AIG Skyscraper Going Condo

February 2, 2010--I saw a news item the other day that AIG's headquarters on Pine Street in Manhattan has been sold and will be turned into a condo development.  That's a sad chapter in the story of AIG.  I've been deposed by AIG lawyers once or twice at 70 Pine, and it really feels like the passing of an era to read this news item.

I've certainly been critical over the years of some aspects of AIG's operations, and I've been very outspoken over the disastrous collapse of AIG's Financial Products division and the hubris that seemed to drive that division.  But there is no pleasure to be derived from the decline of this storied insurance company, now struggling to survive and be reborn.  Ask not for whom the bell tolls...

Changes Coming in California Experience Mod Formula

December 8, 2009--The California Insurance Commissioner recently rejected a rate increase in that state, but did approve changes in the formula used to compute experience modification factors for California employers.

California has its own rating bureau, this bureau (WCIRB) computes experience modifiers that apply only in California, and are not integrated with other state's data. 

These changes mean that, for some California employers, their 2010 experience modifiers will be going up, even if loss experience hasn't really changed.

Overall, the statewide average experience modifier is not expected to change under the new formula.  But for some employers, this likely will not be the case.  This is particularly important for employers in certain industries, where maintaining a mod of 1.00 or lower is critical to the ability to bid on some jobs.

For such employers, it may be advisable to have their 2010 modifier calculated in advance, to determine what impact the new formula will have on them.

Insurance Group Questions Study on State Funds

November 18, 2009--The Property Casualty Insurers Association of America has questioned the conclusions of a recent study by Conning Research and Consulting.  The study had found that state Workers Comp funds operated more efficiently that insurance companies.

PCIAA essentially says that these state funds get the benefits of various hidden subsidies from that account for their lower expenses--things like getting the use of state facilities and not paying taxes or commissions.

While these objections may be valid, I think they kind of obscure the fundamental point of the original study--that the state fund model delivers Workers Compensation coverage at lower cost for employers, and thus also operate to create competitive pressure on insurers to hold down premiums.

From an employers' perspective, then, it may not matter so much if these funds have certain advantages not generally available to insurers.  It's results that count, I suspect, when the results involve lower Workers Compensation costs for employers.

Calling Kanye West

October 27, 2009--Well, the nominations have been announced.  And once again, this writer has been overlooked by the academy---errr, by Lexis Nexis.

They've announced their nominations for best Workers Comp blog.  You can see the list here.  And try as I might, I cannot find my own humble efforts (such as this very page, or my other blogs) listed.

Surely this is merely an oversight on the part of the judges.  Somehow, my rants--I mean, my informed ruminations--on the Workers Compensation scene must be worthy of consideration, n'est ce pas?

The only thing to do, I figure, is to read all those other blogs and steal all their good ideas learn from their examples, so I can improve my own efforts.

And if that doesn't work, there's always the Chicago way.

Seriously, congratulations to all those folks out there who are obviously doing a better job of this than I am.  But just wait until next year.

Greenberg Building 'AIG 2.0'?

October 27, 2009--There's a fascinating report in today's New York Times that ousted AIG chief Maurice "Hank" Greenberg is busy assembling what might be called "AIG 2.0".  Greenberg, who grew AIG into an insurance giant, was deposed back in 2005 after a much-publicized run-in with Eliot Spitzer.

Now AIG itself is a ward of the federal government, and the Feds have put harsh limits on executive pay for the ailing insurer.  But Greenberg is free to poach talent from AIG, because his new operation isn't subject to such constraints.

Whoever said that there are no second acts in American public life clearly didn't know Hank Greenberg.

The "new" Greenberg company, C.V. Starr & Company, is actually a predecessor of sorts to AIG, closely linked to AIG in the past but technically separate.  And the Starr company is privately held, correcting what Greenberg reportedly came to view as a mistake he made decades ago in taking AIG public.

Time will tell if the wily but aging Greenberg can pull this off one more time.  Having recently read a fascinating history of AIG and Mr. Greenberg (Fallen Giant, by Ron Shelp) I can only conclude that if anyone could do this, it would be Maurice R. Greenberg.

CA Commissioner Questions Proposed WC Rate Hike

October 26, 2009--California insurance Commissioner Steve Poizner held a public hearing recently on the request by WCIRB (the California rating bureau) for a 22.8% rate hike.  Poizner has pointed out (rightly, I think) that such a rate hike would be a devastating blow for California businesses trying to deal with the current economic downturn.

Poizner had disapproved an earlier 23.7 rate increase sought by WCIRB.  More details can be found here.

Public Option for WC Doing Well: Study

October 21, 2009--With all the debate over the "public option" in health insurance, it's interesting to note a new study that finds the public option working well in the Workers Compensation arena.

According to a report in The Insurance Journal, this study by Conning Research and Consulting finds that state funds for Workers Comp "perform better than the private market in a number of performance categories".

For states that don't operate such funds, this study would appear to suggest that the public option for WC offers some attractive benefits.

