My friend, Peter Rousmaniere, has an interesting column on the subject of Workers Compensation Opt-Out plans as existing or proposed in various states. This article suggests that Peter, a long time wise observer of things related to Workers Compensation, is changing his view on Opt-Out programs.
Myself, I'm of a mind that these programs are kind of like socialism--possessing intriguing aspects in theory, but in actual practice pretty goddamned terrible--terrible for people who suffer injury or illness from their workplace, at any rate.
This country created our Workers Compensation system as a grand bargain, a compromise that protected employers from potentially catastrophic liability while giving employees a system that supposedly provided no fault benefits, including medical care and disability and death benefits, that could be relied upon. The Opt-Out programs I have reviewed impose draconian and unfair limitations and penalties on workers. I know that I sure as hell would not want to be relying upon the one-sided rules that Wal-Mart imposes on its poor workers if I were injured while working in one of their increasingly-depressing retail operations. I've had a little first hand experience with how fair and impartial Wal-Mart is in the area of Workers Compensation, as a family member once was injured while working there. Hell, if they took decent care of their injured workers then the Walton heirs might have to sell off some of their art collection, and we can't have that.
Look, Workers Comp costs are a real issue for a lot of employers--nobody knows that better than I do, because I've devoted my professional life to helping employers control the cost of Workers Compensation insurance. But the solution to this problem isn't to screw over decent people who get injured or made ill due to their work. There are things that can be done to reduce fraud and inefficiencies in the system without taking unfair advantage of people.
Here in my home state of Illinois, the traditional Workers Compensation system has seen significant reductions in the cost of Workers Compensation claims that were achieved through a combination of medical fee schedules and some other reforms that did not destroy the no-fault Workers Comp system. Illinois employers are seeing real reductions in Workers Comp insurance manual rates, and would likely see further reductions if some common sense insurance reforms were enacted.
WorkComp Watch: News about Workers' Compensation Insurance, audits, classifications, coverage, and recovering overcharges.
Wednesday, November 25, 2015
Thursday, November 12, 2015
Some Questions Raised Re: Big PEO Workers Comp
Barrett Business Services, Inc.(BBSI) is a very large PEO-Professional Employer Organization, also known as an employee leasing firm. Such companies provide Workers Compensation coverage, among other services, to client companies by means of contractual agreements that make the PEO the "co-employer", at least on paper, of the workers of the client company.
Now come reports that BBSI is under investigation regarding how the company reported certain charges associated with its Workers Compensation costs.
California passed a new law in 2014 that prohibited PEOs from self-insuring their Workers Comp obligations. So BBSI entered into what is known as a fronting arrangement with ACE. A fronting arrangement is one where an insurance company that is licensed to write Workers Comp insurance in a state enters into a behind-the-scenes arrangement, typically with a captive insurer that isn't eligible to write Workers Comp. The fronting insurer issues a policy, but enters into a reinsurance arrangement with the captive so that the fronting insurer isn't responsible for paying claims up to an agreed upon amount. So in the BBSI case, ACE was passing back all claims up to five million dollars.
The investigation isn't whether or not this all was kosher--surprisingly, these arrangements are not unheard of, although insurance regulators really don't have a good handle on the practice. The investigation of BBSI involves the question of whether they violated securities laws requiring providing accurate financial information to investors.
See, that's the weird thing, to me. This whole complicated structure of having a PEO provide WC coverage to thousands and thousands of smaller companies, and to do it by means of a fronting arrangement where the insurance company that everyone thinks if providing coverage really isn't--that all likely is done according to the rules. Which leads me to ask the question--who the heck ever decided that such complicated arrangements were such a good idea?
The answer is that no one decided it, really. The insurance industry figured out how to structure these deals in such a way that the insurance regulators never really had a good idea of what was going on, how widespread the practice has been, and how wobbly some of these houses of cards might be--not until the cards collapse, that is.
Now, in this particular case of BBSI, there is absolutely nothing in the published reports that indicate any wrongdoing. Not yet, at any rate. But this early news report does make me recall other situations involving big PEOs that did turn out to be card-constructed housing units.
Time will tell how this one turns out. Stay tuned.
Now come reports that BBSI is under investigation regarding how the company reported certain charges associated with its Workers Compensation costs.
California passed a new law in 2014 that prohibited PEOs from self-insuring their Workers Comp obligations. So BBSI entered into what is known as a fronting arrangement with ACE. A fronting arrangement is one where an insurance company that is licensed to write Workers Comp insurance in a state enters into a behind-the-scenes arrangement, typically with a captive insurer that isn't eligible to write Workers Comp. The fronting insurer issues a policy, but enters into a reinsurance arrangement with the captive so that the fronting insurer isn't responsible for paying claims up to an agreed upon amount. So in the BBSI case, ACE was passing back all claims up to five million dollars.
The investigation isn't whether or not this all was kosher--surprisingly, these arrangements are not unheard of, although insurance regulators really don't have a good handle on the practice. The investigation of BBSI involves the question of whether they violated securities laws requiring providing accurate financial information to investors.
See, that's the weird thing, to me. This whole complicated structure of having a PEO provide WC coverage to thousands and thousands of smaller companies, and to do it by means of a fronting arrangement where the insurance company that everyone thinks if providing coverage really isn't--that all likely is done according to the rules. Which leads me to ask the question--who the heck ever decided that such complicated arrangements were such a good idea?
The answer is that no one decided it, really. The insurance industry figured out how to structure these deals in such a way that the insurance regulators never really had a good idea of what was going on, how widespread the practice has been, and how wobbly some of these houses of cards might be--not until the cards collapse, that is.
Now, in this particular case of BBSI, there is absolutely nothing in the published reports that indicate any wrongdoing. Not yet, at any rate. But this early news report does make me recall other situations involving big PEOs that did turn out to be card-constructed housing units.
Time will tell how this one turns out. Stay tuned.
Thursday, November 5, 2015
Workers Comp "Reform": Babies and Bathwater
In the field of Workers Compensation, employers are understandably and legitimately concerned about the cost of Workers Compensation. Here in my home state of Illinois, for example, employers are often pushed to the wall by the cost of Workers Compensation insurance, and we here at Advanced Insurance Management often get to help them (and other employers all over the U.S. as well) successfully dispute Workers Comp insurance charges that are unwarranted and excessive. On a regular basis, we get to help keep some small employer in business, as they tell us that if they have to pay a recently-received "Shock Audit" for more money than they have, they will have to close their doors. It's always a special professional pleasure to help in those situations.
And in Illinois, our home state, employers are often told that Illinois is too lenient and corrupt when it comes to awarding Workers Comp benefits to workers, and in neighboring Indiana they know how to do things more efficiently and economically, and thus WC rates and insurance premiums are much, much lower there. And its true, Indian has much lower WC insurance rates (and lower benefits) than in Illinois.
I've written about this disparity before, and how much of the difference in costs between Indiana and Illinois are due to wage differences between the states and the much more restrictive benefits rules in Indiana. But now a new article in Slate makes clear the unintended consequences of some of the Workers Comp "reforms" that some employers and insurers advocate for, in the name of reducing claims costs. And those consequences can sometimes be measured in painful deaths and financial ruin for families, particularly if an employer fights a Workers Comp claim in ways both fair and foul.
To be fair, employers have every right in the world to fight for reasonable laws to combat fraudulent or exaggerated Workers Comp claims. Indeed, they have a responsibility to fight against such claims, as they weaken and undermine the entire Workers Comp system. And fraudulent or exaggerated claims are a reality most employers have to deal with, sadly. In response, many states have greatly increased efforts at catching and punishing fraudulent Workers Comp claims, with considerable success.
But I think it can be a terrible mistake to enact "reforms" that leave seriously injured or ill workers without benefit of the laws we have enacted to protect and compensate us all from the risks of occupational injury and illness. And we do not want to remove the financial incentives that currently exist to pressure employers to maintain safe workplaces.
Most employers, in my experience, want to maintain safe workplaces. They understand the need to keep their workers safe from the potential hazards of work. But even with the best of intentions, unexpected things can happen that result in serious claims. And sometimes it can be unclear if a questionable claim has been exaggerated or misrepresented. And, being human, employers (and their insurers) can be prone to sometimes allowing financial interests to cloud their judgement on such things.
That's why I tend to view arbitrary restrictions on Workers Comp claims as often throwing the baby out with the bathwater. The consequences of creating too many hurdles and barriers for those who are injured at work (or who claim to be so injured) can be devastating to people, and often contrary to the long term interests of the employer as well.
I know there are no easy solutions to this--because if there were, we would have done them already. But some of these proposed reforms strike me as just that--easy solutions for complex problems. That usually doesn't end well.
And our Workers Comp system is never going to be perfect, sad to say. But we need to keep in mind that unintended consequences can be powerful and long lasting, and that the unintended consequences of some of the proposed "reforms" to our Workers Compensation systems will be painful death, needless maiming, and financial ruin for decent people. We can do better than that.
And in Illinois, our home state, employers are often told that Illinois is too lenient and corrupt when it comes to awarding Workers Comp benefits to workers, and in neighboring Indiana they know how to do things more efficiently and economically, and thus WC rates and insurance premiums are much, much lower there. And its true, Indian has much lower WC insurance rates (and lower benefits) than in Illinois.
I've written about this disparity before, and how much of the difference in costs between Indiana and Illinois are due to wage differences between the states and the much more restrictive benefits rules in Indiana. But now a new article in Slate makes clear the unintended consequences of some of the Workers Comp "reforms" that some employers and insurers advocate for, in the name of reducing claims costs. And those consequences can sometimes be measured in painful deaths and financial ruin for families, particularly if an employer fights a Workers Comp claim in ways both fair and foul.
To be fair, employers have every right in the world to fight for reasonable laws to combat fraudulent or exaggerated Workers Comp claims. Indeed, they have a responsibility to fight against such claims, as they weaken and undermine the entire Workers Comp system. And fraudulent or exaggerated claims are a reality most employers have to deal with, sadly. In response, many states have greatly increased efforts at catching and punishing fraudulent Workers Comp claims, with considerable success.
But I think it can be a terrible mistake to enact "reforms" that leave seriously injured or ill workers without benefit of the laws we have enacted to protect and compensate us all from the risks of occupational injury and illness. And we do not want to remove the financial incentives that currently exist to pressure employers to maintain safe workplaces.
Most employers, in my experience, want to maintain safe workplaces. They understand the need to keep their workers safe from the potential hazards of work. But even with the best of intentions, unexpected things can happen that result in serious claims. And sometimes it can be unclear if a questionable claim has been exaggerated or misrepresented. And, being human, employers (and their insurers) can be prone to sometimes allowing financial interests to cloud their judgement on such things.
That's why I tend to view arbitrary restrictions on Workers Comp claims as often throwing the baby out with the bathwater. The consequences of creating too many hurdles and barriers for those who are injured at work (or who claim to be so injured) can be devastating to people, and often contrary to the long term interests of the employer as well.
I know there are no easy solutions to this--because if there were, we would have done them already. But some of these proposed reforms strike me as just that--easy solutions for complex problems. That usually doesn't end well.
And our Workers Comp system is never going to be perfect, sad to say. But we need to keep in mind that unintended consequences can be powerful and long lasting, and that the unintended consequences of some of the proposed "reforms" to our Workers Compensation systems will be painful death, needless maiming, and financial ruin for decent people. We can do better than that.
Wednesday, November 4, 2015
Pay As You Go Workers Comp From Intuit
Intuit, Inc. has launched an interesting "pay as you go" Workers Compensation insurance service for small employers, utilizing the services of twenty insurance companies. The whole idea of "Pay as you go" WC is to avoid what we call "shock audits", where the annual premium audit generates an unexpectedly large additional premium. Pay as you go uses actual payroll information, rather than an initial estimate. The Intuit service, for instance, uses that company's Quickbooks payroll data to develop WC premium charges in real time.
