Now here's an idea that might have some merit. A legislator in California is proposing to give small businesses a 20% discount on their Workers' Comp insurance. Assemblyman Anthony Portantino has proposed the credits, and I have to admit this would directly address one of my own long-standing concerns about the Workers' Comp system in most states: small employers get the shaft.
Larger employers tend to have insurers competing on price for their business. Smaller employers just get tossed into Assigned Risk plans (where costs tend to be much higher and service really crappy.) A 20% credit for smaller employers would be an effective way to shift some of this unfair burden.
Here in Illinois (where AIM is based) small employers usually get shunted to the Assigned Risk plan, where insurance costs can often be double what the cost would be in the so-called "voluntary market".
Price competition in Workers' Comp insurance tends to only exist for larger employers, even though the majority of businesses are small business.
So here's to Assemblyman Portantino for cutting right through this Gordian knot with a straightforward approach that actually could help small business.
WorkComp Watch: News about Workers' Compensation Insurance, audits, classifications, coverage, and recovering overcharges.
Monday, February 21, 2011
Friday, February 18, 2011
More Musings on Stealing Big
Yesterday I wrote about the Matt Taibbi article in Rolling Stone that details how Joe Cassano, former head of AIG Financial Products, got away with what would appear to be serious financial misrepresentations without ever being criminally charged. In my blog piece, I noted that AIG's actual insurance operations had always been profitable.
Today, I was reading through the original 2007 federal civil complaint that NCCI (National Council on Compensation Insuance) filed against AIG on behalf of all the other insurance companies that write Workers' Comp insurance in the U.S. That lawsuit sought one billion dollars in damages, and made detailed allegations that AIG had, for decades, lied about how much Workers' Comp insurance it actually wrote, so that it could dodge out of AIG's fair share of Assigned Risk losses and assessments.
That lawsuit, by the way, was recently settled by AIG. In a settlement with all Workers' Comp insurers except Liberty Mutual, AIG has agreed to pay $450 million dollars. Liberty is still pursuing separate legal action against AIG. And that $450 million is on top of $146 million paid by AIG to state regulators last December over the same improprieties, and $750 million AIG agreed to pay investors for financial improprieties, and then the $330 million AIG paid way back when as a settlement to New York state when Eliot Spitzer first figured out how the insurer was playing fast and loose. It's little wonder a federal judge once characterized AIG as having been run as a "criminal enterprise."
Here's the thing: the Matt Taibbi story asked why Cassano and some other titans of finance aren't doing time, or at the least aren't busily defending themselves against criminal charges. And reading this complaint by NCCI against AIG, I am left with a similar question: why the hell isn't Maurice "Hank" Greenberg sitting in a cell next to Bernie Madoff?
Or at the very least, why hasn't this man faced a criminal prosecution for the misdeeds that he reportedly instigated and oversaw at AIG for decades?
The NCCI complaint quotes extensively from internal AIG reports and investigations that state that Greenbert knew all about these schemes, and that he in fact insisted that they be carried out. So (if the NCCI and the internal AIG reports were right) it would appear that Mr. Greenberg presided over a billion dollar, decades-long scheme of financial fraud, and yet has never had to answer for this.
Sometimes the inconsistent enforcement of our laws can be a little depressing. I've served as an expert witness in two federal criminal trials, where individuals allegedly profited far, far less than Mr. Greenbert allegedly did. Those individuals ended up serving time in the federal penitentiary. And in one of those cases, I remain convinced to this day that the federal prosecutor managed to convict entirely innocent people.
If you're going to steal, steal big.
Today, I was reading through the original 2007 federal civil complaint that NCCI (National Council on Compensation Insuance) filed against AIG on behalf of all the other insurance companies that write Workers' Comp insurance in the U.S. That lawsuit sought one billion dollars in damages, and made detailed allegations that AIG had, for decades, lied about how much Workers' Comp insurance it actually wrote, so that it could dodge out of AIG's fair share of Assigned Risk losses and assessments.