Derivatives and the Insurance Market

October 20, 2009--I recall having written, perhaps twelve or fifteen years ago, about my concerns over the potential dangers posed by derivative investments, and how these might impact insurance companies.  At the time, I was assured by insurance regulators I spoke with that insurance companies' exposures to these investments were limited, thanks to the limitations placed on insurance companies by regulators.

That was true then, and remains technically true even today.  Yet of course derivative investments played a major role in nearly destroying the largest insurance company in the world, and in devastating the values of other investments held by other insurers as well.  I would feel a little smug about my foresight if it weren't for the fact that the whole country has been wounded by the current economic calamity.

What regulators back then didn't anticipate was that the barriers between insurance companies and other kinds of financial institutions would be removed, so that a company such as AIG could get heavily involved in financial "insurance" instruments such as credit default swaps to such an extent that the viability of the combined enterprise would be compromised.  The traditional insurance operations of AIG weren't involved in this, but when the Financial Products division of AIG cratered it created such horrendous losses that all the AIG companies were impacted.

And those regulators also never anticipated that the widespread use of these "weapons of financial mass destruction" (as Warren Buffett so memorably described them) would devastate the entire economy so thoroughly that financial markets generally were crippled, and create the worst economic crisis since the 1930's.

I thought about my long-ago concerns about derivatives as I read the newest Matt Taibbi article on this subject in Rolling Stone.  Now, Taibbi doesn't appear to be the most restrained commentator on the financial crisis, so there can be a bit of hyperbole in his writings on the subject.  Nonetheless, there would seem to be some genuine issues raised by him that need to be taken seriously.  Most fundamentally, it raises the issue of how to separate out the legitimate uses of derivatives from the abusive and dangerous ones.

New Delaware Law on Independent Contractors in Construction Biz

August 4, 2009--Delaware governor Jack Markell has signed a bill that levies fines on employers in the construction business that repeatedly misclassify workers as independent contractors.  The fines can range up to $20,000 and the law also allows authorities to shut down repeat offenders.  It also allows employees to file suit against employers over this issue if state regulators fail to act.

AIG: A Hollow Giant?

July 31, 2009--There's a disturbing news article today in the New York Times about America's favorite insurer, AIG.  According to the story, the weakness at AIG isn't limited just to the notorious Financial Products unit that nearly cratered the world financial system a while ago, but instead may afflict the various insurance entities that make up the insurance company. 

"The dozens of insurance companies that make up the American International Group show signs of considerable weakness even after their corporate parent got the biggest bailout in history, a review of state regulatory filings shows."  New York Times, July 31, 2009

Reportedly, the problem lies in massive intercompany reinsurance dealings and stock investments between different AIG companies.   This enabled AIG to play a shell game with state regulators, shuffling assets and liabilities among different entities that were examined by different state regulators.

Someone I know who used to be a fairly high-level manager at AIG once told me that "Hank" Greenberg, former emperor of AIG*, used to view insurance regulators as a minor annoyance, and their regular fines of AIG as just "speeding tickets" and that it was much cheaper just to pay the tickets than to change the way AIG operated.

The real legacy of Mr. Greenberg is that, now that the truth is emerging about how his empire operated, real oversight of the insurance industry (perhaps at the federal level) might come to pass.  If what the NY Times is reporting is accurate, it would be long overdue and badly needed.

Good News in South Carolina

July 27, 2009--NCCI and the South Carolina Department of Insurance have agreed, in response to prodding from AIM, that older experience modification factors that should have been corrected but weren't can be corrected, as long as the cause of the problem was an insurance carrier not filing corrected reports on a timely basis.

This opens the door for AIM to obtain refunds for even more SC employers that were overcharged because of the widespread problems with insurers reporting Second Injury Fund reimbursements.

The New South Carolina SNAFU

June 19, 2009--We've been reporting since 2006 on the problems in South Carolina.  Now there's a new development.  NCCI is balking at fixing some older experience modifiers for victimized employers.

Our 2006 study broke the scandal in the first place--that insurance companies were often not reporting to NCCI reimbursements they received from the Second Injury Fund.  This meant that employers' experience modification factors were inflated, and thus the employers were being overcharged for their Workers Comp insurance.

We've been working now to recover those overcharges for affected employers.  But now NCCI is balking at correcting some older experience modifiers.

We would point out that NCCI rules required insurance companies to report these reimbursements to NCCI on a timely basis.  But in over half the cases, insurers failed to do so.

Now that AIM is getting those insurers to belatedly make those reports, NCCI is claiming that it's now too late to fix some of the older modifiers, and thus the affected employers can't recover the overcharges.

We don't think it's right that employers should be penalized for the failures of NCCI and NCCI's member insurance companies.  And we're continuing to work with NCCI and SC regulators to overcome this Catch-22. 

We'll keep you posted on further developments.

