Friday, December 2, 2016

Calling B.S. On The Illinois Policy Article on Illinois Workers Comp

So an outfit called "Illinois Policy" just posted an article on Illinois Workers Comp that is rather pungent, I fear. This article, by one Michael Lucci, purports to call B.S. on one Steve Brown, spokesman for Illinois House Speaker Michael Madigan. Mr. Lucci then proceeds to sling his own bovine byproducts in an attempt to show how Mr. Brown is full of, errr, brown stuff.
But the "facts" that Mr. Lucci cites simply aren't facts at all. They are, to put it diplomatically, B.S.
Lucci has written that "The workers’ compensation insurance market is worth nearly $3 billion per year in Illinois. Meanwhile, persons and companies harmed by federal anti-trust violations, including price-fixing, can seek triple damages on the economic harm they experience."
These two independent facts are true. They just have nothing to do with each other, and when placed together foster the impression that the Workers Compensation insurance industry could be a tempting target for attorneys citing federal anti-trust statutes. This is a lie, because the McCarran-Ferguson Act exempts the business of insurance from federal anti-trust regulations and statutes, as long as the state regulates said insurance business. Illinois does still, at least on paper, regulate Workers Compensation insurance, so the Workers Compensation insurance business is not subject to the federal anti-trust statutes that apply to most other businesses.
Lucci also writes that since the Workers Comp insurance market has a record number of insurers and is competitive, "it is simply unbelievable that 332 rivals would collude to fix prices." Ummm, no.
Workers Compensation insurers share data on claims and premiums routinely, through the operation of the National Council on Compensation Insurance. NCCI is a sanctioned "rating bureau" whose job it is to gather such data from all insurers operating in Illinois and use that data to develop advisory rates and loss costs that are then shared with all the insurers. So collusion is cooked into the system.
And while it is true that all these insurance companies are competing for accounts, they tend to be competing only for a certain sub-set of Illinois business. If, for example, your business is in a construction related field, you will find that there are only a handful of insurers interested in even considering you. If your business is brand new, or very small, no insurance company at all may be interested in your business, which means you go into the Assigned Risk Plan--where premiums are automatically doubled and service is non-existent.
And it's not like the typical business can easily access all those hundreds of insurers. A typical insurance agent may have access to only a handful of insurance companies. But said insurance agents are not always forthcoming with these limitations. They are, after all, salesmen, and good salesmen (or women) tend to find ways to obscure or talk past the deficiencies in their proposals. For a small business, an agent with limited markets will sometimes place the account in the Assigned Risk Plan without ever explicitly explaining that this coverage source comes with much higher costs and much lower service.
So the actual reason so many insurance companies are in Illinois is that the pickings are good here, precisely because they can be picky. There are still a lot of businesses here, and they are required to have Workers Comp insurance. Insurance companies are free to cherry pick and compete on the accounts they really want, and only on those accounts. For everyone else, the Workers Comp market is far, far from truly competitive.
Remember, all the insurance companies use the same manuals of rules regarding how they compute premiums, they all use the same experience rating plans developed by NCCI, and they all share underwriting data by means of NCCI.
So, again, I believe the key points raised by Lucci in this article are, as I said pungent. As in, the opposite of true.