Facebook Workers Comp Scam

 It's being widely reported that there is a new Workers Comp-related scam happening on Facebook. In this scam, a crook impersonates someone's existing friend on Facebook and, via Messenger, says they spotted the victim's name on a list of people owed money from some kind of Workers Comp fund.

They have you call a number where you talk with an official-sounding person. But at some point, you will be asked to pay a small fee in order to get your big payout..

It's a classic scam, and I suspect most readers of this blog would be unlikely to fall for it. But you may have friends and family who might just be tempted by this fraudulent payday. 

Another Georgia Assigned Risk Workers Comp Audit Finally Fixed

 We just got word we have successfully reduced a Workers Comp audit bill for a Georgia small business client, down from the original $170,121 to $9,660. The insurance company had already turned this over to a collection agency before we got involved and that collection agent had been seeking that wildly inflated premium bill since last year. Fortunately, there are provisions to suspend such collection efforts while an audit is being disputed, and we made sure this client got the benefit of that while we worked to correct all the mistakes in this audit.

Around our shop, we call these situations Shock Audits, and this case neatly exemplifies how extreme these overcharges can be.

This was another Shock Audit from the Georgia Assigned Risk program--we've been seeing a lot of those, for some reason. Assigned Risk policies can be particularly perilous for small businesses, as the insurance agents who sell these policies typically aren't too much help in disputing these audits, even with the best of intentions. In the Assigned Risk plan, the agent has just about no real leverage with the insurance company and usually lacks the technical expertise to fight these excessive audits effectively.

And some of the insurers who issue these Assigned Risk policies, it seems, have been getting rather carried away in doing these premium audits, as this case illustrates. If not for our assistance, the usual course would have seen this insurer filing a lawsuit for this excessive amount, once the collection agent was unsuccessful (and he would have been, as this small business had no chance to pay that hugely inflated audit bill.) And that likely would have been the end of this small business.

Instead, the fair and proper premium has been paid, and this small contractor gets to continue.

As I like to say, we don't sell insurance--we fix it.

A Somewhat Unusual Phone Call This Morning

 Got a call this morning from the UK, which is somewhat unusual for me, as my specialty is consulting on the US system of Workers Comp insurance pricing. But this caller said that his company had recently purchased a US-based operation, and had some questions about our somewhat unique system.

The American system of Workers Comp coverage, using private insurance companies to a great extent, is different from what is done in most other places, after all. This caller wondered about why the manual rates on his policy were significantly higher than NCCI rates would suggest.

I got to explain the modern development where, in most states, insurers are allowed, and even encouraged, to file and use their own manual rates for Workers Comp, often using NCCI rate components as a base but ultimately coming up with their own particular schedule of rates. This is in marked contrast to the way things were in the halcyon days when I first began working with Workers Comp insurance, back in 1978.

Back then, most states required insurers to all use a single schedule of manual rates. The theory, back then, was that price competition might not be in the best interest of the system's stability. But that began to change, and change rapidly, in the very early 1980s.

Nowadays, the operating theory is that "price competition" will benefit employers and help hold down insurance costs. Regulators thought this would even reduce the need for oversight of Workers Comp insurance, with a somewhat naive faith in the power of the marketplace.

The pricing of Workers Comp insurance is complex enough so that insurers very quickly figured out how to turn this "competitive rating" system to their advantage. It is now common, in voluntary market policies, for an insurer to underwrite via a "loss pick"--forecasting the losses they expect an employer to have during an upcoming policy and then determining what premium they need to charge so that the account will be profitable.

The insurer then essentially works backwards from that premium, figuring out how to utilize classifications, manual rates, and other rating factors to have the premium come out to where they want it.

This rather turns the carefully-constructed system of WC premiums on its head, of course. And makes it difficult for policyholders to truly comparison shop, because the pricing system is now fundamentally opaque in important ways.

In our consulting work, of course, we manage to still figure things out, and I guess I could be thankful that the insurance industry has made things so that it requires an outside expert to figure out if they're being overcharged. Heck, they inadvertently created my life's work, as I've now spent more than half my life (and the majority of my working life) doing exactly that--identifying and correcting the hidden overcharges the US system is prone to.

It's been an interesting career, and it's (God willing!) far from over. Nowadays, we're busier than ever, figuring out the latest ways some insurers have devised to generate higher premiums, all while making it harder to figure out their pricing mechanisms.

It's a unique niche, I suppose, but it suits me. And people like my UK caller seem to appreciate my efforts. Employers like us, it seems, even if insurers sometimes don't.

Weaponizing Workers Comp Insurance Against Small Business

 In just the past week, I’ve been contacted by multiple small businesses, located in disparate states, with a shared problem: their insurance company is trying to put them out of business.