AIG & The Talented Mr. Greenberg

May 18, 2009--There's a fascinating new article published by The Sunday Times of London.  The article examines the early warnings about AIG that were suppressed and heatedly disputed by AIG and others.

"Towards the end, it looked much like a Ponzi scheme, 'yet the Obama administration still thinks of AIG as a real company that simply took excessive risks'. In other words, there was never a chance AIG would honour its contracts: its income was nowhere near enough to cover the payouts. "--Sunday Times article.

In recent months, former AIG emperor Maurice "Hank" Greenberg* has sought to characterize the collapse of his former fiefdom as something that resulted from changes that occurred after Greenberg was booted out of AIG.  This article strongly suggests that this is a self-serving and misleading characterization, and that AIG insurance operations had problems for a long time.  This article certainly seems to make it difficult for Greenberg to deny responsibility for the financial troubles of AIG, as they would appear to be the direct result of management decisions that happened on his watch.  And Mr. Greenberg was always famous for being a very, very hands-on kind of guy.

And now, of course, we all get to see our tax dollars shoveled into Mr. Greenberg's former company, in a desperate attempt to prevent his black hole from swallowing the entire financial system.  Most frighteningly, the black hole analogy may be apt: it may be impossible to save oneself by feeding the beast.  Like a real black hole, AIG may just suck everything down into its maw and grow into an ever larger, ever more voracious, abyss.

The New Book

April 10, 2009--The new updated book is done!  It took longer than I thought it would, but the successor to Ultimate Guide to Workers Compensation is complete.  The new and updated tome, Workers Compensation Insurance: A Field Guide for Employers & Others, will be available soon from Amazon in book form.  It's available right now, though, as a CD-Rom or pdf via email, through our own webpage.

Ultimate Guide had gone out of print early this year, and the publisher wasn't interested in printing an updated edition.  So we did it ourselves, (in conjunction with BookSurge, Amazon's publishing arm.

Amazingly, we were getting reports that some folks were offering their used copies of Ultimate Guide online for over $100.  Sorry to deflate that market, but the new book contains lots of updated information and some expanded new stuff too.  So if you liked Ultimate Guide (or my earlier book CompControl) you'll love the new updated Field Guide.

Rotten At The Core: New York's Comp System

March 31, 2009--There is a terribly revealing, terribly depressing expose in the New York Times about how the New York state Workers Compensation system manages to combine high costs for employers with lousy benefits for injured workers.  Apparently, New York hired Franz Kafka to design their system of compensating seriously injured workers, with predictable results.  Many states have problems with their Workers' Compensation systems, of course, but the conditions described in this article are appalling and frightening.

South Carolina Has A Terrible Idea

February 18, 2009--Legislators in South Carolina are proposing a terrible idea--to cut Workers Comp benefits for illegal aliens.

It's a terrible idea because it would reward employers who hire illegal aliens, and simultaneously lessen incentives to maintain safe workplaces.

While the proposed bill would still have the Comp system pay medical bills for injured illegals, it would deny those workers disability payments.  That means that serious claims would cost insurance companies less if they happen to illegal workers.  And that means that the employers who hire them would benefit from lower experience modification factors on future policies.  So the cost of Workers Compensation insurance would be lower for employers who use illegal workers than it would be for employers who don't, all other things being equal.

Additionally, this legislation would reduce the financial incentive for such employers to operate a safe workplace.  If serious claims have a much lower impact on your future premiums, the financial incentive that's built into the WC system would be seriously eroded for employers using illegals.

So not only would it create a system that tends to increase the workplace risks for illegal workers, it would also increase the workplace risks for legal employees who work alongside illegals.

All in all, it's a really terrible idea.

AIG: Too Big To Save?

November 3, 2008--There are alarming reports that the federal bailout of insurance giant AIG isn't working.  According to these published reports, even the $143 billion the U.S. government has committed isn't sufficient to fill the financial black hole that's at the heart of AIG.

If true, it raises the prospect that AIG, rather than being too big to fail, may in fact be too big to save, even for the feds.  And it means that there is a horrendous financial mess lurking just over the horizon, if AIG can't be stabilized. 

What hath greed wrought?

Small Biz & WC Group Trusts

October 7, 2008--A new survey finds that many small business owners really don't understand the potential pitfalls of group self-insurance trusts for Workers compensation.  And that's certainly consistent with my own experience--these programs were often marketed in ways that downplayed the downsides of such programs.  Many small business people perceived these programs to be essentially interchangeable with traditional Workers Comp insurance, and that's just not the case.

In recent years group self insurance programs have collapsed in  a number of states, including Illinois, New York, Kentucky, and California.  And it's only then that employers learn that, as members of the group, they' re responsible for helping make up the shortfall for the entire group.

In this recent survey, 58% of small business owners were unaware that members of such groups remain liable for the financial shortfalls of the entire group, even after they leave the group.

These group self-insurance programs often offer savings in the short run, but can create long term liabilities for participants that are poorly understood by many.