Of course, these kinds of "pay as you go" programs can only address one cause of Shock Audits--that is, fluctuations in payroll. But payroll isn't the only cause of these painful audits, and pay as you go doesn't address those. Changes in classifications, changes in payroll allocation, or use of uninsured independent contractors can still ambush employers with unexpected bills. But programs like the Intuit service (and Intuit is far from the only provider of this kind of service) can offer small employers access to voluntary market coverage, when so many other sources of WC are focused on larger accounts and leave smaller employers to the mercies of Assigned Risk plans.
Of course, these kinds of "pay as you go" programs can only address one cause of Shock Audits--that is, fluctuations in payroll. But payroll isn't the only cause of these painful audits, and pay as you go doesn't address those. Changes in classifications, changes in payroll allocation, or use of uninsured independent contractors can still ambush employers with unexpected bills. But programs like the Intuit service (and Intuit is far from the only provider of this kind of service) can offer small employers access to voluntary market coverage, when so many other sources of WC are focused on larger accounts and leave smaller employers to the mercies of Assigned Risk plans.
Wednesday, October 14, 2015
A Disturbing Trend
This is an alarming article, to anyone who thinks we need to make our current system for injured workers better, not crappier. Our current system is far, far from perfect, but giving workers poorer and more restricted benefits is not the way forward. Once again, this trend would seem to give an even bigger slice of the economic pie to those who already feast, while impoverishing those who already struggle. Not a recipe for long term social justice and prosperity, in this writer's view.
Our existing system of Workers Compensation was created in response to cruel workplace tragedies at tremendous effort. We should not be quick to dismantle something so important.
Our existing system of Workers Compensation was created in response to cruel workplace tragedies at tremendous effort. We should not be quick to dismantle something so important.
Monday, August 10, 2015
An Interesting Meeting
So, I had this very interesting meeting last week, with one of the key people at a good-sized construction firm here in the Chicago area. I had been asked to come in by their insurance agent, who thought it might be helpful to bring me in for a little informative consulting, to help the insured better deal with some recurring issues on their Workers Compensation audits.
The main source of this insured's frustration, in a nutshell, is that the insurance underwriters at their very large insurance company seemed to be operating from a different playbook than the insurance auditors, who would come in every year after policy expiration and start questioning and objecting to various classification codes that had been approved by the underwriters at the time the policy began.
I was at least able to explain to this client that they weren't being picked on or singled out, that this was a common problem we see--auditors still following the book regarding classification and manual rules, even though underwriters increasingly, are speed-reading that book, if they are bothering to read it at all.
Outside of the assigned risk plans, nowadays a lot of underwriters (at least those underwriting medium to large accounts), aren't developing premiums the old fashioned way. Increasingly, they figure out how much premium they want or need for a particular account, and then work backward from historic payrolls, classifications, experience mods, and other factors to get to that number. And the underwriters often don't really care much how they get to this number, as long as they get their number. So they can be inclined to not look overly carefully at some classification codes that may have historically been used on an account.
Ah, but the auditors--their training and management still focuses on those pesky manuals that define classifications and division of payroll among classifications. So what might have seemed to have an underwriter's acceptance may run afoul of an auditor's understanding of those manual rules. The problem is that the auditor is looking at things after the policy has ended. If the auditor's view conflicts with had been the tacit acceptance of an underwriter at policy outset, it can leave the policyholder feeling like they have been the victim of an insurance "bait and switch" ploy.
A fair bit of our consulting work arises from such situations, where the premium auditors (oftentimes from a third party auditing firm instead of a direct employee of the insurer) uses a different and stricter standard regarding classifications and division of payroll among classifications than was originally employed by the underwriters. And when push comes to shove, auditors tend to be much more inflexible about these manual rules.
Sometimes a bit of technical translation on our part, helping policyholders and auditors better communicate with each other, can resolve these disputes. Other times, particularly if enough money is in dispute, it may require the involvement of insurance regulators or even a lawsuit. Needless to say, those kinds of hostile dispute resolutions can badly fray the relationship between insured and insurer--very often, these disputes shatter the relationship completely.
At the moment, we're working with this insured to pinpoint which areas may be problematic in future audits, with an eye towards making sure their documentation and record keeping is of a nature as to minimize some of these disputes. But given the continuing disconnect between how many of these policies are underwritten and how they are audited, I suspect we will continue getting calls and email from those policyholders who are on the receiving end of what we call "shock audits".
The main source of this insured's frustration, in a nutshell, is that the insurance underwriters at their very large insurance company seemed to be operating from a different playbook than the insurance auditors, who would come in every year after policy expiration and start questioning and objecting to various classification codes that had been approved by the underwriters at the time the policy began.
I was at least able to explain to this client that they weren't being picked on or singled out, that this was a common problem we see--auditors still following the book regarding classification and manual rules, even though underwriters increasingly, are speed-reading that book, if they are bothering to read it at all.
Outside of the assigned risk plans, nowadays a lot of underwriters (at least those underwriting medium to large accounts), aren't developing premiums the old fashioned way. Increasingly, they figure out how much premium they want or need for a particular account, and then work backward from historic payrolls, classifications, experience mods, and other factors to get to that number. And the underwriters often don't really care much how they get to this number, as long as they get their number. So they can be inclined to not look overly carefully at some classification codes that may have historically been used on an account.
Ah, but the auditors--their training and management still focuses on those pesky manuals that define classifications and division of payroll among classifications. So what might have seemed to have an underwriter's acceptance may run afoul of an auditor's understanding of those manual rules. The problem is that the auditor is looking at things after the policy has ended. If the auditor's view conflicts with had been the tacit acceptance of an underwriter at policy outset, it can leave the policyholder feeling like they have been the victim of an insurance "bait and switch" ploy.
A fair bit of our consulting work arises from such situations, where the premium auditors (oftentimes from a third party auditing firm instead of a direct employee of the insurer) uses a different and stricter standard regarding classifications and division of payroll among classifications than was originally employed by the underwriters. And when push comes to shove, auditors tend to be much more inflexible about these manual rules.
Sometimes a bit of technical translation on our part, helping policyholders and auditors better communicate with each other, can resolve these disputes. Other times, particularly if enough money is in dispute, it may require the involvement of insurance regulators or even a lawsuit. Needless to say, those kinds of hostile dispute resolutions can badly fray the relationship between insured and insurer--very often, these disputes shatter the relationship completely.
At the moment, we're working with this insured to pinpoint which areas may be problematic in future audits, with an eye towards making sure their documentation and record keeping is of a nature as to minimize some of these disputes. But given the continuing disconnect between how many of these policies are underwritten and how they are audited, I suspect we will continue getting calls and email from those policyholders who are on the receiving end of what we call "shock audits".
Thursday, July 16, 2015
Labor Department Has New Test For Independent Contractors
The U.S. Department of Labor has issued a new test for determining whether a worker is an employee or an independent contractor. The six part test focuses on these criteria:
Is the Work an Integral Part of the Employer’s Business?
Does the Worker’s Managerial Skill Affect the Worker’s Opportunity for Profit or Loss?
How Does the Worker’s Relative Investment Compare to the Employer’s Investment
Does the Work Performed Require Special Skill and Initiative?
Is the Relationship between the Worker and the Employer Permanent or Indefinite?
What is the Nature and Degree of the Employer’s Control?
Is the Work an Integral Part of the Employer’s Business?
Does the Worker’s Managerial Skill Affect the Worker’s Opportunity for Profit or Loss?
How Does the Worker’s Relative Investment Compare to the Employer’s Investment
Does the Work Performed Require Special Skill and Initiative?
Is the Relationship between the Worker and the Employer Permanent or Indefinite?
What is the Nature and Degree of the Employer’s Control?
The entire Department of Labor memo can be found here.
A more detailed examination of this test can also be found at the Insurance Journal.
This issue can have great importance to employers and their Workers Compensation insurance premiums, as often employers think that paying a worker via a 1099 rather than a W-2 basis means they don't have to pay Workers Compensation insurance premiums for that worker. In most states, this is wrong, and can lead to very unpleasant surprises when the audit is done at the conclusion of a policy. In fact, this is one of the common causes of what we call "Shock Audits", where the audit bill is unexpectedly much greater than the employer anticipated.
Of course, not all employers are acting out of ignorance when they try to change workers to independent contractors. A story in the Wall Street Journal on June 30 described how some companies try to reduce costs by trying to turn employees into independent contractors.
For those who can't get through the WSJ paywall, here's an excerpt from the article by Laura Weber:
"Employers have long shifted work from employees to independent contractors, often relabeling the workers and slightly altering the conditions of their work, court documents and settlements indicate. Now, businesses are turning to other kinds of employment relationships, such as setting up workers as franchisees or owners of limited liability companies, which helps to shield businesses from tax and labor statutes.
In response, some state and federal agencies are aggressively clamping down on such arrangements, passing local legislation, filing briefs in workers’ own lawsuits, and closely tracking the spread of what they see as questionable employment models.
All this is happening against the backdrop of a broader shifting of risk from employers to workers, who shoulder an increasing share of responsibility for everything from health-insurance premiums to retirement income to job security. Alleged misclassification of workers has been one of the primary battlegrounds of this shift, leading to high-profile lawsuits against Uber Technologies Inc. and FedEx Corp., among others. Both have recently lost or settled big cases. Uber is appealing one decision, and FedEx settled in California for $228 million but is continuing to challenge classification lawsuits in other states."
Of course, not all employers are acting out of ignorance when they try to change workers to independent contractors. A story in the Wall Street Journal on June 30 described how some companies try to reduce costs by trying to turn employees into independent contractors.
For those who can't get through the WSJ paywall, here's an excerpt from the article by Laura Weber:
"Employers have long shifted work from employees to independent contractors, often relabeling the workers and slightly altering the conditions of their work, court documents and settlements indicate. Now, businesses are turning to other kinds of employment relationships, such as setting up workers as franchisees or owners of limited liability companies, which helps to shield businesses from tax and labor statutes.
In response, some state and federal agencies are aggressively clamping down on such arrangements, passing local legislation, filing briefs in workers’ own lawsuits, and closely tracking the spread of what they see as questionable employment models.
All this is happening against the backdrop of a broader shifting of risk from employers to workers, who shoulder an increasing share of responsibility for everything from health-insurance premiums to retirement income to job security. Alleged misclassification of workers has been one of the primary battlegrounds of this shift, leading to high-profile lawsuits against Uber Technologies Inc. and FedEx Corp., among others. Both have recently lost or settled big cases. Uber is appealing one decision, and FedEx settled in California for $228 million but is continuing to challenge classification lawsuits in other states."
Thursday, July 9, 2015
Competitive Pricing for Workers Compensation Insurance Needs Effective Regulatory Oversight
Recently, a former director of the Illinois Department of Insurance has written that proposed modest regulation of Workers Compensation insurance rates would produce undesirable results for the business community. With all due respect, I think the director is wrong. Here's why.
The theory of price competition is that the marketplace will enable consumers (in this case, employers who have to buy Workers Comp insurance) to see which insurer has the best price, and therefore make a ration decision and in the process exert control over insurance pricing (the more expensive insurers will lose business and be incentivized to reduce rates).
Couple of problems with that. One, the rules that govern computation of Workers Comp insurance premiums are dauntingly complex, and are largely written by the insurance industry itself. So there are ample opportunities for insurance underwriters and agents to "low ball" insurance proposals, making it seem that one insurer's cost is lower when it ultimately will not be.
The other problem is that the ultimate cost of Workers Comp insurance isn't known at the time the buying decision is made. When it starts, the premium is just an estimate. The real cost of the policy won't be known until after the policy ends, usually a year later. That's when the insurer does an audit, and determines what the insurance actually costs. And sometimes those audits can be much, much higher than the original estimate.
