Wednesday, June 17, 2020

Minority-Owned Businesses and Illinois Workers Comp Costs

My company is in the process of trying to initiate some outreach with minority-owned businesses in Illinois, as I've come to suspect that such minority-owned businesses might be disproportionately impacted by the kinds of overcharges we routinely find when we review Workers Compensation insurance premium charges for employers. I suspect certain features of the Workers Comp insurance system might be causing even greater harm for minority businesses than they do for employers in general.

One of those features of the Illinois Workers Compensation insurance system that I fear may disproportionately harm minority businesses is the Assigned Risk Plan. Since Illinois mandates most businesses carry Workers Compensation insurance, the Assigned Risk Plan was created to make sure that businesses can obtain Workers Compensation insurance even when insurance companies, operating in the so-called “voluntary market”, are unwilling to offer this coverage.

The Assigned Risk Plan is sometimes called an “insurer of last resort” because the insurers taking part in the plan cannot reject an application for coverage (save only if the employer has failed to pay a prior premium bill for a policy from the Plan.)

But the downside of the Assigned Risk Plan is that it is much, much more expensive than identical coverage offered through the voluntary market. By means of a combination of higher rates and the loss of certain discounts, premium charges for an Assigned Risk policy can often be close to double what the premiums would be for an identical voluntary market policy.

The only requirement for acceptance into the Assigned Risk plan is an insurance agent who attests that a couple of different voluntary market carriers declined to cover a business. This is a fairly low bar, and for a variety of reasons I suspect minority-owned businesses might get shunted to Assigned Risk policies disproportionately, even though voluntary market coverage might, with just a bit more marketing effort, be available.  

Workers Compensation insurance in Illinois is sold by insurance agents, of course. And not all insurance agents and agencies have the same access to desirable Workers Compensation insurance companies. 

So if a minority-owned business approaches a small insurance agency with limited access to voluntary market Workers Comp insurers, I fear that those agents may often place these businesses into the Assigned Risk Plan-- not because of any inherent problems with the business but because small insurance agencies typically have less access to a variety of voluntary market insurers.

This process would often not be particularly transparent to the business owners, who may have limited understanding of the fine points of the insurance system, particularly in regards Workers Compensation insurance. In my experience, even very experienced business managers have little understanding of the hidden pitfalls of the insurance system.

But it's not just the inherent higher cost of Assigned Risk policies.

My company specializes in finding and correcting technical errors by insurance companies, errors that overcharge the business that purchased the insurance. Such overcharges are, unfortunately, far from uncommon. I’ve been doing this kind of work since the mid-1980s, and I started my company in 1987 to specialize in it.

These kinds of technical errors, when they happen in Assigned Risk policies, get amplified by the higher rates and lack of discounts that are the norm in the Assigned Risk Plan.  So minority businesses may well be getting doubly harmed—first, by being disproportionately placed in the more expensive Assigned Risk Plan, and second, by the increased impact of technical errors within the more expensive Assigned Risk policies.

Well, anyway, that's my concern, at any rate. And like I said, we're in the process of initiating some outreach to minority business owners, to see if we can help them catch and correct the overcharges that I've spent the past few decades finding and correcting for employers all across the U.S.

I'll keep you posted regarding what we find. My gut feeling is that there is a lot to find, and a lot of overcharges to recover.