AIG Nationalized

September 17, 2008--As most folks know by now, AIG has been rescued by a loan of $85 billion from the Federal Reserve.  In return, the U.S. government owns 79.9% of AIG.  AIG has, in effect, been nationalized, in an unprecedented attempt to stave off a cascade of really bad things in the global financial sector.

Keep in mind that AIG wasn't even regulated by the federal government.  But now it's being run by them.  And I suspect it won't be all that long before federal regulation of large national insurers finally comes to pass, thanks to this spectacular failure of the world's largest insurance company.  Even though it wasn't the insurance company part of AIG that turned into a financial black hole--not traditional insurance, anyway--this monumental debacle provides powerful incentive for the Feds to make sure nobody else screws up like this ever again.

Will this permanently shut up those who believe that unregulated free markets are the last, best hope for humanity?    Probably only for a generation or two, just like after the Great Depression.  It took a long time for America to forget the lessons of 1929, and now, just a few years after we dismantled some of the important reforms from that era, we're learning them anew.  And it's only costing us $85 billion here, and $40 billion there, and...

AIG: Next Domino?

September 15, 2008--Regular readers of this blog know that I have often been critical of insurer AIG in the past.  The company has long been loved by Wall Street, but not always by some policyholders and regulators.  Now AIG is fighting for its corporate life, struggling to avoid the fate of Lehman Brothers and Bear Stearns on the ash heap of financial history.

AIG is seeking a $40 billion bridge loan from the Fed to stave off the consequences of an anticipated ratings downgrade.  Without that, AIG may be toast.  And if AIG is toast, the insurance marketplace will be scrambling to replace many, many policies on short notice. 

UPDATE--It is now being reported that the New York State will suspend certain insurance regulations to enable AIG to borrow $20 billion from other AIG-owned business units.  It is also reported that the Federal Reserve is arranging $70 -$75 billion in loans from the private sector to shore up AIG's capital. 

New Website for Injured Workers

September 14, 2008--An advocacy group for injured workers in California has gone national with the National Organization of Injured Workers.

These folks are up in arms over what they perceive as systemic wrongdoing when it comes to taking care of injured workers.  And the cases they cite would seem to back up their case, that injured workers are not being properly helped by the Workers Comp system.

They're pretty hard on insurance companies, (but then I've been known to be a little hard on them at times myself.)  Certainly, insurers have a tendency to focus single-mindedly on the things that increase their costs.  And it's been my experience while consulting on errors in premium computation that insurers make a lot of mistakes that are conveniently beneficial to themselves.  So it doesn't surprise me that insurers may similarly be so obsessed with fighting exaggerated or fraudulent claims that they get carried away and sometimes aren't fair or just to genuinely injured workers.

Take a look at the NOIC website for examples of the kind of problems that are the exact opposite of the usual insurance company focus on claims fraud.  The NOIC language is a little shrill, and they tend to see everything in a simplistic "good guy/bad guy" way, but they also highlight a real problem.

Insurance companies have been very successful in recent years in getting government's attention and resources focused on claims fraud by workers and premium fraud by some employers.  But there hasn't been much attention or publicity on the other side of the coin--improper actions on the part of insurers to overcharge premiums and avoid legitimate claims.

Just as free market advocates appear to have gone overboard in dismantling regulation and oversight of the banking and financial systems -and look what a fine mess that's caused- oversight and regulation of insurance companies has been diminished by those same kinds of advocates.  Insurance regulators in most states just don't have the staffing, budgets, or regulatory power they once did.  And employers (who pay the premiums) and workers (who rely on the system to take care of them) may have gotten the short end of the bargain.

Florida Breaks Up WC Certificates Fraud Ring

September 11, 2008--An investigation by  insurance fraud investigators at the Florida Department of Financial Services has uncovered a major fraud ring that utilized a well known check cashing company to launder payments to workers.  The workers were employed by companies that obtained fraudulent certificates of insurance through shell companies, but avoided paying premiums by means of running payments through the check cashing company.  More details can be found here.

Arrests have been made, charges filed, and various people who (allegedly) were too clever for their own good are now in jail and looking for good lawyers.  Some days, reporting on Workers Comp developments feels more like working the crime beat than the financial beat.

California and "Independent Contractors"

September 10, 2008--There are interesting developments going on out in California over the issue of "independent contractors".  CA Attorney General Jerry Brown has filed suit against trucking companies that he says misclassify employees as independent contractors.  In California, a company that uses true independent contractors is not liable for Workers Comp claims if those contractors don't carry their own coverage.  That's different than in many other states, but the catch is that the contractors have to be truly independent businesses, not engaged in the main business of the policyholder.  It's an area that's often the subject of contention, as the criteria for determining true independent contractor status are numerous and not always clear cut.

Misclassifying workers as independent contractors not only cheats on WC premiums, it also dodges unemployment taxes.  So a lot of states are cracking down on what they see as abuses by employers of independent contractor status of workers.  But California is particularly serious on this subject, and a battle may be brewing between former governor (current AG) Jerry Brown and current governor (former Terminator) Arnold Schwarzenegger on the issue.