That lawsuit, by the way, was recently settled by AIG. In a settlement with all Workers' Comp insurers except Liberty Mutual, AIG has agreed to pay $450 million dollars. Liberty is still pursuing separate legal action against AIG. And that $450 million is on top of $146 million paid by AIG to state regulators last December over the same improprieties, and $750 million AIG agreed to pay investors for financial improprieties, and then the $330 million AIG paid way back when as a settlement to New York state when Eliot Spitzer first figured out how the insurer was playing fast and loose. It's little wonder a federal judge once characterized AIG as having been run as a "criminal enterprise."
Here's the thing: the Matt Taibbi story asked why Cassano and some other titans of finance aren't doing time, or at the least aren't busily defending themselves against criminal charges. And reading this complaint by NCCI against AIG, I am left with a similar question: why the hell isn't Maurice "Hank" Greenberg sitting in a cell next to Bernie Madoff?
Or at the very least, why hasn't this man faced a criminal prosecution for the misdeeds that he reportedly instigated and oversaw at AIG for decades?
The NCCI complaint quotes extensively from internal AIG reports and investigations that state that Greenbert knew all about these schemes, and that he in fact insisted that they be carried out. So (if the NCCI and the internal AIG reports were right) it would appear that Mr. Greenberg presided over a billion dollar, decades-long scheme of financial fraud, and yet has never had to answer for this.
Sometimes the inconsistent enforcement of our laws can be a little depressing. I've served as an expert witness in two federal criminal trials, where individuals allegedly profited far, far less than Mr. Greenbert allegedly did. Those individuals ended up serving time in the federal penitentiary. And in one of those cases, I remain convinced to this day that the federal prosecutor managed to convict entirely innocent people.
If you're going to steal, steal big.
Thursday, February 17, 2011
New Article on AIG Implosion Raises Serious Questions
There's a new piece in Rolling Stone by Matt Taibbi (the writer who compared Goldman Sachs to a "great vampire squid wrapped around the face of humanity".) Taibbi here examines the alleged deceptions and other transgressions of Joe Cassano, former head of the AIG Financial Products division. AIGFP was the cause of AIG's implosion and subsequent rescue by the federal government (the actual insurance operations of AIG have always been quite profitable.) Cassano made some very optimistic statements about the financial health of AIGFP, just before the whole thing went kablooey and took down the entire company.
According to this article, there were some very serious misrepresentations made by AIG concerning the actual state of AIGFP, misrepresentations serious enough to make one question why those responsible haven't been charged with criminal wrongdoing. Take a look at the article and judge for yourself. Taibbi is a bit of a rabble-rouser when it comes to financial reporting, but the extraordinary financial crisis we've all lived through these past few years make it difficult to quibble with many of his assertions.
The article covers far more territory than just AIG, though. The article suggests that some major insider trading was protected and covered up by means of high level political interference. The article names names and gives specific instances of some rather suspicious financial activity by some very well known captains of finance.
Wasn't there a line in a movie a few years ago, "If you're going to steal, steal big"? Meanwhile, in the aftermath of the financial crisis these captains of finance created, we get record unemployment, a housing and foreclosure crisis, and states slashing funding for education. It sure feels like we've all been played for suckers.
According to this article, there were some very serious misrepresentations made by AIG concerning the actual state of AIGFP, misrepresentations serious enough to make one question why those responsible haven't been charged with criminal wrongdoing. Take a look at the article and judge for yourself. Taibbi is a bit of a rabble-rouser when it comes to financial reporting, but the extraordinary financial crisis we've all lived through these past few years make it difficult to quibble with many of his assertions.
The article covers far more territory than just AIG, though. The article suggests that some major insider trading was protected and covered up by means of high level political interference. The article names names and gives specific instances of some rather suspicious financial activity by some very well known captains of finance.
Wasn't there a line in a movie a few years ago, "If you're going to steal, steal big"? Meanwhile, in the aftermath of the financial crisis these captains of finance created, we get record unemployment, a housing and foreclosure crisis, and states slashing funding for education. It sure feels like we've all been played for suckers.
