Roofing Estimators and NCCI Rules

I've spent years arguing that insurance companies were wrong to assign salespeople/estimators for roofing into the same roofing classification as those doing the actual roofing work, and now NCCI, the Workers Comp rating bureau in many states, has made a filing that agrees with my views.

NCCI, the National Council on Compensation Insurance, creates the classification rules used in most states for Workers Compensation insurance. And their new filing with state insurance regulators explicitly assigns such salespeople/estimators into Code 8720, the classification I have advocated for in the past for such work exposures.

In the past, the NCCI manual rules didn't really address the issue of proper classification of such estimators, but many insurance companies "interpreted" those manual rules in such a way that they would place payroll for such estimators into the roofing classification, Code 5551. NCCI itself would typically support such an "interpretation" by member insurance companies, although nothing in the actual filed manuals supported such an interpretation.

Now NCCI has officially changed this position, although the new filing isn't approved yet in all states (but is likely to be) and only makes the change on a "going forward" basis, which means that all those roofing companies who, in recent years, have been gouged by their Workers Compensation insurers via this "interpretation" will have a difficult time seeking any retroactive adjustments.

Of course, "difficult time" is not the same thing as "impossible". Stay tuned.

Today's Shock Audit email

...is from an Illinois one man roofing company that paid a couple of thousand dollars per year Workers Comp premium for the past few years has gotten a Shock Audit for over $200,000 covering three years. Insurer is apparently coming up with some estimate of payroll that based on cash withdrawals used to pay dumping fees. Insurer is treating this as if it these withdrawals were for labor, paid under the table. Policyholder says this is not so. Insurance company is being, shall we say, less than cooperative in reducing the audit billing.

So we're going to take a look and see how much, if any, of this audit billing the insurance company is actually entitled to. Stay tuned.

California Insurance Commissioner and Applied Underwriters

I've written in the past about how a Berkshire Hathaway owned Workers Comp insurer, Applied Underwriters, has sold some types of policies that are, essentially, incomprehensible in the details of how premium charges will be ultimately calculated. Incomprehensible to many of the folks who bought the damn policies, at any rate.

California insurance regulators finally yanked on the leash of Applied Underwriter's Equity Comp program, as did some other state regulators. But more recently, California's new insurance commissioner and his staff took steps to undo some specific actions against the insurer. And that has created some rather negative news coverage of the commissioner.

It turns out, you see, that this newly elected insurance commissioner took some significant campaign contributions from Applied Underwriters. Oops.

The entire situation does call into question the wisdom of electing insurance commissioners, given the ability of the insurance industry to influence elections with significant campaign contributions.

Of course, appointed insurance commissioners often have very significant ties to the insurance industry as well, so this is a problem that is yet to be solved, I fear. Stay tuned.

Nice News For A Client

We've just seen the revised audit we arranged for a client, a New York small contractor. The new audit bill reduces the total premium by about $4,000.00. This wasn't a huge case, the way some of ours are, but it was a big deal for this small business.

Total cost of our involvement: $600. Money well spent, I might immodestly suggest.

Selective Memory, Perhaps.

Two interesting quotes on a current case.

In a letter from Travelers insurance to my client:
"We are not willing to provide additional detail regarding the schedule debits, as the pricing was fully disclosed and agreed upon prior to the 6/1/2018 renewal."

From the NCCI Basic manual:
"At the time that the schedule rating factor is applied, the carrier must have documentation on file detailing the basis for the credit or debit. This documentation must be provided to the insured on request."

Methinks we shall be referring this to the Department of Insurance. Fascinating how insurance companies fail to read the manual rules that apply to their policies.

Illinois Workers Gain New Rights to Sue Over Occupational Disease

Illinois workers have just gained the right to sue their employer over occupational disease when their claim exceeds the statute of limitations set in the Illinois Workers Compensation Act.

The Act sets a 25 year limit that was upheld in 2015 by the Illinois Supreme Court. In response to this decision, this new law, signed on June 5 by Governor Pritzker, gives workers the right to sue employers when the WC Act statute of limitations prevents compensation. The new law also has no cap on employer liabilities, including punitive damages, and allows an employee, employee's heirs, or anyone with standing to sue an employer.

Opponents of the new law, such as the Chamber of Commerce, suggested the impact of this law could make Workers Comp liability insurance unaffordable for some employers. This is standard response, though, whenever any change in worker benefits is proposed. My own view is that this is unlikely to create significant rate increases in Illinois Workers Comp rates. Certainly the rate impact will be tiny compared to existing insurance industry machinations like the sort that allows insurance companies to sell a policy with an initial premium of $2,000.00 and then, after the policy ends, send an audit bill for more than $200,000.00. We see that on a regular basis (we call these "Shock Audits" and they're entirely kosher under existing insurance rules) and so suggesting that closing this arbitrary limitation for injured workers will somehow be an unbearable cost strikes me as disingenuous, at best.