That's why effective insurance rate and premium regulation is so important for the business community. Left completely to their own devices, insurance company underwriters and auditors have a natural bias for higher premium charges. Sometimes they're right about that. But sometimes those higher premiums are based on, shall we say, somewhat self-serving interpretations of the rules.
In Illinois, our Department of Insurance has seen an exodus of personnel who were experienced and knowledgeable about Workers Compensation insurance pricing. And there has been a huge reduction in staff at the department over the course of the last decade as well, so the remaining staff are generally overworked and stressed. And the people who knew about Workers Comp premium issues are pretty much all gone, anyway. That's not to say that those who remain cannot help employers with disputes over Workers Comp premiums, but it does mean that the agency is having a harder time providing knowledgeable and effective oversight in this area.
Illinois is far from alone in this regard. In many states, the ability of insurance regulators to provide genuine an effective assistance in disputes over Workers Comp insurance premiums is limited, at best.
Competitive pricing of Workers Comp insurance does likely provide benefits to employers. But without genuinely effective regulatory oversight, those benefits can often be illusory.
The theory of price competition is that the marketplace will enable consumers (in this case, employers who have to buy Workers Comp insurance) to see which insurer has the best price, and therefore make a ration decision and in the process exert control over insurance pricing (the more expensive insurers will lose business and be incentivized to reduce rates).
Couple of problems with that. One, the rules that govern computation of Workers Comp insurance premiums are dauntingly complex, and are largely written by the insurance industry itself. So there are ample opportunities for insurance underwriters and agents to "low ball" insurance proposals, making it seem that one insurer's cost is lower when it ultimately will not be.
The other problem is that the ultimate cost of Workers Comp insurance isn't known at the time the buying decision is made. When it starts, the premium is just an estimate. The real cost of the policy won't be known until after the policy ends, usually a year later. That's when the insurer does an audit, and determines what the insurance actually costs. And sometimes those audits can be much, much higher than the original estimate.
That's why effective insurance rate and premium regulation is so important for the business community. Left completely to their own devices, insurance company underwriters and auditors have a natural bias for higher premium charges. Sometimes they're right about that. But sometimes those higher premiums are based on, shall we say, somewhat self-serving interpretations of the rules.
In Illinois, our Department of Insurance has seen an exodus of personnel who were experienced and knowledgeable about Workers Compensation insurance pricing. And there has been a huge reduction in staff at the department over the course of the last decade as well, so the remaining staff are generally overworked and stressed. And the people who knew about Workers Comp premium issues are pretty much all gone, anyway. That's not to say that those who remain cannot help employers with disputes over Workers Comp premiums, but it does mean that the agency is having a harder time providing knowledgeable and effective oversight in this area.
Illinois is far from alone in this regard. In many states, the ability of insurance regulators to provide genuine an effective assistance in disputes over Workers Comp insurance premiums is limited, at best.
Competitive pricing of Workers Comp insurance does likely provide benefits to employers. But without genuinely effective regulatory oversight, those benefits can often be illusory.
Tuesday, June 30, 2015
New Mexico Farmers Singing Workers Comp Blues
New Mexico recently remove the exemption for ranchers and farmers in the state's Workers Compensation Act. And the cost of Workers Compensation insurance is now proving to be significantly more than some of those agricultural employers had anticipated.
Those in the agricultural business are, perhaps predictably, suggesting that these increase costs spell the end of the agricultural business in New Mexico. Somehow, that seems as if it might be a little exaggerated. Still, as so many other businesses have learned, the cost of insuring against your Workers Compensation liability is non-trivial. But most other kinds of business enterprise have figured out how to handle this cost of doing business, even though it can be painful (or worse).
Those farmers who are only now being introduced to the enervating drain on revenue that Workers Comp coverage can represent should learn from the experiences of other industries who have had to wrestle with this issue for many years: "Trust, but verify". That is, double check those insurance premiums an audits, as errors by the insurers and rating bureaus can be common and costly.
Those in the agricultural business are, perhaps predictably, suggesting that these increase costs spell the end of the agricultural business in New Mexico. Somehow, that seems as if it might be a little exaggerated. Still, as so many other businesses have learned, the cost of insuring against your Workers Compensation liability is non-trivial. But most other kinds of business enterprise have figured out how to handle this cost of doing business, even though it can be painful (or worse).
Those farmers who are only now being introduced to the enervating drain on revenue that Workers Comp coverage can represent should learn from the experiences of other industries who have had to wrestle with this issue for many years: "Trust, but verify". That is, double check those insurance premiums an audits, as errors by the insurers and rating bureaus can be common and costly.
California Tinkering With Experience Mod Formula
California operates under its own set of rules for Workers Compensation insurance, rules that, while having a lot in common with the rules used elsewhere, can also differ significantly in some important details.
California's Workers Comp rating bureau, the WCIRB, has just filed to make some changes in the formula used to compute the experience modification factor used to compute California Workers Compensation insurance premiums. This follows changes made over the past few years by NCCI in their experience mod formula used in most other states.
The WCIRB changes will change the eligibility threshold for experience rating, effective in 2016, so that it is computed using the expected loss rates for insureds rather than pure premium rates. This change is technical enough that it is a little difficult to predict just what real world impact it will have. We're reviewing it at the AIM offices at the moment, and will share the results of that analysis when it is done.
The other change WCIRB is proposing, to be effective in 2017, is to adjust the "split point" used in the mod formula. The split point is the cut off value for determining how much of a claim gets fully counted in the mod calculation an how much, if any, gets discounted as being "excess". WCIRB says they will make the split point "flexibible" base on the size of the employer. Again, it's going to take a little analysis to figure out how much difference this will make in mods, and which employers might find the changes helpful, an which employers might find the changes producing higher mos.
The recent NCCI changes in split point have seen modifiers increasing for a fair number of employers with moderate loss records, while rewarding employers with very low loss records. It seems likely the WCIRB changes will operate in similar fashion, but we are still working on our detailed analysis, as the WCIRB changes are different from those implemented by NCCI.
California's Workers Comp rating bureau, the WCIRB, has just filed to make some changes in the formula used to compute the experience modification factor used to compute California Workers Compensation insurance premiums. This follows changes made over the past few years by NCCI in their experience mod formula used in most other states.
The WCIRB changes will change the eligibility threshold for experience rating, effective in 2016, so that it is computed using the expected loss rates for insureds rather than pure premium rates. This change is technical enough that it is a little difficult to predict just what real world impact it will have. We're reviewing it at the AIM offices at the moment, and will share the results of that analysis when it is done.
The other change WCIRB is proposing, to be effective in 2017, is to adjust the "split point" used in the mod formula. The split point is the cut off value for determining how much of a claim gets fully counted in the mod calculation an how much, if any, gets discounted as being "excess". WCIRB says they will make the split point "flexibible" base on the size of the employer. Again, it's going to take a little analysis to figure out how much difference this will make in mods, and which employers might find the changes helpful, an which employers might find the changes producing higher mos.
The recent NCCI changes in split point have seen modifiers increasing for a fair number of employers with moderate loss records, while rewarding employers with very low loss records. It seems likely the WCIRB changes will operate in similar fashion, but we are still working on our detailed analysis, as the WCIRB changes are different from those implemented by NCCI.
Wednesday, June 3, 2015
Illinois Workers Comp "Reform"--Some Useful Context
Illinois Governor Bruce Rauner is currently advocating for changes to the Illinois Workers Compensation system that he describes as reforms that are needed to keep Illinois business competitive and healthy. His first efforts at this have just been rejected by the Illinois legislature, but he indicates he does not intend to abandon his efforts in this regard. So I've written leaders in the Illinois legislature the following, in an effort, quixotic though it clearly is, to provide some context on this debate, and some ideas I've long advocated for. Be advised, this is a rather lengthy post.
The specific changes recently sought included:
• Restricting the eligibility of workers for benefits under the Workers Compensation Act when they are traveling for work, imposing a requirement that the employer be paying or reimbursing for the travel costs or paying travel expenses and would exclude injuries due to “common risks of travel”. The bill would also exclude injuries occurring on a paid or unpaid break at work when the worker is not performing any specific task for the employer;
• Excluding eligibility for injuries due to “hazard or risk to which the general public is also exposed”;
• Adding the phrase “credible” to the phrase “employee bears the burden of showing, by a preponderance of the credible evidence, that he or she has sustained accidental injuries arising out of and in the course of the employment;
• Adding that the Act does not apply if the “accident resulted from a hazard or risk to which the general public is also exposed”;
• Adding a requirement that the “course of employment has to be a "major contributing cause" of a medical condition or injury, defined as being greater than 50% of all combined other factors;
• Applying that same “greater than 50%” standard to cumulative or repetitive injury like carpal tunnel claims, with the burden of proof on the worker.
The bottom line is that these changes would significantly increase the burden placed upon injured workers to establish that an injury is covered under the Act, and would eliminate eligibility for workers in certain circumstances.
Given that significant Workers Compensation claims are often the subject of fierce legal dispute and that injured workers already sometimes find that some insurers employ strategies to delay and avoid paying some legitimate claims, these changes hold the potential to increase the friction and delay experienced by injured workers when seeking medical and indemnity compensation under the Act.
Worse, it does not appear likely that enacting these changes would actually produce significant savings for most Illinois employers. These changes might be helpful to the very largest employers, who self-insure Workers Compensation exposures, and insurance companies, but produce limited benefit to the vast majority of Illinois businesses.
Consider the proposed “reform” to reduce or eliminate eligibility of traveling workers. The current ability of traveling workers to obtain Workers Compensation benefits is not a significant factor in the current cost of Workers Compensation insurance in Illinois. Illinois workers are already ineligible for Workers Compensation benefits for injuries sustained while traveling to or from work.
The proposed change would restrict eligibility for workers when traveling out of town on behalf of employers. Yet an analysis of insurance rates for those most exposed to this risk indicates a significant decline in claims in recent years for this class of workers.
As evidence of this, consider the manual rates applied to traveling salespeople in Illinois, as calculated by the National Council on Compensation Insurance (“NCCI”), an insurance industry rating organization that serves Workers Compensation insurers.
In 2015, NCCI has calculated the manual rate for Code 8742, which is for outside salespeople, to be $0.44 per hundred dollars of payroll. In 1996, NCCI had calculated this rate at $0.71 per hundred dollars of payroll. So over the past nineteen years, the rate for outside salespeople in Illinois, the workers most exposed to the risks and hazards of business travel, have declined by 38%, according to the insurance industry’s own rating organization. These rates are computed by NCCI based on actual claims reported by Illinois Workers Compensation insurers statewide. The decline in rates for outside salespeople indicates a significant drop in claims and claims costs for these workers. This would not support the contention that a restriction of eligibility for traveling workers is required to reduce costs for employers. Those costs have been dropping considerably even while allowing those injured while traveling to be compensated under the Act.
Indeed, over the past nineteen years, manual rates overall for Workers Compensation insurance in Illinois have declined significantly. My own review of a representative “market basket” of Illinois manual rates for ten kinds of workplace exposures, including clerical work, outside salespeople, manufacturing, contracting, and retail industries, found a 14.3% decline in manual rates from 1996 to 2015.
Although these manual rates had increased for the period from 1996 through 2010, there has been a marked decrease in rates since 2010, reflecting changes that have already been made in the Illinois Workers Compensation system. Indeed, using this same “market basket” of rates and comparing 2010 to 2015, there has been a rate reduction of 19%. So the changes already made in Illinois have been producing significant rate reductions for employers.
Still, Workers Compensation insurance rates in Illinois are higher than those in neighboring states. Partly, this is a reflection of higher average wages, as many Workers Compensation indemnity settlements are based on earnings of the injured worker.
However, there are other aspects of this rate differential that do not appear to be the result of higher average wages. Illinois remains significantly more costly than nationwide averages, and more expensive than neighboring states, in regards to Permanent Partial Indemnity claims.