Tuesday, February 8, 2011
Interesting Iowa Supreme Court Ruling
The Iowa Supreme Court has issued an interesting ruling that an insurance agent did not have a duty to advise a client about insurance coverage that the client did not inquire about. This case involves several important issues, not only what the duties of an insurance producer are, but also involving Workers Compensation insurance for a self-employed truck driver.
Timothy Merriam was a self-employed truck driver who purchased various personal lines of insurance from Farmers' agent Steven Stonehocker. Stonehocker had discussed some other coverages that Merriam might consider, but did not ask about whether or not Merriam might need Workers Compensation coverage, and Merriam did not raise the issue. Merriam later was severely injured on the job, and was not apparently covered by the Workers Compensation coverage of the company using his services.
The suit had claimed that Stonehocker had a duty to advise Merriam on the need to obtain Workers Compensation coverage for himself, and had failed to do so. But the Iowa courts found otherwise.
The decision noted that the relationship between the agent and the client had been of short duration, and that the agent's advice to add auto coverage did not create a duty to advise about other coverage areas that were not raised by the client.
This case illustrates an important and often-misunderstood point about insurance agents: their duties to clients are limited, unless certain circumstances serve to increase them. Having a long-standing relationship with a particular client can serve to increase the duty owed, and so can the agent's holding himself out as having particular expertise in certain insurance areas.
But without those special circumstances, an agent may only have a duty to be an honest and accurate order-taker.
This can fly in the face of the expectations of clients, who often assume that an insurance agent automatically will serve as an insurance advisor and point out potential problem areas involving insurance.
Many insurance agents voluntarily do act as insurance advisors, of course, and once they do so they then create a higher duty for themselves towards clients. But insurance consumers need to be aware that not all agents choose to serve as advisors, and in those cases the duty the agent owes may well be more limited.
The particulars of just what duty an insurance agent owes to a particular client can be a bit complicated, and depend significantly upon the unique circumstances of the particular agent/client relationship, and also upon the state where the insurance transactions occurred (many states have statutory or case law requirements that bear on this subject.)
But insurance consumers would be wise to make explicit any desires for their insurance agent to provide insurance and risk management advise, to avoid unhappy disputes such as this one.
The other interesting aspect of this case is that it involves a self-employed truck driver who apparently was not covered by the company he was working for. Again, this is a subject that is very much dependent upon the particular state involved, as statutory and case law can vary significantly from one jurisdiction to another. Many states have, in recent years, addressed the issue of how "self employed" workers, particularly truck drivers, are treated under Workers Compensation, so the rules on this have been evolving in many jurisdictions.
Timothy Merriam was a self-employed truck driver who purchased various personal lines of insurance from Farmers' agent Steven Stonehocker. Stonehocker had discussed some other coverages that Merriam might consider, but did not ask about whether or not Merriam might need Workers Compensation coverage, and Merriam did not raise the issue. Merriam later was severely injured on the job, and was not apparently covered by the Workers Compensation coverage of the company using his services.
The suit had claimed that Stonehocker had a duty to advise Merriam on the need to obtain Workers Compensation coverage for himself, and had failed to do so. But the Iowa courts found otherwise.
The decision noted that the relationship between the agent and the client had been of short duration, and that the agent's advice to add auto coverage did not create a duty to advise about other coverage areas that were not raised by the client.
This case illustrates an important and often-misunderstood point about insurance agents: their duties to clients are limited, unless certain circumstances serve to increase them. Having a long-standing relationship with a particular client can serve to increase the duty owed, and so can the agent's holding himself out as having particular expertise in certain insurance areas.
But without those special circumstances, an agent may only have a duty to be an honest and accurate order-taker.
This can fly in the face of the expectations of clients, who often assume that an insurance agent automatically will serve as an insurance advisor and point out potential problem areas involving insurance.
Many insurance agents voluntarily do act as insurance advisors, of course, and once they do so they then create a higher duty for themselves towards clients. But insurance consumers need to be aware that not all agents choose to serve as advisors, and in those cases the duty the agent owes may well be more limited.