What's even more interesting about California is that the legislature has recently passed legislation that holds consultants legally liable if they advise employers to misclassify employees as independent contractors.  The new legislation hasn't yet been sent to the governor for signing, so it isn't in force at the moment.    But it looks to be a major battleground issue in the coming months.

Prosecutors Allege AIG Reinsurance Scam Cost Shareholders $1.4 Billion 

September 9, 2008--Back in February, an executive of AIG insurance and several executives of General Re Corp. were convicted in federal court over a reinsurance deal that boosted AIG loss reserves and artificially inflated AIG share prices.

Now the federal prosecutors are seeking harsher sentences for the convicted executives, claiming that the reinsurance scam cost shareholders $1.4 billion.  That number is being contested by the executives and their legal teams, and soon the experts will be dueling in court over how the numbers should properly be crunched.

A copy of the prosecutors' sentencing memorandum can be found here.

Pay As You Go: Next Big Thing in WC?

August 29, 2008--There's a relatively new development in the field of Workers Comp insurance: "pay as you go."  It offers significant benefits to small and medium sized employers, in that it eliminates the large down payment usually required by insurance companies.  And it means employers can have their WC premiums adjust week by week along with payroll fluctuations.

Just this month, the New York Professional Insurance Agent's Association announced the start up of a pay as you go program through their member agents.  And some payroll services like Paychex have been offering pay as you go WC to their clients.

Pay as you go WC makes the Workers Comp premiums part of a weekly or bi-weekly billing that tracks directly from actual payrolls.  So if an employer's payrolls decline during the course of a year, the WC charges decline in real time in tandem with the payrolls.  It also means no nasty audit surprises, as increases in payrolls would also adjust premiums in real time.

It's not clear at this point how classification disputes might manifest under such programs, or how they would be resolved.  But it's a very interesting development, although perhaps not good news for premium auditors generally.  After all, pay as you go WC would greatly reduce the need to perform payroll audits. 

Parent of Large PEO Filing for Bankruptcy

May 30, 2008--The parent company of what used to be one of the country's largest PEOs (Professional Employer Organization) --aka employee leasing--has filed for Chapter 11 bankruptcy protection.  Mirabilis Ventures, parent company of Presidion Solutions, lists significant debts to the IRS and to its Workers Compensation insurance carrier in its Chapter 11 filing. 

Before Presidion went out of business, they had reported almost 2000 client companies and nearly 30,000 workers, mostly in Florida.

Reportedly, there are also criminal charges pending against Presidion co-founder John Burcham, and forfeiture actions pending against Mirabilis principal Frank Amodeo.

Wall Street Journal Gets It Wrong on AIG

May 30, 2008--Earlier this month, in the Wall Street Journal editorial pages, Assistant Editor James Freeman wrote that AIG stockholders were pining away for exiled chief Hank Greenberg, and blasted former prosecutor (and former governor) Elliot Spitzer for "prosecutorial excess."

In the column, Freeman questioned the charges that Spitzer had brought against AIG for avoiding proper fees and assessments by mischaracterizing Workers Compensation premiums as being other kinds of liability insurance premiums.  Freeman noted that insurance regulators in Washington and North Dakota had questioned whether their states were entitled to part of the $343 million settlement that AIG had made over those charges.

What Mr. Freeman and the WSJ failed to report, in their zeal to rehabilitate Mr. Greenberg, was that the basis for Washington and North Dakota's reluctance was not any question about the wrongdoing by AIG, but rather that those two states were monopoly fund states for Workers Compensation.  That is, Washington and North Dakota did not allow private insurance for Workers Compensation, unlike most states, and thus AIG could not have harmed their states with its schemes. 

But this in no way changes what AIG did, it is merely a reflection of the fact that those two states may not be entitled to a share of the restitution provided by AIG.

Of course, Wall Street types loved Mr. Greenberg, because AIG under his stewardship always made money--lots of money.  Insurance regulators I've spoken with privately have not always held Mr. Greenberg's insurance company in that same high esteem.  But now that Elliot Spitzer has managed to destroy his political career with self-destructive sexual scandals, defenders of Mr. Greenberg are hoping that Spitzer's disgrace can somehow be used to restore Greenberg's reputation and standing.

That would be a mistake, in my view.  Mr. Spitzer's personal failings (and they were spectacular, to be sure) do not change the serious and systemic wrongdoings by AIG and Greenberg that were uncovered by the former New York Attorney General.

NCCI v. AIG: Now It Gets Interesting

02/22/08--The latest development in the legal battle between the National Council on Compensation Insurance and American International Group  is that AIG wants to find out if other major insurers also underreported premiums.

For those who came in late, NCCI has filed suit against AIG (for a billion dollars) alleging that AIG underreported Workers Comp premiums to avoid assessments for assigned risk plans administered by NCCI.  AIG has already paid a fine in excess of a billion dollars as settlement of similar charges brought by Elliot Spitzer a few years ago (while admitting no wrongdoing, naturally.)

