Helping Small Biz With Workers Comp

Now here's an idea that might have some merit. A legislator in California is proposing to give small businesses a 20% discount on their Workers' Comp insurance. Assemblyman Anthony Portantino has proposed the credits, and I have to admit this would directly address one of my own long-standing concerns about the Workers' Comp system in most states: small employers get the shaft.

Larger employers tend to have insurers competing on price for their business. Smaller employers just get tossed into Assigned Risk plans (where costs tend to be much higher and service really crappy.) A 20% credit for smaller employers would be an effective way to shift some of this unfair burden.

Here in Illinois (where AIM is based) small employers usually get shunted to the Assigned Risk plan, where insurance costs can often be double what the cost would be in the so-called "voluntary market".

Price competition in Workers' Comp insurance tends to only exist for larger employers, even though the majority of businesses are small business.

So here's to Assemblyman Portantino for cutting right through this Gordian knot with a straightforward approach that actually could help small business.

More Musings on Stealing Big

Yesterday I wrote about the Matt Taibbi article in Rolling Stone that details how Joe Cassano, former head of AIG Financial Products, got away with what would appear to be serious financial misrepresentations without ever being criminally charged. In my blog piece, I noted that AIG's actual insurance operations had always been profitable.

Today, I was reading through the original 2007 federal civil complaint that NCCI (National Council on Compensation Insuance) filed against AIG on behalf of all the other insurance companies that write Workers' Comp insurance in the U.S. That lawsuit sought one billion dollars in damages, and made detailed allegations that AIG had, for decades, lied about how much Workers' Comp insurance it actually wrote, so that it could dodge out of AIG's fair share of Assigned Risk losses and assessments.

That lawsuit, by the way, was recently settled by AIG. In a settlement with all Workers' Comp insurers except Liberty Mutual, AIG has agreed to pay $450 million dollars. Liberty is still pursuing separate legal action against AIG. And that $450 million is on top of $146 million paid by AIG to state regulators last December over the same improprieties, and $750 million AIG agreed to pay investors for financial improprieties, and then the $330 million AIG paid way back when as a settlement to New York state when Eliot Spitzer first figured out how the insurer was playing fast and loose. It's little wonder a federal judge once characterized AIG as having been run as a "criminal enterprise."

Here's the thing: the Matt Taibbi story asked why Cassano and some other titans of finance aren't doing time, or at the least aren't busily defending themselves against criminal charges. And reading this complaint by NCCI against AIG, I am left with a similar question: why the hell isn't Maurice "Hank" Greenberg sitting in a cell next to Bernie Madoff?

Or at the very least, why hasn't this man faced a criminal prosecution for the misdeeds that he reportedly instigated and oversaw at AIG for decades?

The NCCI complaint quotes extensively from internal AIG reports and investigations that state that Greenbert knew all about these schemes, and that he in fact insisted that they be carried out. So (if the NCCI and the internal AIG reports were right) it would appear that Mr. Greenberg presided over a billion dollar, decades-long scheme of financial fraud, and yet has never had to answer for this.

Sometimes the inconsistent enforcement of our laws can be a little depressing. I've served as an expert witness in two federal criminal trials, where individuals allegedly profited far, far less than Mr. Greenbert allegedly did. Those individuals ended up serving time in the federal penitentiary. And in one of those cases, I remain convinced to this day that the federal prosecutor managed to convict entirely innocent people.

If you're going to steal, steal big.

New Article on AIG Implosion Raises Serious Questions

There's a new piece in Rolling Stone by Matt Taibbi (the writer who compared Goldman Sachs to a "great vampire squid wrapped around the face of humanity".) Taibbi here examines the alleged deceptions and other transgressions of Joe Cassano, former head of the AIG Financial Products division. AIGFP was the cause of AIG's implosion and subsequent rescue by the federal government (the actual insurance operations of AIG have always been quite profitable.) Cassano made some very optimistic statements about the financial health of AIGFP, just before the whole thing went kablooey and took down the entire company.

According to this article, there were some very serious misrepresentations made by AIG concerning the actual state of AIGFP, misrepresentations serious enough to make one question why those responsible haven't been charged with criminal wrongdoing. Take a look at the article and judge for yourself. Taibbi is a bit of a rabble-rouser when it comes to financial reporting, but the extraordinary financial crisis we've all lived through these past few years make it difficult to quibble with many of his assertions.

The article covers far more territory than just AIG, though. The article suggests that some major insider trading was protected and covered up by means of high level political interference. The article names names and gives specific instances of some rather suspicious financial activity by some very well known captains of finance.

Wasn't there a line in a movie a few years ago, "If you're going to steal, steal big"? Meanwhile, in the aftermath of the financial crisis these captains of finance created, we get record unemployment, a housing and foreclosure crisis, and states slashing funding for education. It sure feels like we've all been played for suckers.

Interesting Iowa Supreme Court Ruling

The Iowa Supreme Court has issued an interesting ruling that an insurance agent did not have a duty to advise a client about insurance coverage that the client did not inquire about. This case involves several important issues, not only what the duties of an insurance producer are, but also involving Workers Compensation insurance for a self-employed truck driver.

Timothy Merriam was a self-employed truck driver who purchased various personal lines of insurance from Farmers' agent Steven Stonehocker. Stonehocker had discussed some other coverages that Merriam might consider, but did not ask about whether or not Merriam might need Workers Compensation coverage, and Merriam did not raise the issue. Merriam later was severely injured on the job, and was not apparently covered by the Workers Compensation coverage of the company using his services.

The suit had claimed that Stonehocker had a duty to advise Merriam on the need to obtain Workers Compensation coverage for himself, and had failed to do so. But the Iowa courts found otherwise.

The decision noted that the relationship between the agent and the client had been of short duration, and that the agent's advice to add auto coverage did not create a duty to advise about other coverage areas that were not raised by the client.

This case illustrates an important and often-misunderstood point about insurance agents: their duties to clients are limited, unless certain circumstances serve to increase them. Having a long-standing relationship with a particular client can serve to increase the duty owed, and so can the agent's holding himself out as having particular expertise in certain insurance areas.

But without those special circumstances, an agent may only have a duty to be an honest and accurate order-taker.

This can fly in the face of the expectations of clients, who often assume that an insurance agent automatically will serve as an insurance advisor and point out potential problem areas involving insurance.

Many insurance agents voluntarily do act as insurance advisors, of course, and once they do so they then create a higher duty for themselves towards clients. But insurance consumers need to be aware that not all agents choose to serve as advisors, and in those cases the duty the agent owes may well be more limited.

The particulars of just what duty an insurance agent owes to a particular client can be a bit complicated, and depend significantly upon the unique circumstances of the particular agent/client relationship, and also upon the state where the insurance transactions occurred (many states have statutory or case law requirements that bear on this subject.)

But insurance consumers would be wise to make explicit any desires for their insurance agent to provide insurance and risk management advise, to avoid unhappy disputes such as this one.

The other interesting aspect of this case is that it involves a self-employed truck driver who apparently was not covered by the company he was working for. Again, this is a subject that is very much dependent upon the particular state involved, as statutory and case law can vary significantly from one jurisdiction to another. Many states have, in recent years, addressed the issue of how "self employed" workers, particularly truck drivers, are treated under Workers Compensation, so the rules on this have been evolving in many jurisdictions.