to Workers Compensation Insurance, was allowed to go out of print by the publisher. So I got the rights back, and proceeded to update and expand that book. The result is this Field Guide for Employers.

I got a lot of feedback from employers and insurance agents that they found the earlier book a really useful resource so hopefully this new updated book will continue to help those who need to understand how Workers Compensation insurance is priced, audited, and sometimes mis-priced and mis-audited.