The particulars of just what duty an insurance agent owes to a particular client can be a bit complicated, and depend significantly upon the unique circumstances of the particular agent/client relationship, and also upon the state where the insurance transactions occurred (many states have statutory or case law requirements that bear on this subject.)
But insurance consumers would be wise to make explicit any desires for their insurance agent to provide insurance and risk management advise, to avoid unhappy disputes such as this one.
The other interesting aspect of this case is that it involves a self-employed truck driver who apparently was not covered by the company he was working for. Again, this is a subject that is very much dependent upon the particular state involved, as statutory and case law can vary significantly from one jurisdiction to another. Many states have, in recent years, addressed the issue of how "self employed" workers, particularly truck drivers, are treated under Workers Compensation, so the rules on this have been evolving in many jurisdictions.
Friday, January 14, 2011
The Bad Penny of Workers Comp Turns Up In Montana
When I was a kid, I remember the Red Skull telling Captain America, "Like a bad penny, I always turn up." I wasn't really sure what that meant, as I hadn't ever seen a bad penny, but nonetheless the phrase stuck in my head. Now, in Montana, a perennial bad idea in Workers' Compensation has turned up once again: denying illegal immigrants Workers' Compensation statutory rights and benefits.
This is a bad idea for a number of reasons, but the reason that I think might be most persuasive is this: it would encourage employers to hire illegal immigrants.
This would happen because if illegals were to be denied Workers' Comp rights and benefits, then injuries to such workers would not show up on the employer's experience modification factor. That would make Workers' Comp insurance premiums lower for employers who use illegals than for employers who follow the rules. Surely it cannot be the intention of legislators in Montana to encourage the hiring of illegal immigrants.
I would expect their intentions are merely to make it possible for some employers to maim and occasionally kill such undocumented workers with impunity, as a way (so they think) of discouraging such workers from migrating to their state. A little blood on the workshop floor, a few missing fingers or arms, would be a small price to pay for making a principled political stand to earn a few votes, as long as the blood and fingers belong to folks who won't vote anyway.
That's why I point out the economic flaw in their proposal, rather than the cold blooded disregard for human life that it entails. Their vindictive little proposal, if ever enacted, would actually serve to create an economic incentive to hire illegal workers over legal ones.
Even in Montana, unintended consequences can be the most long lasting ones.
This is a bad idea for a number of reasons, but the reason that I think might be most persuasive is this: it would encourage employers to hire illegal immigrants.
This would happen because if illegals were to be denied Workers' Comp rights and benefits, then injuries to such workers would not show up on the employer's experience modification factor. That would make Workers' Comp insurance premiums lower for employers who use illegals than for employers who follow the rules. Surely it cannot be the intention of legislators in Montana to encourage the hiring of illegal immigrants.
I would expect their intentions are merely to make it possible for some employers to maim and occasionally kill such undocumented workers with impunity, as a way (so they think) of discouraging such workers from migrating to their state. A little blood on the workshop floor, a few missing fingers or arms, would be a small price to pay for making a principled political stand to earn a few votes, as long as the blood and fingers belong to folks who won't vote anyway.
That's why I point out the economic flaw in their proposal, rather than the cold blooded disregard for human life that it entails. Their vindictive little proposal, if ever enacted, would actually serve to create an economic incentive to hire illegal workers over legal ones.
Even in Montana, unintended consequences can be the most long lasting ones.
Thursday, January 6, 2011
Competition in Workers' Comp Insurance
There's an interesting article in the Insurance Journal today, about how "competitive" Florida's Workers' Comp insurance market is. This got me to thinking about this subject, about what it really means for a state's Workers' Compensation insurance marketplace to be "competitive".
Actually, my home state of Illinois is even more "competitive". We have around 400 different insurance companies admitted to write Workers' Compensation insurance here. This point was noted recently in a hearing at the Illinois Senate (which I attended) by different witnesses, to make rather different points.
