Illinois Workers Comp Rates Down--Premiums, Not So Much

Here's an interesting article from Business Insurance about how Illinois construction companies have not seen a decrease in Workers Comp premiums, even though there have been highly touted reductions in insurance rates in recent years.

This illustrates something I have written about before--just because manual rates go down, it doesn't mean the actual premiums paid by employers do the same. For one thing, this reduction in manual rates has coincided with a change in the NCCI experience modification factor formula. So even as manual rates decline, many employers have seen sharp increases in experience mods that more than offset any rate decreases.

And of course, there are lots of mechanisms for insurers to offset manual rate reductions in other ways, mainly by adjusting the use of Schedule Credit or Debits.  So a decrease in manual rates doesn't translate to an automatic decrease in premiums in the so-called Voluntary Market. And even in the Assigned Risk Plan, the change in the experience mod formula would more than offset the manual rate decrease for many employers.

Something to keep in mind when politicians hype the effectiveness of recent "reforms" in the benefits paid to injured workers.

New Oregon Study Ranks State Workers Comp Cost

The Oregon Department of Consumer and Business Services has released its latest study ranking the relative costliness of Workers Compensation insurance in all the various states.  The 'winner' this year, for most costly state, is California. And in our own experience, not only is California an exceedingly expensive state to buy Workers Compensation insurance, t is also a state where the regulatory and oversight mechanisms seem particularly poor, in terms of the redress and protection provided to employers in disputes over premiums, audits, classifications, and modifiers.

California goes its own way when it comes to Workers Compensation insurance, using its own rating bureau with its own distinctive manual of rules--and the biggest source of WC insurance is the State Compensation Insurance Fund, a state owned and operated WC fund that competes with private insurance. The combination of all these factors, really high premium rates and really crappy regulatory oversight, combined with a particularly high-handed State Fund means that employers in the Golden State have a really, really tough time of it. If you think your Workers Compensation insurance costs are a burden, just thank the business gods that you're not in California--unless you are, which in that case means you're really, really taking it on the chin.

New York Small Biz Learning Hard Lesson About Group WC Trusts

This is one of those stories that pops up repeatedly, in different states at different times, but never seems to ever go away for long, because various states seem unable to resist the lure of cheaper Workers Comp alternatives without making sure adequate regulatory oversight is in place to avoid disaster down the road.

It's happened here in Illinois in the past, in Kentucky, and in other states that have allowed group self-insurance trusts for Workers Compensation coverage. Without effective oversight, some of these plans inevitably dig themselves into a hole from there is no escape. They underprice coverage, getting business in the short term, but eventually those long-tail WC claims eat them alive.

Then the former members of these trust start getting bills for huge amounts, as they are held responsible for their proportionate share of the huge shortfall of the fund to which they were once a member. It isn't fair, it's a huge and crushing burden to many small businesses, and those who created the problem--lawmakers and those who ran the trusts--typically avoid the painful fallout.

Florida Officials Courageously Target Exploited Workers

...the employers who exploit them, not so much, apparently. And in the process, of course, helps reward employers who hire undocumented laborers.

This article in the Insurance Journal explains that Florida officials have been touting the arrests of undocumented workers who used fake ID to get work (and thus get Workers Comp coverage). Apparently, those workers foolhardy enough to actually make a claim when injured at work were instead arrested.

According to the article, there have been way more cases against such workers than there have been against the employers who benefit from such exploitation. And the beauty of this all is that the system rewards employers who use such desperate workers, because if the injured workers are afraid to file claims when injured, the experience modification factors for these employers will stay low--lower than the modifiers of companies that play by the rules and hire legal workers.

For companies in construction trades in particular, keeping experience modifiers low is an increasingly critical matter--more and more, customers are insisting on experience modifiers at 1.00 or lower in order to even bid on projects. And the new NCCI experience mod formula is pushing a lot of smaller companies over that all-important threshold, with dire consquences.

So nice to know that Florida authorities are focusing their efforts on the poor desperate people who do the dangerous and difficult work, and not the shady employers who take advantage of them (and in the process, gain a huge advantage over honest employers.)