The questions AIG wants to put to other major insurers are very, very interesting:

• Did you write Workers Comp using unfiled or unapproved rating plans?

• Did you fail to report to NCCI increased premiums that came in from loss sensitive plan adjustments?

• Did you pass through to voluntary market policyholders expenses for assigned risk business via non-regulated policies or side agreements?

The answers to all of those questions would be very, very interesting.  And potentially very, very embarrassing for those major insurers.

Insurers & The Credit Crunch

02/12/08--The next shoe in the ongoing financial crisis may be dropping.  Both AIG and CNA have been in the news in recent days, reporting dramatic problems related to the subprime/credit crunch debacles.  Historically, dramatic reversals in the larger financial environment have usually led to higher commercial insurance rates.  So these two major commercial insurers may be the proverbial canaries in the coal mine.  In other words, employers should probably start bracing for higher Workers Comp premiums on their next renewals.

New Hampshire Small Contractors Get Increase

10/22/07-- Small contractors in New Hampshire that utilize LLC status to reduce Workers Comp costs are getting a rude shock from a new law.  In the past, an LLC could exclude up to 3 members from WC coverage.  So many smaller construction firms would exclude their principals, and only cover subcontractors.  But a new law that went into effect in mid-September requires that everyone working at any construction site be covered for Workers' Comp.

The law apparently didn't register on the radar screens of many affected employers until it was too late, and now insurance producers in the Granite State are scrambling to let affected policyholders know about the significant premium increases they are facing.

New York Moving to Competitive Rating

09/12/07-- New York insurance commissioner Eric Dinallo has recommended that the state move to a form of competitive rating for Workers Compensation insurance.  Under Dinallo's proposal, the New York Compensation Rating Bureau would develop loss costs for the various classifications, and then insurers would add their own multipliers to add on their charges for expenses and profits.  Thus, different insurers could develop their own manual rates for WC, competing on price.  Many states have adopted some form of competitive rating in recent years, where insurers can develop their own set of manual rates, but some states have retained the older system of having set rates that are used by all insurers.   Under reforms enacted by Governor Elliott Spitzer, the current system of NYCRB setting uniform rates ends next February.

In a related development, NY insurance agents have called for NCCI to be used in the future to develop the loss costs for the state's competitive rating system, rather than the New York Compensation Rating Bureau.

New Mexico Regulator Charged

08/31/07-- Former Deputy Insurance Commissioner Joseph Ruiz has been charged in a federal indictment with offering lower fines against insurance companies in exchange for contributions to a non-profit health care organization operated by former New Mexico Insurance Commissioner Eric Serna.

The shakedowns allegedly occurred during a 30-month period that began in July 2002, and includes a telling instance where Ruiz allegedly pressured an insurer over an auto accident claim on behalf of a New Mexico state senator.

The insurer complained, and Ruiz is supposed to have told the official "it looked like he was understanding how politics works in New Mexico," according to the indictment.

Ruiz himself didn't personally profit from the scheme, according to the charges, but children's books he had authored were purchased by the non-profit with "donations" from the insurance companies.
 

Task Force Probing California Fund

07/26/07--The California Department of Insurance has announced that it has formed a task force (together with the Highway Patrol and the San Francisco County District Attorney) to investigate possible financial misconduct on the part of some former employees of the State Compensation Insurance Fund (SCIF).  SCIF is the California Workers' Compensation Fund, the largest writer of Workers' Compensation coverage in the state (it competes with private insurance companies).

The department says the misappropriated amounts could total as high as a billion dollars.

The Department of Insurance so far isn't giving out many details about this investigation, but it may be connected to the class action against SCIF that we recently reported on.  --more--

New Jersey WC Changes

07/26/07--There have been some recent changes that impact Workers Compensation coverage in New Jersey.  In response to recent court decisions, policy language has been changed so that insurance companies are not liable for bodily injury caused or aggravated by an intentional wrong committed by the employer.

Dispute Brewing Over PEO Experience Mods

06/25/07--  It looks like there may be a significant dispute on the horizon over how PEO (Professional Employer Organization, aka employee leasing) companies use experience modification factors to compute Workers' Compensation insurance charges for clients.

The National Council of Insurance Legislators (NCOIL) has released their latest version of a model law, which would require that employers that don't have their own experience mods could not use a modifier that had been calculated for a PEO.  This model law, if adopted by the various states, would close a loophole that allows PEOs to offer Workers' Compensation coverage to clients calculated with an experience mod lower than the client company is eligible for on their own. 

Currently, an employer that is too small to have an experience mod calculated can obtain a 'credit" modifier by contracting with a PEO.  In such a case, the small employer gets premiums adjusted by the mod calculated from past experience of the PEO.  Insurance producers have complained in the past that this gives PEO's unfair advantage in pricing Workers' Compensation coverage, and legislators have been concerned for along time that it's not right to allow companies to get the benefit of credit modifiers that aren't based on their own past experience.