Responsibility: What's Your Policy

God, one thing you have to say about Workers Comp insurance companies: they got....errr, chutzpah. As illustrated by a current case of mine, where a very well known insurance company whose ads you see all over television sold a Workers Comp policy to a company with an effective rate of $0.48 per hundred dollars of payroll but more than three months after the policy ended, changed things so the effective rate for the audit was $3.39 per hundred dollars of payroll. And when the insured screamed and cancelled the renewal policy, that same insurance company made the same changes to that policy, plus added in lots of "audit non-compliance charges" (even in California, where that's not really a thing) so that the effective rate for that policy became $6.74 per hundred dollars of payroll. Christ, sure wish I could run my business like that. Needless to say, this particular dispute is far, far from over.

Oh, and the title of this little post? That's this insurer's corporate slogan.

Warren Buffett Strikes Again

Warren Buffett is promoting a new insurance product called THREE, a multi-line insurance product for businesses. THREE includes property, liability, auto, and Workers Comp, using a unique and simplified policy form.

This article explores some of the possible advantages and deficiencies of THREE in some detail.

Me, since my primary beat is Workers Comp insurance, I have to worry about anything that eliminates the element of standardization in Workers Comp insurance. The existing policy form created by NCCI is cumbersome and not always easy to understand but it does have the benefit of being pretty much uniform--which is a useful thing for those who must buy this insurance, as business owners really don't want to have to worry about whether the policy from company A really provides the same vital coverage as the policy from company B.

Of course, when it comes to how premiums for Workers Comp is figured, uniformity has already been substantially eroded--particularly by Mr. Buffett's company Applied Underwriters. That company's policies have often featured a premium mechanism that was essentially incomprehensible and impossible to predict by policyholders, a mechanism that often produced much higher charges than the business owners ever expected.

Buffett has put Applied Underwriters on the auction block, though. But that company illustrates what can go wrong when someone decides to shake up the established Workers Comp format.

When I first entered the wonderful world of Workers Comp insurance, some forty-some years ago, uniformity of policy form and rates was viewed as a bedrock virtue. Then that got eroded over time, at least as far as rates and premiums, with mixed results IMHO. But getting creative with the policy form? Particularly in an insurance program that appears geared towards small business?

The road to hell is paved with good intentions, they say.

Applied Underwriters Up For Sale

Warren Buffett's Berkshire Hathaway has announced it is putting up for sale their Workers Comp specialty insurer, Applied Underwriters. The official story given is that Applied Underwriters competes with other Berkshire Hathaway insurers that sell Workers Compensation insurance.

Hmmm. Yeah. If you say so, Warren. But I have my doubts.

See, Applied Underwriters has sold a ton of policies to small business that could be viewed as less than understandable. Many of the businesses that purchased Applied Underwriters policies have felt that the premium charges sought by Applied were way, way higher than the salesmen had ever indicated they could be.

Our own analysis of some of these complicated policies has found that some of these policies were virtually incomprehensible in terms of explaining how premium charges would ultimately be computed. These policies have generated a number of law suits and some official disapproval from insurance regulators.

So maybe, just maybe, Berkshire Hathaway decided that it would be better if Applied Underwriters became someone else's headache. I could be wrong. But not entirely, I suspect.

First "Shock Audit" Call of 2019

Well, that didn't take long. At 8:46 am, Central time, I received our first "Shock Audit" phone call of 2019, from a small roofing company in New Jersey. The owner has been on the receiving end of a Workers Comp Shock Audit because his insurance company has insisted on placing his payroll into the roofing classification even though, for the time period in question, he was desperately fighting cancer, going through chemo, getting a bone marrow transplant, and quite unable to be going up on roofs. The good news is that treatment was successful and he is no longer enduring the terrible trials involved in fighting that devastating disease. But he is still enduring the trial of an insurance company insisting it is owed large amounts of money that no sane person would agree with.

That's why we call them "Shock Audits"--these tend to strike a business with significant additional premium charges that were not, could not have been, anticipated based on the original policy premium or on the basic facts of the situation. Small businesses tend to be particularly vulnerable to these, although they can strike a business of just about any size. We've helped policyholders ranging from small machine shops on up to an NFL team and Fortune 500 type companies, all of which were subject to Shock Audit charges. I am pretty damn sure we can help this gentleman. We will certainly do our utmost.