Now, of course, that isn’t really the primary objective of these huge insurance companies. It’s just that they don’t give a shit. They think they are owed money for Workers Comp insurance—a lot of money, in fact—and thus these financial giants have put in motion their standard operating procedures for obtaining what they believe is owed them.

And that is how Workers Comp insurance gets weaponized into a very efficient financial equivalent of a thermobaric bomb.

Consider one of these cases, a small construction company in Georgia. This company was required by state law to buy Workers Compensation insurance, so they reached out to a local insurance agent. They were a small company so the insurance agent placed them into what’s known as the Assigned Risk Plan—a state-sanctioned insurance industry mechanism that accepts all applicants, even very small businesses that insurers aren’t normally much interested in.

The premium charge for that policy was $1,500.00.

At the moment, the insurer is now seeking, years after the policy ended, over $700,000 from this small business, for that $1500 policy and the subsequent policy (which the small biz also bought for about $1500).

So a small and unsophisticated construction business bought two Workers Comp policies, policies that state law required them to buy, and now, years after those policies ended, they are on the receiving end of a bill for over $700,000.00.

This is not an aberration. This is not some weird one-off situation. This is an everyday occurrence. I know, because I get calls and emails almost every day from small business owners in the same kind of situation.

Around our office, we call them Shock Audits.

It is difficult to imagine any other industry where this sort of thing could occur, much less be commonplace. Insurance, after all, is supposed to be regulated by state agencies. And Workers Compensation is, according to insurance industry spokespeople, the most highly regulated line of insurance.

And yet.

We have a system that often drives small employers out of business, or saddles them with huge unexpected costs, for something that they are required to purchase. A system that routinely sells an insurance product that is priced very low at the outset, only to balloon outrageously after the policy has ended.

Stay tuned for more information to come on this subject.

Today's Workers Comp Shock Audit Phone Calls

 As I have often written in the past, it's a rare day at my office that we don't get a phone call or email about a Workers Comp "Shock Audit" from some employer, somewhere in the U.S. Today I got two.

The first one, this morning, was from a small biz in New York. This gentleman operates an import/export type logistics business. He insured his business through the New York State Insurance Fund, and bought a policy for only a few hundred dollars, as he was the only worker at his company. Or so he thought.

He called me because he now has a "Shock Audit" from SIF for $50,000. He's not absolutely sure how SIF managed this bit of legerdemain but it appears to involve him being charged for when he hired independent trucking companies to move some goods and he didn't get Certificates of Insurance from them.

I think we can likely help him straighten this out, once we get all the documents and paperwork from him regarding this Shock Audit. Most of these trucking companies didn't even operate in New York State, so it does make one wonder how an insurer that only insures an employer's New York liabilities is charging premium for those trucking companies. My initial impression is that there is a very good chance we can help reduce this audit bill substantially.

The second call I got today, though, is even more extreme. The call was from a non-profit agency in Georgia, an agency that helps Hispanic businesses. The Shock Audit involves a small roofer who bought a policy for around $1,000 and now has an audit bill of $600,000.00.

Yeah, that's not a typo. The non-profit is going to serve as a translator tomorrow, as the small business owner isn't fluent in English. Interestingly, the non-profit person who called me said this is far from the only such case they've seen like this. It appears these Shock Audits have been clobbering an awful lot of small businesses.

As Harry Bosch put it, you have to follow the facts. So I can't yet say what the odds are of helping this second Shock Audit. But based on other, similar cases I've seen in recent years, I have some expectations of what might have happened. We'll find out tomorrow if my theories hold water or if the insurer found some new and innovative ways to turn a $1,000 policy into a $600,000 audit bill.

I only know this. If there are errors in these audits, we will find and reverse them. Because that's what we do.

Forty-Three Years Working With Workers Comp Insurance--Some Observations

 I started in the wonderful world of Workers Compensation insurance--still often called "Workman's Compensation" back then--in 1978, working at the late, lamented insurer American Mutual. American Mutual had, according to the company lore, written the very first "Workman's Compensation" insurance policy in the U.S., back in 1911. The company specialized in what we now call "Workers Compensation" insurance, and so they provided a very thorough training program to their Industrial Account Representatives, as they called their in-house insurance producers. They shipped me out from our offices in Chicago to a classroom they ran out by the Home Office near Boston, for an intensive three week course covering the fundamentals of underwriting, pricing, and auditing this unique line of insurance. 

That course was taught by a remarkable guy named Don Barber, who had an engaging and energetic way of covering materials that, in other hands, might have been dry as dust. 

Here I am, forty-three years later, still working with Workers Compensation insurance every day, and still using many of the lessons Don Barber tried to teach us, all those years ago. And yet, a great many things have changed in the field. Not all of them for the better, I think, although a great many of those changes have produced genuine benefits for many. Occasionally, those changes even serve the interests of the employers who have to buy the insurance. But some of those changes have eroded important things that were once viewed as inviolable principles that were fundamental to Workers Comp insurance.