Already, some states have enacted limitations on such PEO experience modifier disparities.  But this new model law would prohibit such disparities outright, and could be used as a model for many states' regulations.

NAPEO, the National Association of Professional
Employer Organizations, is fighting against this proposed model law. 

Class Action Suit Against California State Fund

06/15/07-- A class action lawsuit has been filed against California's State Compensation Insurance Fund (SCIF) which is that state's Workers' Compensation fund.  SCIF isn't a "monopoly" fund, so it competes against private insurance companies in the Workers' Comp insurance market, but SCIF is the largest writer of Workers' Compensation coverage in California.

The lawsuit alleges that that there was "self-dealing" by SCIF and some of its top executives, and seeks $25 million in compensatory damages and $50 million in punitive damages.  The suit charges that there were improper payments made to some safety groups operated by former board members of SCIF.

Lead plaintiff in the case is Acro Constructers, Inc. of Burbank, and the law firm involved is Pearson, Simon, Soter, Warshaw & Penny, LLP. in Sherman Oaks.  It is reported that potentially there could be 250,000 members of the class action among California employers.

NCCI Sues AIG for $1 Billion

May 24, 2007--The National Council On Compensation Insurance (NCCI) the Workers' Comp rating bureau used in most U.S. jurisdictions, has filed a federal lawsuit against American Insurance Group (AIG) alleging that the insurer defrauded other member insurance companies via a scheme to dodge AIG's fair share of Assigned Risk business by misrepresenting that significant numbers of Workers' Compensation insurance policies were other kinds of liability policies.  Insurance companies are assigned pro-rata share of the Assigned Risk pool based on how much Workers' Comp insurance they write on a voluntary basis.  Misrepresenting how much Workers' Comp insurance was actually written by AIG allowed the company, according to the NCCI lawsuit, to avoid their fair share of the Assigned Risk business, thus causing other insurers to shoulder an more than their appropriate share.  The lawsuit charges that the amount of the fraud could equal one billion dollars.

AIG had earlier reached a settlement with New York Attorney General Elliot Spitzer over such allegations, and AIG is now responding to the NCCI lawsuit by claiming that their settlement with Spitzer precludes further action on the subject.  NCCI clearly disagrees.

It really is highly unusual (perhaps unprecedented) for NCCI to file suit against one of its member companies, and for a billion dollars, no less.  After all, NCCI is essentially owned by insurance companies, including AIG.  But AIG appears to have really ticked off the other insurers that make up NCCI--to the tune of a billion dollars.

Of course, it's one thing to make accusations in a lawsuit, and another to actually prove them.  Only time will tell how much merit there actually is to NCCI's allegations.  Whatever the outcome, the case may end up shedding light on some murky aspects of Assigned Risk Workers' Compensation that affect many smaller employers.

Stay tuned for further developments.  AIG's already tarnished reputation may be about to take another significant hit.  And if NCCI gets its way, so will AIG's bank balance.

Workers' Comp Insurers Have Record Year

May 10, 2007--The National Council on Compensation Insurance has announced that the Workers' Compensation insurance industry has had its best year in 30 years during 2006.  NCCI announced at its Annual Issues Symposium that the combined ratio for 2006 was 96.5, meaning that losses and expenses were 96.5 percent of premiums.  This is the first overall underwriting profit reported by the industry since 1995.  (Keep in mind, though, that insurers make a fair bit of money from their investments, money that isn't reflected in the combined ratio.)

A large factor in this has been the dramatic turnaround in the California market, where recent reforms appear to have the desired effect of reducing the claims costs there.  Overall, this is probably good news for employers as well, as it means that insurers will be more inclined to keep rates and premiums from rising, and probably be more competitive for business.  Increased competition normally translates into lower premium costs for employers, although the market for Workers' Comp can and does vary considerably from state to state.

South Carolina Rate Increases Proposed Again

May 3, 2007--The National Council on Compensation Insurance (NCCI) is proposing to again increase the Workers' Comp manual rates for South Carolina, this time by 23.7%.  This is on top of a double-digit increase at the end of last year, so it's no wonder SC employers are feeling a bit stressed.

NCCI is an independent organization with close ties to insurance companies (it's essentially owned by insurers, although operationally it is independent.)  And NCCI and member insurers have been fighting for years to increase the rates used for Workers' Comp in South Carolina.

Interestingly, our company performed a very interesting study of one aspect of South Carolina's Workers' Comp pricing last year.  We reviewed how the savings from that state's second injury fund were reflected in the experience mods of small employers.  Our findings were that most small businesses received no rate credit for reimbursements to their insurers from the second injury fund.

The question that hasn't been answered (to my knowledge at least) is whether or not NCCI's rate making system reflects this windfall to insurers.  Interestingly, the insurance companies have been lobbying to eliminate the second injury fund, as they object to the cost of the assessments made on them to fund the second injury fund.  But that doesn't answer the question of whether or not NCCI's rate calculations fully reflect the effect of higher premiums for small employers who don't get any benefit from reimbursements paid by the fund.