While this also can be explained, in part, by higher average wages in Illinois, this appears to be only a partial explanation. And according to analysis by NCCI released in mid-2014 (the latest year available) Illinois is significantly more costly in this regard.
The problem is that the proposed changes to the Illinois Workers Compensation Act are not well focused on this aspect of Illinois Workers Compensation claims costs. Imposing arbitrary obstacles on the ability of some legitimately injured workers to obtain Workers Compensation benefits seems unlikely to reduce the systemic incidence and severity of serious claims. It would seem likely to incentivize cost shifting to other insurance and government benefit programs, and also likely to reduce the incentives for employers to operate safely.
To look at it from a different viewpoint, if the biggest difference between Illinois and neighboring states is in the cost of those claims that produce permanent injury to workers, is it truly good public policy to attempt to reduce costs for employers by denying medical care and indemnity to workers who have suffered permanent injury?
I would argue that a better approach would be to develop programs to incentivize workplace safety and training to reduce these costs. Just this week, NCCI announced the results of a study that indicated that delays in reporting claims increased claims costs up to 51%. A statewide program to educate employers about prompt reporting of injuries could do far more to reduce Permanent Partial Indemnity costs than the proposed restrictions on eligibility.
The other important context for these proposed changes is the fact that, for most Illinois employers, what matters most is the cost of Workers Compensation insurance, as all but the largest employers handle their Workers Compensation obligations by purchasing insurance to cover those obligations.
As evidenced by the manual rates computed by NCCI, Illinois has already achieved significant reductions in claims costs. But many employers have not seen Workers Compensation insurance premiums decline commensurately, because the insurance industry in Illinois has been effectively deregulated.
So even as the manual rates for insurance have declined significantly in recent years, many employers have seen Workers Compensation insurance costs rise, due to actions by the insurance industry.
The insurance industry, over the course of the past four years, has implemented a major change in the formula used to adjust current Workers Compensation insurance premiums based on past reported losses. These changes in what is known as the Experience Modification Factor have significantly increased Workers Compensation insurance costs for many Illinois employers, more than offsetting the manual rate reductions that have occurred.
Additionally, in Illinois, many smaller employers are insured through the Assigned Risk Plan, which imposes much higher insurance costs. For the period 2010 through 2013, as reported by NCCI (which administers the Illinois Assigned Risk Plan on behalf of member insurance companies) the number of policies written in the Assigned Risk Plan increased by 22.3%, even as overall premium volume of the Illinois Assigned Risk Plan more than doubled, from $56,500,000 in 2010 to $118,500,000 in 2013.
For smaller employers in Illinois, increases in the cost of Workers Compensation insurance have been the financial burden, not excessive claims or benefits paid to workers.
It isn’t just manual rates that are higher in the Assigned Risk Plan—although they are. The “market basket” of manual rates I used in my earlier analysis show that the 2015 Assigned Risk Plan rates calculated by NCCI to be 50% higher than the average rate for the same classifications in the Voluntary Market.
And the Assigned Risk price differentials don’t stop with manual rates. Assigned Risk policies get no Premium Discount, which is a size discount automatically applied to Non-Assigned Risk policies. And Assigned Risk policies are subject to an additional surcharge called ARAP—a surcharge for assigned risk policyholders if their Experience Modification Factor goes above 1.00 (which, thanks to the changes in the experience rating formula, is more likely for many employers). Finally, Assigned Risk policies are not eligible for significant discretionary credits that employers in the Voluntary Market often obtain.
It is routine for the insurance costs of employers in the Illinois Assigned Risk Plan to be double those that would be available in the Voluntary Market.
It should be noted that the Assigned Risk Plan historically has operated at a deficit—that is, claims costs have exceeded even the increased premiums charged. But there are many smaller employers in Illinois with minimal or no claims, but who nonetheless have to pay the greatly increased insurance costs associated with the Assigned Risk Plan. Currently, the Illinois Assigned Risk Plan has no mechanism to provide premium reductions to smaller employers with good loss records, as the experience rating plan does not apply to employers below a certain premium size.
Adjusting the Illinois Assigned Risk Plan to provide relief to smaller employers with low claims could provide dramatic benefits to many Illinois businesses, without reducing benefits to injured workers.
Changes in the Illinois Workers Compensation system in recent years have reduced benefits paid to workers, and limited payments to medical providers, with the resulting manual rate reductions cited earlier. But no similar limitations have been placed on insurers.
Indeed, Workers Compensation insurance regulation has been effectively removed by large reductions in staff at the Illinois Department of Insurance, and by the adoption of a laissez-faire rate regulation process that allows the insurance industry to file and use rates and rating plans without any significant oversight or limitation.
While it may well not be advisable or advantageous to return to the strict rate regulation that once was the norm in the Workers Compensation insurance field, allowing the insurance industry to operate without
effective independent oversight or limitation, in the realm of Workers Compensation insurance, does seem inconsistent with the limitations that have been imposed on workers and on medical providers, which have been done in the interests of containing Workers Compensation costs for businesses in Illinois.
If it is good public policy to impose arbitrary limitations on the ability of injured workers to obtain benefits under the Workers Compensation Act, and to impose arbitrary cost controls on the medical providers who actually treat injured workers, it is difficult to understand why reasonable and independent oversight of Workers Compensation insurance rates and premiums is not also good public policy. Reinstating such oversight could well reduce or obviate the need for imposing further limitations on workers and medical providers.
Historically, the insurance industry has been among those advocating that workers and medical providers make sacrifices for the good of the economic climate in Illinois. It would seem equitable that the insurance industry also make some changes that would improve our business environment.
In summary, the recently proposed changes to the Illinois Workers Compensation Act do not appear to actually address the fundamental issues that burden many Illinois employers in regards the cost of meeting their Workers Compensation obligations. Recent changes in benefits and medical fees have
already produced significant cost reductions, reductions that have not been consistently passed along to all Illinois employers by the insurance industry. Before further reductions in benefits and medical fees are seriously considered, adjustments to the Workers Compensation insurance system in Illinois would seem to offer opportunities to provide relief to employers that would not harm injured workers or those who care for them.
I’ve worked with Workers Compensation in Illinois since 1978. I’ve been an insurance broker, consultant, author, and expert witness on Workers Compensation insurance and have served on a task force organized by the Illinois Department of Insurance to help implement Workers Compensation insurance regulations. I’ve helped countless Illinois employers reduce their Workers Compensation insurance premium charges by finding and correcting errors made by insurance companies in computing premiums.
I’ve also consulted with major insurance companies regarding Workers Compensation insurance, including such companies as Zurich American, Great American, Zenith Insurance, FCCI Insurance, Liberty Mutual, Lloyds of London, and others. I’ve also consulted with insurance agents and brokers on Workers Compensation insurance for their policyholders, and I’ve served as an expert witness on these matters in civil and criminal courts across the U.S.
All of that experience and training leads me to believe that these proposed changes to the Illinois Workers Compensation Act would likely produce very limited benefit to employers, while causing significant harm to some workers just when they most need assistance. There are other, more equitable and focused approaches, in my opinion, that would better serve the workers and employers of our state.
The specific changes recently sought included:
• Restricting the eligibility of workers for benefits under the Workers Compensation Act when they are traveling for work, imposing a requirement that the employer be paying or reimbursing for the travel costs or paying travel expenses and would exclude injuries due to “common risks of travel”. The bill would also exclude injuries occurring on a paid or unpaid break at work when the worker is not performing any specific task for the employer;
• Excluding eligibility for injuries due to “hazard or risk to which the general public is also exposed”;
• Adding the phrase “credible” to the phrase “employee bears the burden of showing, by a preponderance of the credible evidence, that he or she has sustained accidental injuries arising out of and in the course of the employment;
• Adding that the Act does not apply if the “accident resulted from a hazard or risk to which the general public is also exposed”;
• Adding a requirement that the “course of employment has to be a "major contributing cause" of a medical condition or injury, defined as being greater than 50% of all combined other factors;
• Applying that same “greater than 50%” standard to cumulative or repetitive injury like carpal tunnel claims, with the burden of proof on the worker.
The bottom line is that these changes would significantly increase the burden placed upon injured workers to establish that an injury is covered under the Act, and would eliminate eligibility for workers in certain circumstances.
Given that significant Workers Compensation claims are often the subject of fierce legal dispute and that injured workers already sometimes find that some insurers employ strategies to delay and avoid paying some legitimate claims, these changes hold the potential to increase the friction and delay experienced by injured workers when seeking medical and indemnity compensation under the Act.
Worse, it does not appear likely that enacting these changes would actually produce significant savings for most Illinois employers. These changes might be helpful to the very largest employers, who self-insure Workers Compensation exposures, and insurance companies, but produce limited benefit to the vast majority of Illinois businesses.
Consider the proposed “reform” to reduce or eliminate eligibility of traveling workers. The current ability of traveling workers to obtain Workers Compensation benefits is not a significant factor in the current cost of Workers Compensation insurance in Illinois. Illinois workers are already ineligible for Workers Compensation benefits for injuries sustained while traveling to or from work.
The proposed change would restrict eligibility for workers when traveling out of town on behalf of employers. Yet an analysis of insurance rates for those most exposed to this risk indicates a significant decline in claims in recent years for this class of workers.
As evidence of this, consider the manual rates applied to traveling salespeople in Illinois, as calculated by the National Council on Compensation Insurance (“NCCI”), an insurance industry rating organization that serves Workers Compensation insurers.
In 2015, NCCI has calculated the manual rate for Code 8742, which is for outside salespeople, to be $0.44 per hundred dollars of payroll. In 1996, NCCI had calculated this rate at $0.71 per hundred dollars of payroll. So over the past nineteen years, the rate for outside salespeople in Illinois, the workers most exposed to the risks and hazards of business travel, have declined by 38%, according to the insurance industry’s own rating organization. These rates are computed by NCCI based on actual claims reported by Illinois Workers Compensation insurers statewide. The decline in rates for outside salespeople indicates a significant drop in claims and claims costs for these workers. This would not support the contention that a restriction of eligibility for traveling workers is required to reduce costs for employers. Those costs have been dropping considerably even while allowing those injured while traveling to be compensated under the Act.
Indeed, over the past nineteen years, manual rates overall for Workers Compensation insurance in Illinois have declined significantly. My own review of a representative “market basket” of Illinois manual rates for ten kinds of workplace exposures, including clerical work, outside salespeople, manufacturing, contracting, and retail industries, found a 14.3% decline in manual rates from 1996 to 2015.
Although these manual rates had increased for the period from 1996 through 2010, there has been a marked decrease in rates since 2010, reflecting changes that have already been made in the Illinois Workers Compensation system. Indeed, using this same “market basket” of rates and comparing 2010 to 2015, there has been a rate reduction of 19%. So the changes already made in Illinois have been producing significant rate reductions for employers.
Still, Workers Compensation insurance rates in Illinois are higher than those in neighboring states. Partly, this is a reflection of higher average wages, as many Workers Compensation indemnity settlements are based on earnings of the injured worker.
However, there are other aspects of this rate differential that do not appear to be the result of higher average wages. Illinois remains significantly more costly than nationwide averages, and more expensive than neighboring states, in regards to Permanent Partial Indemnity claims.
While this also can be explained, in part, by higher average wages in Illinois, this appears to be only a partial explanation. And according to analysis by NCCI released in mid-2014 (the latest year available) Illinois is significantly more costly in this regard.
The problem is that the proposed changes to the Illinois Workers Compensation Act are not well focused on this aspect of Illinois Workers Compensation claims costs. Imposing arbitrary obstacles on the ability of some legitimately injured workers to obtain Workers Compensation benefits seems unlikely to reduce the systemic incidence and severity of serious claims. It would seem likely to incentivize cost shifting to other insurance and government benefit programs, and also likely to reduce the incentives for employers to operate safely.