North Carolina Avoids Rewarding Employers Of Undocumented Workers (For Now)

North Carolina has stripped out a provision of a recent bill that would have precluded Workers Compensation benefits for undocumented workers. But, they promise, they will take up the idea at some future legislative gathering.

Sigh. So the bad penny of Workers Compensation law may yet return again. Because if undocumented workers are prohibited from actually being compensated when they are maimed or other injured at work, it means that those employers who hire them would get a big advantage over employers who employ legal workers.

If undocumented workers can't get compensated under the law, this means the experience modification factor for employers who hire them will end up significantly lower than the mods for law-abiding competitors. After all, if the worker who loses some fingers, or a hand, or has a should go out, can't actually make a claim, there's nothing to report for the experience modifier. So this ill-conceived "reform" would actually create a significant financial incentive for employers to hire undocumented workers.

Not exactly what the legislators of North Carolina likely had in mind. I suspect the sponsors of this provision were mainly interested in making sure that desperate people could more easily be exploited and injured by employers without financial consequence to those employers, and at the same time provide a convenient platform for political grandstanding and fundraising.

South Carolina also recently considered, and then abandoned, such a change in their law. But the idea keeps cropping up, and some benighted states have actually enacted such restrictions.

Given the current state of our politics, and the desire by certain lawmakers to curry favor with the most fanatic of our nativist crusaders, I am sure this idea will keep coming up for consideration. And if and when enacted, it will be an object lesson in unintended consequences, by rewarding employers who hire undocumented workers with financial gain.

As for all those shorn fingers, mangled toes, blown-out shoulders and backs of undocumented workers, well, that's really not the concern of certain politicians and their allies. They don't allow blood and body parts on the floors of most state legislatures, it might upset the delicate digestions of the lawmakers.

New York Rating Bureau Gets Some Unwelcome Publicity

The New York Workers Compensation rating bureau, known as the New York State Compensation Insurance Rating Board, is getting some bad publicity and maybe some regulatory review after a rating decision causes a Brooklyn factor to shut down.

http://www.nydailynews.com/new-york/insurance-rating-agency-probe-causing-brooklyn-factory-close-article-1.1859852

This kind of economic shock to an employer isn't all that uncommon--we here at Advanced Insurance Management get calls and emails on a regular basis from employers facing similar price shocks after decisions by an insurance company or the rating bureau (NCCI in most other states, but some states like New York, California, and a few others operate their own).

This article illustrates not only the often unappreciated danger employers can face from these sorts of unexpected rate increases, it also carries another lesson. This Brooklyn factory started this whole problem by requesting a review by the NY board, after their insurance agent said they could be eligible for a lower rate.

That blew up in the faces of this small factory, and drives home the point that you really need to make sure you are working with knowledgeable experts when it comes to things like Workers Comp classifications, audits, and experience mods. Otherwise, like this unfortunate Brooklyn company, you might inadvertently begin something you ultimately regret.

WTF in Arizona Workers Comp

Arizona is kind of an odd state when it comes to the regulation of Workers Compensation insurance. Odd, in that it appears to essentially have no regulation or oversight of insurance companies regarding Workers Compensation insurance. The Department of Insurance says they don't get involved in Workers Comp insurance, no sir, no way, you have to talk to the Industrial Commission. And the Industrial Commission says no, we don't get involved in regulation or oversight of the insurance companies, we just provide oversight and regulation of employers in regards Workers Comp.

Wait, it gets better (well, worse, actually.) Arizona allows workers to legally waive themselves out of Workers Comp coverage. But it's supposed to be their own idea--no, really. The employer isn't supposed to suggest it or ask for it or pressure them or anything like that--wink, wink, nudge nudge. No potential for abuse here, I'm sure.

So basically, if an insurance company decides to impose some rule or policy that they just made up regarding how they compute Workers Comp insurance premiums, , the employer really doesn't have anyone to turn to. They could hire a lawyer, I suppose, and try to fight in court, but for lots of employers that recourse is too expensive and unsure to be a viable option.

I try not to let politics enter into this blog much--but really? I know Arizona politics is dominated by Republicans, but I thought the GOP also championed small business, and not just the big guys like the insurance companies.

In Arizona, not so much, it appears.