Illinois appears to be the most "competitive" state in the union, by the way. We have more insurance companies admitted to write Workers' Compensation insurance than any other state. But what does it really mean, from an employer's point of view, to have such a number of insurers writing Workers' Comp?
As one witness at the hearing pointed out, one thing it means is that insurance companies find it profitable to write Workers' Compensation insurance in Illinois. That's why more carriers are active here than in other states.
Illinois is profitable for these insurers because Illinois has long had open rating for Workers' Compensation insurance premiums. Insurance companies have great flexibility in pricing Workers' Compensation insurance--even though rates are subject to review and approval by the department of insurance.
The reason is that, first off, insurers in Illinois are allowed to file and use "Schedule Rating" plans that give them the ability to make very large rate adjustments. These adjustments can be either credits (when an insurer wants to reduce premiums for an attractive account) or debits (when the insurer thinks it needs higher premiums than the usual rating procedures would produce).
Additionally, insurers in Illinois are free to file their own schedules of manual rates, so they can adjust the manual rates for various classifications to focus which kinds of employers they want to be competitive on.
But all this talk of a "competitive" marketplace for Workers' Compensation insurance misses some important points. For one thing, many smaller or newer businesses don't get the benefit of that rate competition. Many smaller or new businesses end up in the Assigned Risk Plan, where there is no competition, and rates can be double what they would be in the so-called "voluntary market" (that is, the non-Assigned Risk insurance companies.) But since those voluntary market insurance companies are free to compete only on those accounts they think will be most profitable, the small employers may not ever get the benefit of that theoretical price competition.
The Assigned Risk Plan is a very expensive place to get Workers' Compensation insurance, and it can severely penalize a small business just for being small.
The "Competitive" voluntary market tends to mainly interested in larger accounts, so smaller employers never see much benefit from the competitive market for Workers' Comp. And the current Assigned Risk plan is rather punitive towards small businesses (not to mention larger ones, who may have ended up there because of insurance market fluctuations).
And larger employers in the Illinois Assigned Risk Plan can really get clobbered if they become large enough to get forced into the Loss Sensitive Plan that is used for employers whose premium is over $200,000. It's a very unattractive Retro style plan that can make WC costs really, really painful.
All of which is not to say that there are not real benefits to having a competitive Workers' Comp market, such as in Illinois and Florida. Those benefits are quite real, it's just that they are not always as widely distributed among employers as they could or should be.
Actually, my home state of Illinois is even more "competitive". We have around 400 different insurance companies admitted to write Workers' Compensation insurance here. This point was noted recently in a hearing at the Illinois Senate (which I attended) by different witnesses, to make rather different points.
Illinois appears to be the most "competitive" state in the union, by the way. We have more insurance companies admitted to write Workers' Compensation insurance than any other state. But what does it really mean, from an employer's point of view, to have such a number of insurers writing Workers' Comp?
As one witness at the hearing pointed out, one thing it means is that insurance companies find it profitable to write Workers' Compensation insurance in Illinois. That's why more carriers are active here than in other states.
Illinois is profitable for these insurers because Illinois has long had open rating for Workers' Compensation insurance premiums. Insurance companies have great flexibility in pricing Workers' Compensation insurance--even though rates are subject to review and approval by the department of insurance.
The reason is that, first off, insurers in Illinois are allowed to file and use "Schedule Rating" plans that give them the ability to make very large rate adjustments. These adjustments can be either credits (when an insurer wants to reduce premiums for an attractive account) or debits (when the insurer thinks it needs higher premiums than the usual rating procedures would produce).
Additionally, insurers in Illinois are free to file their own schedules of manual rates, so they can adjust the manual rates for various classifications to focus which kinds of employers they want to be competitive on.
But all this talk of a "competitive" marketplace for Workers' Compensation insurance misses some important points. For one thing, many smaller or newer businesses don't get the benefit of that rate competition. Many smaller or new businesses end up in the Assigned Risk Plan, where there is no competition, and rates can be double what they would be in the so-called "voluntary market" (that is, the non-Assigned Risk insurance companies.) But since those voluntary market insurance companies are free to compete only on those accounts they think will be most profitable, the small employers may not ever get the benefit of that theoretical price competition.