To look at it from a different viewpoint, if the biggest difference between Illinois and neighboring states is in the cost of those claims that produce permanent injury to workers, is it truly good public policy to attempt to reduce costs for employers by denying medical care and indemnity to workers who have suffered permanent injury?
I would argue that a better approach would be to develop programs to incentivize workplace safety and training to reduce these costs. Just this week, NCCI announced the results of a study that indicated that delays in reporting claims increased claims costs up to 51%. A statewide program to educate employers about prompt reporting of injuries could do far more to reduce Permanent Partial Indemnity costs than the proposed restrictions on eligibility.
The other important context for these proposed changes is the fact that, for most Illinois employers, what matters most is the cost of Workers Compensation insurance, as all but the largest employers handle their Workers Compensation obligations by purchasing insurance to cover those obligations.
As evidenced by the manual rates computed by NCCI, Illinois has already achieved significant reductions in claims costs. But many employers have not seen Workers Compensation insurance premiums decline commensurately, because the insurance industry in Illinois has been effectively deregulated.
So even as the manual rates for insurance have declined significantly in recent years, many employers have seen Workers Compensation insurance costs rise, due to actions by the insurance industry.
The insurance industry, over the course of the past four years, has implemented a major change in the formula used to adjust current Workers Compensation insurance premiums based on past reported losses. These changes in what is known as the Experience Modification Factor have significantly increased Workers Compensation insurance costs for many Illinois employers, more than offsetting the manual rate reductions that have occurred.
Additionally, in Illinois, many smaller employers are insured through the Assigned Risk Plan, which imposes much higher insurance costs. For the period 2010 through 2013, as reported by NCCI (which administers the Illinois Assigned Risk Plan on behalf of member insurance companies) the number of policies written in the Assigned Risk Plan increased by 22.3%, even as overall premium volume of the Illinois Assigned Risk Plan more than doubled, from $56,500,000 in 2010 to $118,500,000 in 2013.
For smaller employers in Illinois, increases in the cost of Workers Compensation insurance have been the financial burden, not excessive claims or benefits paid to workers.
It isn’t just manual rates that are higher in the Assigned Risk Plan—although they are. The “market basket” of manual rates I used in my earlier analysis show that the 2015 Assigned Risk Plan rates calculated by NCCI to be 50% higher than the average rate for the same classifications in the Voluntary Market.
And the Assigned Risk price differentials don’t stop with manual rates. Assigned Risk policies get no Premium Discount, which is a size discount automatically applied to Non-Assigned Risk policies. And Assigned Risk policies are subject to an additional surcharge called ARAP—a surcharge for assigned risk policyholders if their Experience Modification Factor goes above 1.00 (which, thanks to the changes in the experience rating formula, is more likely for many employers). Finally, Assigned Risk policies are not eligible for significant discretionary credits that employers in the Voluntary Market often obtain.
It is routine for the insurance costs of employers in the Illinois Assigned Risk Plan to be double those that would be available in the Voluntary Market.
It should be noted that the Assigned Risk Plan historically has operated at a deficit—that is, claims costs have exceeded even the increased premiums charged. But there are many smaller employers in Illinois with minimal or no claims, but who nonetheless have to pay the greatly increased insurance costs associated with the Assigned Risk Plan. Currently, the Illinois Assigned Risk Plan has no mechanism to provide premium reductions to smaller employers with good loss records, as the experience rating plan does not apply to employers below a certain premium size.
Adjusting the Illinois Assigned Risk Plan to provide relief to smaller employers with low claims could provide dramatic benefits to many Illinois businesses, without reducing benefits to injured workers.
Changes in the Illinois Workers Compensation system in recent years have reduced benefits paid to workers, and limited payments to medical providers, with the resulting manual rate reductions cited earlier. But no similar limitations have been placed on insurers.
Indeed, Workers Compensation insurance regulation has been effectively removed by large reductions in staff at the Illinois Department of Insurance, and by the adoption of a laissez-faire rate regulation process that allows the insurance industry to file and use rates and rating plans without any significant oversight or limitation.
While it may well not be advisable or advantageous to return to the strict rate regulation that once was the norm in the Workers Compensation insurance field, allowing the insurance industry to operate without
effective independent oversight or limitation, in the realm of Workers Compensation insurance, does seem inconsistent with the limitations that have been imposed on workers and on medical providers, which have been done in the interests of containing Workers Compensation costs for businesses in Illinois.
If it is good public policy to impose arbitrary limitations on the ability of injured workers to obtain benefits under the Workers Compensation Act, and to impose arbitrary cost controls on the medical providers who actually treat injured workers, it is difficult to understand why reasonable and independent oversight of Workers Compensation insurance rates and premiums is not also good public policy. Reinstating such oversight could well reduce or obviate the need for imposing further limitations on workers and medical providers.
Historically, the insurance industry has been among those advocating that workers and medical providers make sacrifices for the good of the economic climate in Illinois. It would seem equitable that the insurance industry also make some changes that would improve our business environment.
In summary, the recently proposed changes to the Illinois Workers Compensation Act do not appear to actually address the fundamental issues that burden many Illinois employers in regards the cost of meeting their Workers Compensation obligations. Recent changes in benefits and medical fees have
already produced significant cost reductions, reductions that have not been consistently passed along to all Illinois employers by the insurance industry. Before further reductions in benefits and medical fees are seriously considered, adjustments to the Workers Compensation insurance system in Illinois would seem to offer opportunities to provide relief to employers that would not harm injured workers or those who care for them.
I’ve worked with Workers Compensation in Illinois since 1978. I’ve been an insurance broker, consultant, author, and expert witness on Workers Compensation insurance and have served on a task force organized by the Illinois Department of Insurance to help implement Workers Compensation insurance regulations. I’ve helped countless Illinois employers reduce their Workers Compensation insurance premium charges by finding and correcting errors made by insurance companies in computing premiums.
I’ve also consulted with major insurance companies regarding Workers Compensation insurance, including such companies as Zurich American, Great American, Zenith Insurance, FCCI Insurance, Liberty Mutual, Lloyds of London, and others. I’ve also consulted with insurance agents and brokers on Workers Compensation insurance for their policyholders, and I’ve served as an expert witness on these matters in civil and criminal courts across the U.S.
All of that experience and training leads me to believe that these proposed changes to the Illinois Workers Compensation Act would likely produce very limited benefit to employers, while causing significant harm to some workers just when they most need assistance. There are other, more equitable and focused approaches, in my opinion, that would better serve the workers and employers of our state.
Friday, May 22, 2015
Lumberman's Underwriting Alliance: WTF?
There are a lot of news stories recently about a small Workers Compensation insurer, Lumberman's Underwriting Alliance, being put into "rehabilitation" by a Missouri judge, putting the Missouri Department of Insurance in charge of figuring out if the company needs to be liquidated or if it can be saved. The news stories explain that Lumberman's was a specialty insurer of companies in the forestry industries, with only about 3,000 policyholders.
These news reports then go on to explain that Lumberman's was brought down when a large PEO insured, TS Employment, failed to properly fund collateral obligations, went into bankruptcy, and left Lumberman's holding the bag for a lot of Workers Comp claims.
The news stories also note that TS Employment served another "defunct staffing company" named Corporate Resource Services. A lot of people outside the insurance industry might be forgiven if the phrase "WTF?" formed in their minds when reading these news stories, but in truth this illustrates some disturbing developments in the field of Workers Compensation that regulators do not seem to have addressed very well.
How exactly did it come to pass that the Missouri Department of Insurance will now take control over a small insurance company with a home office in Boca Raton, Florida that was imploded by insuring a PEO based out of New York? A PEO, by the way, that covered yet another staffing company. And the news reports indicate that most of the 6,000 open claims for Lumberman's Underwriting Alliance are from California. This would seem to give new meaning to the saying about a tangled web.
And this insurer, that historically specialized in underwriting those in the forestry industry, instead underwrote a large deductible policy for an employee leasing company in New York that apparently covered a lot of California businesses. This may be because the PEO, TS Employment, covered another staffing company, this Corporate Resource Services. No wonder things blew up, this arrangement was more complicated than anything Rube Goldberg ever designed.
And yet, all of this is, sad to say, not all that unique in our modern insurance industry. Large Deductible Workers Comp policies, where the policyholder is supposed to reimburse the insurer for all claims under the deductible limit, can produce these kinds of megawatt clusterfucks when wishful thinking and avarice outweigh sound underwriting.
Mind you, I have no idea what actually happened behind the scenes at this particular megawatt clusterfuck--but one can tell, just from the scant details in the press, the general outlines of how this mess may have happened.
The combination of an employee leasing company, which provides Workers Compensation coverage for hundreds of different client companies, with a Large Deductible policy that leaves the insurer responsible for paying claims even if the policyholder defaults on the required reimbursements, can leave an insurance company holding a very large and expensive bag at the end of the day.
Why exactly would an insurance company that specialized in the forestry industry even want to underwrite a large employee leasing company--an employee leasing company that contracted to extend WC coverage to a different staffing company, for heaven's sake--is beyond me.
But I am sure an explanation will eventually be uncovered, as regulators belatedly sift through the rubble.
Here's a question someone might want to ask: why the hell was this ever allowed in the first place?
The answers, at least as this writer sees them, would be:
the insurance industry has succeeded in largely getting itself pretty much effectively unregulated by getting state insurers to first buy into the idea that a largely unregulated marketplace would foster price competition for policyholders, and then by getting state insurance regulators starved for staff and budgets. So there is no one really looking over their shoulders as they chase cash flow and throw old fashioned underwriting caution to the wind.
Then you get the combination of PEOs, which are largely unregulated, and Large Deductible Workers Comp, which seduces some insurers with thoughts of making these large accounts essentially "cost-plus" contracts, where claims costs are just a pass through to the policyholder, along with claims adjusting fees and other charges. No more worries about underwriting losses, because the claims are the responsibility of the policyholder.
Except when they're not, as in this case.
Employee leasing can provide valuable services to employers, with cost savings from economies of scale, when done right. But nobody really oversees these PEO operations, so you can get a fair number of companies that seem like financial miracles for a while, but which are actually ticking weapons of mass financial destruction. And it's difficult to tell the difference between a well-run PEO and one that is running on borrowed time.
This is hardly the first insurance company to run aground by insuring the staffing industry--and it is far from the largest--but it should serve as a warning sign to just how crazy things can get in an industry that is supposed to be cautiously conservative, an industry that the public relies upon to maintain a reliable Workers Compensation insurance system.
If things could go this wrong at Lumberman's, what might be going on at other, larger insurers, where the impact of these kinds of bad decisions might be disguised for much longer?
These news reports then go on to explain that Lumberman's was brought down when a large PEO insured, TS Employment, failed to properly fund collateral obligations, went into bankruptcy, and left Lumberman's holding the bag for a lot of Workers Comp claims.
The news stories also note that TS Employment served another "defunct staffing company" named Corporate Resource Services. A lot of people outside the insurance industry might be forgiven if the phrase "WTF?" formed in their minds when reading these news stories, but in truth this illustrates some disturbing developments in the field of Workers Compensation that regulators do not seem to have addressed very well.
How exactly did it come to pass that the Missouri Department of Insurance will now take control over a small insurance company with a home office in Boca Raton, Florida that was imploded by insuring a PEO based out of New York? A PEO, by the way, that covered yet another staffing company. And the news reports indicate that most of the 6,000 open claims for Lumberman's Underwriting Alliance are from California. This would seem to give new meaning to the saying about a tangled web.
And this insurer, that historically specialized in underwriting those in the forestry industry, instead underwrote a large deductible policy for an employee leasing company in New York that apparently covered a lot of California businesses. This may be because the PEO, TS Employment, covered another staffing company, this Corporate Resource Services. No wonder things blew up, this arrangement was more complicated than anything Rube Goldberg ever designed.