The biggest change I've observed over these forty-three years is the erosion of regulatory oversight and control over insurance companies, along with significant changes in underwriting practices.

Back in the day, Workers Comp insurance was pretty closely regulated. Every company had to use the same rates, the same classification rules, the same experience rating rules. Innovation was discouraged, as it was felt that it was more important to maintain uniformity and predictability for policyholders, and to preserve financial strength for insurers.

But starting in the 1980s things began to change. Insurance regulators moved to allow price competition in Workers Compensation insurance, something that had been virtually impossible before. In 1978, American Mutual and other insurers differentiated themselves largely by the services they could provide for loss control, as pricing was pretty uniform. Then American Mutual introduced a rather revolutionary kind of policy, a sliding scale dividend policy that offered smaller employers the possibility of premium returns if losses were favorable--a feature previously only available to larger employers who were eligible for Retrospective Rating plans.

Then regulators in various states began to allow actual competition on filed rates and greater use of schedule rating. In Illinois, an insurer named Casualty Insurance Company took early advantage of these changes, filed their own manuals and radically different rates, and very quickly grew from nothing to the largest Workers Comp insurer in the state.

It took a while for more traditional insurers to catch on. I remember American Mutual seeing its book of Illinois business rapidly decline as Casualty swooped in and took policyholder after policyholder away. The oldest writer of Workers Comp insurance didn't realize it right away, but their days were numbered.

Today, most states don't really have much real oversight over Workers Compensation insurance pricing. They review and approve manual rules produced by rating bureaus like NCCI and WCIRB but there it often is a bit of a Potempkin Village these days. In my home state of Illinois, the Department of Insurance has seen an exodus of those who had real experience and knowledge of Workers Comp insurance. An older generation of regulators has retired or been forced out through budget cuts and those remaining, even with the best of intentions, are overworked and under supported by higher ups.

So the trend has been for insurers to underwrite policies without so much regard to figuring out things like correct classifications for a particular employer. I've seen sworn testimony from insurance company personnel that the prevailing attitude is to issue policies without exercising any real judgement about classifications initially used on a policy, with the thought that any errors can simply be caught on the audit.

That kind of attitude sets up employers for frighteningly expensive "Shock Audits" where classifications (or allocation of payroll among classifications) is changed after a policy ends, leaving an employer with a massively higher premium bill for a policy that's already expired.

It also fostered the environment where an insurer could market a program like EquityComp, where the details governing the ultimate cost of the insurance policy were so complex as to be incomprehensible to employers and even many of the insurance agents selling the policies. This ended in tears for many employers, when very large bills for additional premium came in and the explanations for those costs may as well have been an explanation of quantum mechanics. In Esperanto.

It's also fostered the huge growth of complex Large Deductible policies as well, where the ultimate cost of the insurance is determined by complex and proprietary formulas that are often poorly understood by those buying the insurance. It's only when the bill for huge additional premiums arrive that some employers start to realize they didn't really understand the pricing of the policies they purchased, to their eventual regret.

And even in smaller policies through Assigned Risk plans in many states, the concept of underwriting only at the time of the audit is a common one, causing Shock Audits a'plenty for smaller employers who often have only a very rudimentary understanding of this line of insurance. And insurance regulators typically can offer only very limited assistance when those Shock Audits threaten the existence of a small employer, because of deregulation and diminished authority and staff at many insurance regulatory agencies.

So in forty-three years, Workers comp insurance has gone from being tightly regulated (arguably too regulated, perhaps) to something that is, in this writers view, almost unregulated, in a practical sense. Policy forms are still filed, rates are still reviewed, but too much emphasis has been placed on using competition alone to regulate the pricing of Workers Compensation insurance. While that approach can offer some benefits, it also encourages large and powerful insurance companies to take advantage of employers, especially small employers, in the pricing of insurance that is a required purchase for most businesses.

Insurance regulators have been gradually enfeebled and hobbled in many states, and while this might make life easier for insurance companies it has not, in my view, been in the interests of employers.

Nebraska Legislators Introduce Covid-19 Workers Comp Presumption

 Out in Nebraska, legislators have filed a bill to make COVID-19 infections presumed to be compensable for first responders and other designated types of workers. Now, so far, I've been unable to find specifics about which categories of workers are included in this bill--which has not yet been passed into law, btw. 

The other interesting aspect of this bill is that is specifies that no COVID-19 case can increase an employer's Workers Compensation insurance premiums, or experience rating, or modifier. So that should be an interesting thing to handle behind the scenes, if the bill passes as currently written.

Stay tuned for more details as I can find them out.