The Assigned Risk Plan is a very expensive place to get Workers' Compensation insurance, and it can severely penalize a small business just for being small.
The "Competitive" voluntary market tends to mainly interested in larger accounts, so smaller employers never see much benefit from the competitive market for Workers' Comp. And the current Assigned Risk plan is rather punitive towards small businesses (not to mention larger ones, who may have ended up there because of insurance market fluctuations).
And larger employers in the Illinois Assigned Risk Plan can really get clobbered if they become large enough to get forced into the Loss Sensitive Plan that is used for employers whose premium is over $200,000. It's a very unattractive Retro style plan that can make WC costs really, really painful.
All of which is not to say that there are not real benefits to having a competitive Workers' Comp market, such as in Illinois and Florida. Those benefits are quite real, it's just that they are not always as widely distributed among employers as they could or should be.
Wednesday, December 22, 2010
AIG Settles With Regulators For $100 Million
Troubled insurer AIG has reached a settlement with insurance regulators across the country and agreed to pay a $100 million fine for having systematically mis-reported Workers' Compensation insurance premiums as other kinds of liability insurance. In addition to the fine, AIG will pay $46.5 million in fees and assessments, and has agreed to a potential $150 million in further fines if the insurer does not follow a compliance plan.
This was the same kind of mis-reporting of Workers' Comp insurance premiums that was the basis of a major prior settlement with New York's then Attorney General Elliot Spitzer.
It's unclear at this point how this settlement may impact the ongoing federal lawsuit between other Workers' Comp insurers and AIG. In that lawsuit, the other major Workers' Comp insurers claim AIG damaged them because they had to pick up the slack when AIG dodged fees and assessments for Workers' Comp assigned risk programs by mis-reporting Workers' Comp insurance premiums.
AIG's defense in that lawsuit has been to claim that the other Workers' Comp insurers engaged in similar behavior. Which leads to the question: if that federal trial uncovers evidence that other insurers did engage in similar behavior, will regulators have other targets to pursue? Or does this settlement with regulators presage a similar settlement by AIG with the other insurers?
The other unanswered question is this: to what extent did AIG's misreporting of Workers' Comp premiums distort the ratemaking process for Workers' Comp insurance? Is it possible that the $2 billion in Workers' Comp premiums that AIG has now admitted to mis-characterizing as other kinds of insurance introduce distortions in the data used to compute premiums for all other Workers' Comp policyholders in the U.S.? Did AIG cause premiums for employers all over the U.S. to be higher than they should have been, because AIG was hiding these Workers Comp premiums?
This was the same kind of mis-reporting of Workers' Comp insurance premiums that was the basis of a major prior settlement with New York's then Attorney General Elliot Spitzer.
It's unclear at this point how this settlement may impact the ongoing federal lawsuit between other Workers' Comp insurers and AIG. In that lawsuit, the other major Workers' Comp insurers claim AIG damaged them because they had to pick up the slack when AIG dodged fees and assessments for Workers' Comp assigned risk programs by mis-reporting Workers' Comp insurance premiums.
AIG's defense in that lawsuit has been to claim that the other Workers' Comp insurers engaged in similar behavior. Which leads to the question: if that federal trial uncovers evidence that other insurers did engage in similar behavior, will regulators have other targets to pursue? Or does this settlement with regulators presage a similar settlement by AIG with the other insurers?
The other unanswered question is this: to what extent did AIG's misreporting of Workers' Comp premiums distort the ratemaking process for Workers' Comp insurance? Is it possible that the $2 billion in Workers' Comp premiums that AIG has now admitted to mis-characterizing as other kinds of insurance introduce distortions in the data used to compute premiums for all other Workers' Comp policyholders in the U.S.? Did AIG cause premiums for employers all over the U.S. to be higher than they should have been, because AIG was hiding these Workers Comp premiums?
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