And yet, all of this is, sad to say, not all that unique in our modern insurance industry. Large Deductible Workers Comp policies, where the policyholder is supposed to reimburse the insurer for all claims under the deductible limit, can produce these kinds of megawatt clusterfucks when wishful thinking and avarice outweigh sound underwriting.
Mind you, I have no idea what actually happened behind the scenes at this particular megawatt clusterfuck--but one can tell, just from the scant details in the press, the general outlines of how this mess may have happened.
The combination of an employee leasing company, which provides Workers Compensation coverage for hundreds of different client companies, with a Large Deductible policy that leaves the insurer responsible for paying claims even if the policyholder defaults on the required reimbursements, can leave an insurance company holding a very large and expensive bag at the end of the day.
Why exactly would an insurance company that specialized in the forestry industry even want to underwrite a large employee leasing company--an employee leasing company that contracted to extend WC coverage to a different staffing company, for heaven's sake--is beyond me.
But I am sure an explanation will eventually be uncovered, as regulators belatedly sift through the rubble.
Here's a question someone might want to ask: why the hell was this ever allowed in the first place?
The answers, at least as this writer sees them, would be:
the insurance industry has succeeded in largely getting itself pretty much effectively unregulated by getting state insurers to first buy into the idea that a largely unregulated marketplace would foster price competition for policyholders, and then by getting state insurance regulators starved for staff and budgets. So there is no one really looking over their shoulders as they chase cash flow and throw old fashioned underwriting caution to the wind.
Then you get the combination of PEOs, which are largely unregulated, and Large Deductible Workers Comp, which seduces some insurers with thoughts of making these large accounts essentially "cost-plus" contracts, where claims costs are just a pass through to the policyholder, along with claims adjusting fees and other charges. No more worries about underwriting losses, because the claims are the responsibility of the policyholder.
Except when they're not, as in this case.
Employee leasing can provide valuable services to employers, with cost savings from economies of scale, when done right. But nobody really oversees these PEO operations, so you can get a fair number of companies that seem like financial miracles for a while, but which are actually ticking weapons of mass financial destruction. And it's difficult to tell the difference between a well-run PEO and one that is running on borrowed time.
This is hardly the first insurance company to run aground by insuring the staffing industry--and it is far from the largest--but it should serve as a warning sign to just how crazy things can get in an industry that is supposed to be cautiously conservative, an industry that the public relies upon to maintain a reliable Workers Compensation insurance system.
If things could go this wrong at Lumberman's, what might be going on at other, larger insurers, where the impact of these kinds of bad decisions might be disguised for much longer?
Wednesday, May 6, 2015
Here We Go Again
So, our new Illinois governor wants to make further "reforms" in Workers Compensation in the Land of Lincoln. Alas, his approach appears to be pretty much confined to making injured workers get less when they are hurt. It's an approach that has been tried before, as in, the last time (four years ago) when Illinois enacted Workers Compensation "reform".
This time, Governor Rauner wants to change things so that workers are not eligible for Workers Comp if injured while traveling to and from work. Ummm, governor, I don't actually think that is a major cause of current Illinois Workers Comp costs. Because right now, workers are not eligible for Workers Comp in Illinois if injured driving to or from work. Workers now are only covered by the act when driving to or from a client, as part of their work duties.
So what are the more serious proposals our governor is advocating? You know, the ones that aren't actually already in place?
Rauner wants to put the burden of proof onto workers that their injury stems from work, and that workplace exposure was the main cause of the injury. Now, mind you, a lot of injured workers already say that insurance companies screw them over, taking their sweet time paying medical bills and for lost wages. So just imagine how really hellish life will be for injured workers once the insurance companies can really dick them around (sorry, didn't mean to use a technical insurance term, but sometimes it must be done) and tell them that the worker has to prove that the back injury that's crippling them was caused mainly from work and not from, say, mowing the lawn or picking up their grandkids or that fall down the steps fifteen years ago. No potential for abuse there, governor.
Rauner also wants to cut back some more on what doctors and hospitals are paid. Which was already done four years ago, and didn't produce the rate-reduction nirvana proponents predicted.
That brings up an interesting point, one that Rauner doesn't talk about. For most employers, the cost of Workers Comp isn't really driven directly by the cost of claims---it's driven by the cost of insurance.
That's because most employers, save all but the largest, have to buy insurance for their Workers Comp liabilities. And we've rather completely de-regulated the cost of Workers Compensation insurance over the last twenty five years, and completely wrecked the ability of the Department of Insurance to enforce what rate protections are still in place.
I have pointed out to the Illinois legislature how some simple steps could serve to reduce Workers Compensation insurance costs for many Illinois employers. Once those ideas were presented, all that could be heard was the sound of crickets, and then the legislators returned to their script.
That noise you hear in the background? It's the sound made while grinding political axes. You have to listen hard, though, because it's hard to hear over the sound of groaning business people who have to pay their latest Workers Comp insurance bill, and the moans of injured workers who are trying to get those insurance companies to pay claims on a timely basis--if their injuries are even reported.
I know someone, a construction worker, who failed to report a serious hernia injury from his work out of fear his small employer would not take it well. He ended up using his regular health coverage instead, with deductibles and co-pays. It shouldn't be that way, but for people who have to work for a living, that is reality sometimes.
People who work for a living, and small businesses who have to scramble to pay sometimes outrageous Workers Comp insurance bills--those don't seem to be the kinds of folks Governor Rauner is very worried about. When you've made your fortune as a cutthroat financier, the worst you have to worry about is paper cuts. And the Workers Comp rates for financial services and office work are still very, very low. So I don't think he and his advisers have much in the way of a real appreciation for the realities that a lot of folks in Illinois face on a regular basis.
Realities like my client who saw his Workers Comp insurer write him a policy with an initial premium of $2,500.00, only to have the insurer later bill him for $3,000,000.00 (and file suit against him to try and get it.)
Or my client, the folks who operated a petting zoo, whose insurance company sought to re-classify them as a rodeo (with a resulting huge increase in premiums). Or all the construction companies facing being locked out of bidding on new projects because the insurance industry changed the formula for calculating experience modifiers, and suddenly their mods have jumped over 1.00 without there being any real change in their loss history.
Those weren't problems caused by workers with exaggerated claims, or doctors gouging the system--they were problems caused by an unregulated insurance industry.
This time, Governor Rauner wants to change things so that workers are not eligible for Workers Comp if injured while traveling to and from work. Ummm, governor, I don't actually think that is a major cause of current Illinois Workers Comp costs. Because right now, workers are not eligible for Workers Comp in Illinois if injured driving to or from work. Workers now are only covered by the act when driving to or from a client, as part of their work duties.
So what are the more serious proposals our governor is advocating? You know, the ones that aren't actually already in place?
Rauner wants to put the burden of proof onto workers that their injury stems from work, and that workplace exposure was the main cause of the injury. Now, mind you, a lot of injured workers already say that insurance companies screw them over, taking their sweet time paying medical bills and for lost wages. So just imagine how really hellish life will be for injured workers once the insurance companies can really dick them around (sorry, didn't mean to use a technical insurance term, but sometimes it must be done) and tell them that the worker has to prove that the back injury that's crippling them was caused mainly from work and not from, say, mowing the lawn or picking up their grandkids or that fall down the steps fifteen years ago. No potential for abuse there, governor.
Rauner also wants to cut back some more on what doctors and hospitals are paid. Which was already done four years ago, and didn't produce the rate-reduction nirvana proponents predicted.
That brings up an interesting point, one that Rauner doesn't talk about. For most employers, the cost of Workers Comp isn't really driven directly by the cost of claims---it's driven by the cost of insurance.
That's because most employers, save all but the largest, have to buy insurance for their Workers Comp liabilities. And we've rather completely de-regulated the cost of Workers Compensation insurance over the last twenty five years, and completely wrecked the ability of the Department of Insurance to enforce what rate protections are still in place.
I have pointed out to the Illinois legislature how some simple steps could serve to reduce Workers Compensation insurance costs for many Illinois employers. Once those ideas were presented, all that could be heard was the sound of crickets, and then the legislators returned to their script.
That noise you hear in the background? It's the sound made while grinding political axes. You have to listen hard, though, because it's hard to hear over the sound of groaning business people who have to pay their latest Workers Comp insurance bill, and the moans of injured workers who are trying to get those insurance companies to pay claims on a timely basis--if their injuries are even reported.
I know someone, a construction worker, who failed to report a serious hernia injury from his work out of fear his small employer would not take it well. He ended up using his regular health coverage instead, with deductibles and co-pays. It shouldn't be that way, but for people who have to work for a living, that is reality sometimes.
People who work for a living, and small businesses who have to scramble to pay sometimes outrageous Workers Comp insurance bills--those don't seem to be the kinds of folks Governor Rauner is very worried about. When you've made your fortune as a cutthroat financier, the worst you have to worry about is paper cuts. And the Workers Comp rates for financial services and office work are still very, very low. So I don't think he and his advisers have much in the way of a real appreciation for the realities that a lot of folks in Illinois face on a regular basis.
Realities like my client who saw his Workers Comp insurer write him a policy with an initial premium of $2,500.00, only to have the insurer later bill him for $3,000,000.00 (and file suit against him to try and get it.)
Or my client, the folks who operated a petting zoo, whose insurance company sought to re-classify them as a rodeo (with a resulting huge increase in premiums). Or all the construction companies facing being locked out of bidding on new projects because the insurance industry changed the formula for calculating experience modifiers, and suddenly their mods have jumped over 1.00 without there being any real change in their loss history.
Those weren't problems caused by workers with exaggerated claims, or doctors gouging the system--they were problems caused by an unregulated insurance industry.
Monday, April 20, 2015
NCCI and the Tennessee Assigned Risk Plan
Tennessee has announced that, effective July 1, 2015, NCCI (the National Council on Compensation Insurance) will take over as plan administrator for the Assigned Risk Plan for Tennessee. The Assigned Risk plan acts as the Workers Compensation insurance market of last resort, making sure that employers can get coverage even if the voluntary insurance market doesn't want to underwrite them.
Up until now, the Tennessee Assigned Risk Plan had been administered by the Tennessee Workers Compensation Insurance Plan, administered by the Tennessee Department of Commerce and Insurance. There were some unique features of this Tennessee Assigned Risk Plan that will likely be lost when NCCI takes over. The biggest change I can see at the moment is that the Tennessee WCIP gave Premium Discount to policyholders, and NCCI Assigned Risk Plan rules do not. So Tennessee employers in the Assigned Risk Plan will see some cost increases just from this change.
A bigger difference is likely to come via manual rates. Historically, there was not a significant manual rate differential between Voluntary Market and the Assigned Risk Plan in Tennessee. This will likely change under NCCI auspices, as in other Assigned Risk Plans administered by NCCI there is a substantial manual rate difference between voluntary market and Assigned Risk policies.
I'm not sure what the background of this story is, why Tennessee has decided to make this change, but I think one thing is predictable: smaller employers in Tennessee will likely see a quantum leap in Workers Comp insurance costs, as the Assigned Risk population typically contains a lot of smaller employers. Get ready for some serious sticker shock in Tennessee, once those new policies start rolling in.
Up until now, the Tennessee Assigned Risk Plan had been administered by the Tennessee Workers Compensation Insurance Plan, administered by the Tennessee Department of Commerce and Insurance. There were some unique features of this Tennessee Assigned Risk Plan that will likely be lost when NCCI takes over. The biggest change I can see at the moment is that the Tennessee WCIP gave Premium Discount to policyholders, and NCCI Assigned Risk Plan rules do not. So Tennessee employers in the Assigned Risk Plan will see some cost increases just from this change.
A bigger difference is likely to come via manual rates. Historically, there was not a significant manual rate differential between Voluntary Market and the Assigned Risk Plan in Tennessee. This will likely change under NCCI auspices, as in other Assigned Risk Plans administered by NCCI there is a substantial manual rate difference between voluntary market and Assigned Risk policies.
I'm not sure what the background of this story is, why Tennessee has decided to make this change, but I think one thing is predictable: smaller employers in Tennessee will likely see a quantum leap in Workers Comp insurance costs, as the Assigned Risk population typically contains a lot of smaller employers. Get ready for some serious sticker shock in Tennessee, once those new policies start rolling in.
Saturday, March 21, 2015
Canary In The Insurance Industry Coalmine
For years now, a lot of states' insurance regulatory agencies have been withering and dwindling, as experienced people flee or retire, never to be replaced. The seductive philosophy of deregulation has been increasingly embraced and implemented in most states, and it has taken a while for the excesses of such policies to become apparent. Here's a news story that details the predictable consequences of such policies--you get charismatic financial b.s. artists gaining control of insurance companies, via complicated and deceptive financial shenanigans, and then plundering the assets of said insurance companies, all while the overworked regulators are looking the other way.
Dallas National was a bit of a questionable operation, from everything this writer could observe, even before the nouveau riche whiz kid took control. But once he got it, hoo boy, did he have fun with the assets. It was a great party, while it lasted, hosting campaign fundraisers for Nikki Haley and using a quite-possibly-fake Caravaggio as an asset while he lived the good life. And nobody bothered to check the fabricated items on his resume, not until after the wheels started to come off and the whiz kid checked himself into Bellevue with a nervous breakdown.
Now, they're trying to figure out "where the money went" and all the politicians and idiot enablers and hangers-on are running for cover. But before it was discovered that this emperor had no clothes, he managed to get four former insurance commissioners on his board, along with Bill Richardson, for crying out loud. Smoke and mirrors sure can pay well, for a while. And then it all ends in tears, as they say, and the rest of us are left to deal with the aftermath and the bills for all those expensive cigars and wine.
Dallas National was a bit of a questionable operation, from everything this writer could observe, even before the nouveau riche whiz kid took control. But once he got it, hoo boy, did he have fun with the assets. It was a great party, while it lasted, hosting campaign fundraisers for Nikki Haley and using a quite-possibly-fake Caravaggio as an asset while he lived the good life. And nobody bothered to check the fabricated items on his resume, not until after the wheels started to come off and the whiz kid checked himself into Bellevue with a nervous breakdown.
Now, they're trying to figure out "where the money went" and all the politicians and idiot enablers and hangers-on are running for cover. But before it was discovered that this emperor had no clothes, he managed to get four former insurance commissioners on his board, along with Bill Richardson, for crying out loud. Smoke and mirrors sure can pay well, for a while. And then it all ends in tears, as they say, and the rest of us are left to deal with the aftermath and the bills for all those expensive cigars and wine.
Thursday, March 19, 2015
Saving Santa Claus on Workers Comp
It's true. We're in the process of obtaining Workers Comp premium reductions/refunds for a Christmas-themed amusement park in a town called Santa Claus, a refund in excess of $10,000. So that pays for an extra elf or two during the holiday season, I guess. Hopefully keeps us on the right side of the "Nice or Naughty" list for a while.
Monday, March 16, 2015
An Interesting Phone Call
I just received a very kind phone call, from an attorney who had retained my services as an expert in litigation over proper Workers Compensation insurance premiums. Based on technical input from me, the attorney just obtained a Summary Judgement that essentially told the insurance company to tear up their audit bill for an additional $350,000.00. The judge also had some harsh words for the insurance company, I am told. In this case, a business had an initial estimated premium of around $2,000.00. Years after the policy ended, the insurer re-figured the audit, claiming that the use of uninsured independent contractors justified approximately $350,000 in additional premium.
It was true that this company did use independent contractors--a fact they disclosed on their initial application. The policyholder did not realize that they could be liable for insurance charges from the use of these independent contractors, and the insurer also overlooked this when they underwrote the policy, audited it, and renewed it.
I was able to point out certain Illinois insurance regulations that addressed this issue, and that essentially limited the ability of the insurer to make such large premium increases so late in the game. The judge apparently agreed.
It is always gratifying to be of assistance to the court in understanding these technical issues, as oftentimes most people who possess such understanding work for the insurance industry, and thus it can place policyholders at an unfair disadvantage when disputing such matters in court.
The attorney was very kind in his phone call to me regarding my assistance in identifying how the insurer had failed to take into account these Illinois insurance regulations. In truth, I could only point out the technical issues--it took skilled legal work to produce this Summary Judgement outcome for the policyholder.
It was true that this company did use independent contractors--a fact they disclosed on their initial application. The policyholder did not realize that they could be liable for insurance charges from the use of these independent contractors, and the insurer also overlooked this when they underwrote the policy, audited it, and renewed it.
I was able to point out certain Illinois insurance regulations that addressed this issue, and that essentially limited the ability of the insurer to make such large premium increases so late in the game. The judge apparently agreed.
It is always gratifying to be of assistance to the court in understanding these technical issues, as oftentimes most people who possess such understanding work for the insurance industry, and thus it can place policyholders at an unfair disadvantage when disputing such matters in court.
The attorney was very kind in his phone call to me regarding my assistance in identifying how the insurer had failed to take into account these Illinois insurance regulations. In truth, I could only point out the technical issues--it took skilled legal work to produce this Summary Judgement outcome for the policyholder.
Tuesday, February 24, 2015
Two News Items With A Common Cause
I came across two separate news items today, from different states, each one having something interesting in common with the other.
In Arizona, a bill has been introduced to allow workers to file complaints with the Industrial Commission over perceived unfair claim processing practices or bad faith. The fines and penalties in the bill seem modest, though, in comparison with the second story.
In Nebraska, a worker has been awarded $25 million over the alleged bad faith claims handling of an insurer, American Interstate Insurance. Which is considerably more than what is anticipated under the proposed Arizona bill.
Just an interesting coincidence, these two stories popping up at about the same time. But they both illustrate a problem that is not, I sadly suspect, terribly uncommon.
In Arizona, a bill has been introduced to allow workers to file complaints with the Industrial Commission over perceived unfair claim processing practices or bad faith. The fines and penalties in the bill seem modest, though, in comparison with the second story.
In Nebraska, a worker has been awarded $25 million over the alleged bad faith claims handling of an insurer, American Interstate Insurance. Which is considerably more than what is anticipated under the proposed Arizona bill.
Just an interesting coincidence, these two stories popping up at about the same time. But they both illustrate a problem that is not, I sadly suspect, terribly uncommon.
Thursday, February 12, 2015
Another Desperate Small Business Slammed By A "Shock Audit"
So, we got another email the other day from a small business facing financial ruin over what we like to call a 'Shock Audit". This business, a husband and wife team, operated a small business that used a lot of independent contractors. Their initial estimated premium for their policy, for their first year in business, was $1,600.00. Now that this first policy has ended, they got an bill from the insurance company for an additional $59,000.00.
Needless to say, this is an amount sufficient to cripple or destroy this young business enterprise. No one bothered to inform these folks, when the policy began, that independent contractors are treated the same as W-2 type workers (unless those contractors have their own policies, or meet other criteria set by some states.)
We're looking into the matter right now, trying to determine what, if anything, can be done to reduce this audit bill. It is an object lesson, though, about the dangers that can unexpectedly devour a small business.
Needless to say, this is an amount sufficient to cripple or destroy this young business enterprise. No one bothered to inform these folks, when the policy began, that independent contractors are treated the same as W-2 type workers (unless those contractors have their own policies, or meet other criteria set by some states.)
We're looking into the matter right now, trying to determine what, if anything, can be done to reduce this audit bill. It is an object lesson, though, about the dangers that can unexpectedly devour a small business.
Friday, February 6, 2015
The Siren Call of WC "Reform"
We have a new governor in Illinois, and he, like so many before him, is calling for Workers Comp "reform". This is something of a perennial siren song here and in many other states.
Not that it's unneeded, it's just that usually the reforms come at the expense of injured workers and not so much the powerful institutions that profit from the system. Somehow, Workers Comp reform never seems to include insurance reform, to protect employers from the financial impact of WC audits that spring unexpectedly large additional premium charges. We routinely get calls and emails from employers whose very continued existence is threatened by such "shock" audits, and yet the insurance regulatory agency here (like many other states) has been hollowed out, with experienced regulators encouraged to leave or retire, never to be replaced.
Last time Illinois went through the process of Workers Comp "reform", I made a few suggestions. They were, of course, utterly ignored. I rather expect that will continue with whatever "reforms" our new Republican governor can coax out of our Democratic legislature. Whatever the result, I think it would be a smart bet to wager that nothing is done to rein in the kinds of occasional abuses by insurance companies we see here on a regular basis.
Not that it's unneeded, it's just that usually the reforms come at the expense of injured workers and not so much the powerful institutions that profit from the system. Somehow, Workers Comp reform never seems to include insurance reform, to protect employers from the financial impact of WC audits that spring unexpectedly large additional premium charges. We routinely get calls and emails from employers whose very continued existence is threatened by such "shock" audits, and yet the insurance regulatory agency here (like many other states) has been hollowed out, with experienced regulators encouraged to leave or retire, never to be replaced.
Last time Illinois went through the process of Workers Comp "reform", I made a few suggestions. They were, of course, utterly ignored. I rather expect that will continue with whatever "reforms" our new Republican governor can coax out of our Democratic legislature. Whatever the result, I think it would be a smart bet to wager that nothing is done to rein in the kinds of occasional abuses by insurance companies we see here on a regular basis.
Thursday, February 5, 2015
This Month's Employer Charged Criminally Over WC Premiums
I wrote last month about what I described as the first 2015 news story I had seen about an employer being charged criminally over Workers Comp premiums. Here's February's entry in that category: A Milltown, New Jersey couple and their nephew who ran a temp staffing firm.
Let me be clear about the fact that I know nothing about this case, beyond what is in the news story. So I have no way of knowing how much, if any, of the charges against these people might be warranted. But it does once again provide stark warning to business owners and managers everywhere to be careful about being too aggressive in seeking to exploit perceived loopholes in WC rules, or relying upon advice from some insurance 'professional' who advocates taking questionable measures to reduce premiums.
Of course, it can be difficult for policyholders to determine what constitutes 'questionable' measures and what might instead just be smart management.
I remember a time, going back perhaps ten years or more, when we started dealing with a new audit manager on behalf of some of our clients. This audit manager worked for a California-based WC insurer which had acquired a large Illinois insurer of Workers Comp (that's why we were suddenly in contact--back then, we were more concentrated on Illinois based clients).
This audit manager was markedly hostile to responding to us at all. Turns out he had experience dealing with a different audit review firm, and had become convinced that a) that other firm was trying to get refunds fraudulently and b) all such firms must be crooks, also.
It took a fair bit of work to convince this audit manager that we weren't crooks and that the overcharges we were bringing to his attention were legitimate, but we were eventually successful. But I thought about those companies that had used the services of that other review firm. It had sounded like that other outfit had gotten those policyholders involved in what amounted to premium fraud. Our skeptical audit manager eventually confided to me that he had been trying to get prosecutors interested in pursuing criminal charges against that other firm, but the company went out of business before those plans bore any fruit.
But that anecdote does illustrate that not all 'professional' advice should be heeded, and that not all efforts to reduce Workers Comp insurance premium charges are legit. When it comes to Workers Compensation insurance, some insurers are more than ready to sic a prosecutor on an employer/policyholder they think has been pulling a fast one.
Only problem with that, I think, is that sometimes insurers underestimate how confusing the rules about Workers Comp premiums can be, and may interpret innocent actions and errors as something nefarious. The devil, as they say, lurks in those details.
Let me be clear about the fact that I know nothing about this case, beyond what is in the news story. So I have no way of knowing how much, if any, of the charges against these people might be warranted. But it does once again provide stark warning to business owners and managers everywhere to be careful about being too aggressive in seeking to exploit perceived loopholes in WC rules, or relying upon advice from some insurance 'professional' who advocates taking questionable measures to reduce premiums.
Of course, it can be difficult for policyholders to determine what constitutes 'questionable' measures and what might instead just be smart management.
I remember a time, going back perhaps ten years or more, when we started dealing with a new audit manager on behalf of some of our clients. This audit manager worked for a California-based WC insurer which had acquired a large Illinois insurer of Workers Comp (that's why we were suddenly in contact--back then, we were more concentrated on Illinois based clients).
This audit manager was markedly hostile to responding to us at all. Turns out he had experience dealing with a different audit review firm, and had become convinced that a) that other firm was trying to get refunds fraudulently and b) all such firms must be crooks, also.
It took a fair bit of work to convince this audit manager that we weren't crooks and that the overcharges we were bringing to his attention were legitimate, but we were eventually successful. But I thought about those companies that had used the services of that other review firm. It had sounded like that other outfit had gotten those policyholders involved in what amounted to premium fraud. Our skeptical audit manager eventually confided to me that he had been trying to get prosecutors interested in pursuing criminal charges against that other firm, but the company went out of business before those plans bore any fruit.
But that anecdote does illustrate that not all 'professional' advice should be heeded, and that not all efforts to reduce Workers Comp insurance premium charges are legit. When it comes to Workers Compensation insurance, some insurers are more than ready to sic a prosecutor on an employer/policyholder they think has been pulling a fast one.
Only problem with that, I think, is that sometimes insurers underestimate how confusing the rules about Workers Comp premiums can be, and may interpret innocent actions and errors as something nefarious. The devil, as they say, lurks in those details.
Monday, February 2, 2015
Grand Bargain Unraveling?
Workers Compensation was conceived as a "Grand Bargain" between workers and employers, wherein workers traded the right to seek damages for workplace injuries for a "no-fault" system with established benefits. Employers, in turn, traded their various legal defenses for a system that allowed the costs of workplace injures to be made reasonably predictable and affordable.
But as more states have enacted "reforms" to their Workers Compensation statutes that put greater limitations on the benefits due injured workers, pressure has been building to challenge the "exclusive remedy" nature of Workers Compensation. The theory goes that if these "reforms" reduce benefits too much it is no longer a fair bargain for workers.
This story in Business Insider explores this issue in some detail, and makes clear, I think, the potential downsides to some recent Workers Compensation "reforms".
Of course, given how some employers can be subjected to unpredictable premium increases when the audit is done (after policy expiration) I believe a case can be made that employers also have been deprived of the supposed benefits of the Grand Bargain. I know my own view on this is somewhat colored by the fact that we specialize in helping employers fight such "shock audits", and so we tend to hear from employers disproportionately when such audits are threatening to put them out of business, but even so, as long as employers can be billed, at audit, for premium amounts far in excess of what they were led to believe would be their WC insurance costs, one can argue that employers have been deprived of the ability to reasonably predict their Workers Comp costs.
But as more states have enacted "reforms" to their Workers Compensation statutes that put greater limitations on the benefits due injured workers, pressure has been building to challenge the "exclusive remedy" nature of Workers Compensation. The theory goes that if these "reforms" reduce benefits too much it is no longer a fair bargain for workers.
This story in Business Insider explores this issue in some detail, and makes clear, I think, the potential downsides to some recent Workers Compensation "reforms".
Of course, given how some employers can be subjected to unpredictable premium increases when the audit is done (after policy expiration) I believe a case can be made that employers also have been deprived of the supposed benefits of the Grand Bargain. I know my own view on this is somewhat colored by the fact that we specialize in helping employers fight such "shock audits", and so we tend to hear from employers disproportionately when such audits are threatening to put them out of business, but even so, as long as employers can be billed, at audit, for premium amounts far in excess of what they were led to believe would be their WC insurance costs, one can argue that employers have been deprived of the ability to reasonably predict their Workers Comp costs.
Wednesday, January 21, 2015
First 2015 Employer Charged Over Alleged Workers Comp Premium Fraud
For those keeping score at home, here is the first news report I've spotted in 2015 about an employer being criminally charged for allegedly under-reporting payroll to lower Workers Comp insurance premiums.
As I've written before, this is a growing trend, and represents quite a change from those long-ago days when I was coming up in the wonderful world of Workers Comp insurance. Back then (when dinosaurs ruled the earth) it was not utterly uncommon for some employers to take a sort of "all's fair in love and Workers Comp) kind of attitude and if they thought they could get away with pulling a fast one on their Workers Comp insurer they would do it, justifying their actions by telling themselves that insurers took unfair advantage whenever they could so why shouldn't a poor beleaguered businessman play the same kind of game?
It was never right, of course, or fair. but criminal prosecutions seemed pretty rare back in those days. Nowadays, not so much, as they say. Prosecutors seem far more open to charging employers for allegedly cheating on Workers Comp insurance premiums, and so employers need to more careful than ever to avoid doing anything that gives the impression of fraud.
Of course, I would note that I am unaware of any insurance company having been criminally charged for overcharging on Workers Comp insurance. I mean, AIG got nailed by Eliot Spitzer and then got sued by NCCI and then Liberty Mutual and other insurers over deliberate and systemic practices that allegedly cheated on taxes, assessments and increased costs for the rest of the industry, but I don't recall any criminal charges ever being filed. Sauce for the goose isn't always sauce for the gander, I guess.
As I've written before, this is a growing trend, and represents quite a change from those long-ago days when I was coming up in the wonderful world of Workers Comp insurance. Back then (when dinosaurs ruled the earth) it was not utterly uncommon for some employers to take a sort of "all's fair in love and Workers Comp) kind of attitude and if they thought they could get away with pulling a fast one on their Workers Comp insurer they would do it, justifying their actions by telling themselves that insurers took unfair advantage whenever they could so why shouldn't a poor beleaguered businessman play the same kind of game?
It was never right, of course, or fair. but criminal prosecutions seemed pretty rare back in those days. Nowadays, not so much, as they say. Prosecutors seem far more open to charging employers for allegedly cheating on Workers Comp insurance premiums, and so employers need to more careful than ever to avoid doing anything that gives the impression of fraud.
Of course, I would note that I am unaware of any insurance company having been criminally charged for overcharging on Workers Comp insurance. I mean, AIG got nailed by Eliot Spitzer and then got sued by NCCI and then Liberty Mutual and other insurers over deliberate and systemic practices that allegedly cheated on taxes, assessments and increased costs for the rest of the industry, but I don't recall any criminal charges ever being filed. Sauce for the goose isn't always sauce for the gander, I guess.
Friday, January 16, 2015
Florida Upholds WC As Exclusive Remedy
In a fairly important ruling, the Florida Supreme Court has upheld the "exclusive remedy" aspect of Workers Compensation in that state. In Moreles v. Zenith Insurance Company, the court has now ruled that the exclusive remedy provisions of the law and the Employer Liability coverage form.
This is an important win for insurers and employers, not so much for the widow Morales. Florida is still wrangling with some other important court cases concerning Workers Comp, though, including the question of whether recent "reforms" shatter the grand bargain between employers and employees that rests at the heart of Workers Compensation that justifies the exclusive remedy doctrine.
Stay tuned, it seems there will be more to come on this subject. Although the Florida Supreme Court appears to have given a pretty clear notice here about how it views this dispute.
This is an important win for insurers and employers, not so much for the widow Morales. Florida is still wrangling with some other important court cases concerning Workers Comp, though, including the question of whether recent "reforms" shatter the grand bargain between employers and employees that rests at the heart of Workers Compensation that justifies the exclusive remedy doctrine.
Stay tuned, it seems there will be more to come on this subject. Although the Florida Supreme Court appears to have given a pretty clear notice here about how it views this dispute.
Wednesday, January 14, 2015
Workers Comp Issues in 2015
Interesting article here, about possible issues that could impact Workers Compensation in this new year. One of the items here that piques my interest is that of "opt-out", that is, states giving employers the legal right to go without traditional Workers Compensation coverage. Texas has had it for years, of course, and more recently Oklahoma enacted a version of it, a version that allows employers to forego regular Workers Compensation coverage if they put in place an alternative program that offers the same benefits.
Now, it seems to me that the devil will really be in the details there. If the alternative program really and truly offers benefits that are the same as "real" Workers Comp, where exactly are the opportunities for cost savings? And if these alternative programs don't really and truly offer the "same" benefits, how does that all shake out for employers?
I know of one case where a state allowed certain kinds of employers to opt out if they provided an "alternative" plan that provided essentially similar benefits. And I know of an employer who hired some broker who specialized in such alternative programs to come up with one for them, and everything seemed fine until some workers were seriously injured. Then everything hit the fan, the lawyers earned some significant fees, and ultimately an appeal court determined that the alternative program had not really offered benefits sufficient to meet the (vague) statutory requirements, so the employer ended up being saddled with really expensive claims plus large penalties for failing to meet the statutory requirements, along with very hefty legal bills.
I'm just saying, there aren't many genuine short cuts in the world of Workers Compensation, and things that look they are sometimes don't turn out that way, when push comes to shove.
Now, it seems to me that the devil will really be in the details there. If the alternative program really and truly offers benefits that are the same as "real" Workers Comp, where exactly are the opportunities for cost savings? And if these alternative programs don't really and truly offer the "same" benefits, how does that all shake out for employers?
I know of one case where a state allowed certain kinds of employers to opt out if they provided an "alternative" plan that provided essentially similar benefits. And I know of an employer who hired some broker who specialized in such alternative programs to come up with one for them, and everything seemed fine until some workers were seriously injured. Then everything hit the fan, the lawyers earned some significant fees, and ultimately an appeal court determined that the alternative program had not really offered benefits sufficient to meet the (vague) statutory requirements, so the employer ended up being saddled with really expensive claims plus large penalties for failing to meet the statutory requirements, along with very hefty legal bills.
I'm just saying, there aren't many genuine short cuts in the world of Workers Compensation, and things that look they are sometimes don't turn out that way, when push comes to shove.
Monday, January 12, 2015
A Report Card For Insurance Regulators
An interesting attempt to quantify and grade insurance regulatory efforts by the various states can be found here. Not sure if I necessarily agree with their criteria in all cases, but this is an interesting approach. I may have more once I digest this report card more fully. In the meantime, take a look and form your own opinions.
Thursday, January 8, 2015
Shameless, Stan Lee-Type Plug
When I was a kid, Stan Lee was the master of self-promotion over at Marvel Comics, then kind of an underdog to DC. Any way, this being January, the time of year when all good premium auditors are planning their annual extravaganza of field audits, I thought I would steal a page from Stan's old playbook and indulge myself in an unabashed self-serving plug for my book, Workers Compensation: A Field Guide For Employers.
The Field Guide explains everything business owners and managers need to know about Workers Compensation insurance audits, classifications, experience mods, and various and sundry other topics, including how to guard against and/or correct the common errors made by premium auditors that raise premiums unnecessarily.
You can find out more here, and even order a copy, if you so desire. Trust me, it contains enough valuable information that you'll count it as the best bargain you've ever found on Amazon.
There. Stan himself couldn't have done it better. Excelsior!
The Field Guide explains everything business owners and managers need to know about Workers Compensation insurance audits, classifications, experience mods, and various and sundry other topics, including how to guard against and/or correct the common errors made by premium auditors that raise premiums unnecessarily.
You can find out more here, and even order a copy, if you so desire. Trust me, it contains enough valuable information that you'll count it as the best bargain you've ever found on Amazon.
There. Stan himself couldn't have done it better. Excelsior!
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