The only thing certain is that the political fighting over Workers' Comp rates in SC are far, far from over.

Study Finds Many NY Employers Evading WC

February 7, 2007--A report from a Florida consulting firm concludes that more than a quarter of New York state employers aren't paying the Workers' Comp premiums for their workers.  The study compared unemployment coverage with Workers' Compensation coverage, and found significant discrepancies.  The report also alleges that many employers misclassify workers to get lower rates and premiums.

If accurate, this report is certainly disturbing.  I haven't had the chance to read the details of the report, so I'm naturally curious to see if the consultants made proper allowances for self-insured employers and those who aren't required to obtain Workers' Comp insurance.  More information about the report is available here.

MO Decision on WC Benefits Upsets Business

January 22, 2007--The Missouri Supreme Court has ruled that certain Workers' Comp benefits don't end with the death of the worker.  Instead, benefits payable when a worker is ruled permanently and totally disabled should continue to surviving dependents.

Some business groups have expressed dismay over the ruling, fearing that it will lead to significant increases in Workers' Comp insurance rates in Missouri.  Missouri had only recently enacted changes in their Workers' Comp benefits that had been credited with producing lower rates.

It's difficult to tell at this early stage how much truth there is in those fears, and how much may be mere rhetoric.  Sometimes the anticipated effects of such rulings are greater than what actually materializes.  Employers are understandably concerned about anything that increases the already considerable cost of their Workers' Compensation insurance (as we here at AIM know well.)  At the moment, employers in Missouri are wondering just how much of an impact on insurance rates the insurance industry will make out of this ruling.

January 17, 2007--I recently read an excellent book on how the Workers' Compensation system came to be in the United States.  It's entitled The Accidental Republic, by John Fabian Witt, and it's a fascinating examination of how the modern system of Workers' Compensation arose, in somewhat abrupt fashion, early in the 20th century.  Definitely recommended for anyone with an interest in the American system of Workers' Comp and how and why it came to be.

Interview with AIM Founder Ed Priz

January 15, 2007--I recently was interviewed for a Webinar on contractorselling.com.  The wide-ranging interview covered recent developments in Workers' Compensation that affect contractors and other employers and can be heard here.  Thanks to Joe Crisara of contractorselling.com for doing such a great job with the interview. 

AIM Competitor Appears to Be Out of Business

January 1, 2007--Information from the Better Business Bureau indicates that WCA Consultants of Plainville, MA is no longer in business, although their website is still up and running.  According to a BBB reliability report dated 10/31/2006 that was recently forwarded to AIM, mail sent to WCA was returned by USPS as "business no longer in operation".

WCA Consultants, according to their website, offered services similar to those offered by AIM--to review Workers' Compensation insurance charges for employers to find and recover overcharges.  According to other reports on the internet, WCA charged independent contractors an upfront fee to become an sales representative for WCA.  According to these reports, WCA may have left a number of such independent representatives high and dry, having taken the upfront money but not producing refunds for the cases sent in.

If this information is accurate, it underscores something we have been stressing for a long time: it is vital to select a Workers' Comp review firm with care.  Since there is no regulation or licensing of such firms, anyone can create a website and claim to be an expert in this field.

2007 is the 20th year of Advanced Insurance Management helping employers to find and recover Workers' Compensation premium overcharges, making us one of the oldest and most experienced firms in this field.  Unlike many others (such as the apparently defunct WCA) Advanced Insurance Management is a member of the Better Business Bureau.

If your company has been waiting for the results of a WCA review of your Workers' Compensation insurance charges, it appears that you are not likely to be receiving any good news in the foreseeable future about refunds being forthcoming.  If you still think that a review of Workers' Comp charges by a competent professional is a good idea (and it is) you might consider letting AIM review your documents to see what potential there is for a refund.

Idaho WC Rates to Decline

December 27, 2006--Workers' Comp rates are set to decline in idaho in 2007, as the Idaho Department of Insurance has accepted an NCCI recomendation to reduce rates by 5.7% overall.  Insurers who wish to deviate further from these recommended rates must obtain the approval of the Idaho Department of Insurance, and a number of carriers (including the Idaho State Fund) have already obtained approval for deviations greater than the NCCI recommendation.

Class Action Settlement Over Loss-Sensitive WC Policies

November 11, 2006--A court in Georgia has approved a settlement in a class action lawsuit initiated years ago over certain Loss-Sensitive Workers' Compensation insurance policies written by a number of insurers from January 1, 1984 through December 31, 2003.  A settlement fund of $16 million has been approved, and any employer who had coverage from one of these policies can make claim for a portion of the money.

Details can be found at :

AIG to Refund $13.6 Million in Florida

October 2, 2006--American International Group is going to refund $13.6 million in Workers' Comp premium charges to Florida policyholders as part of a settlement with that state's insurance regulators.  The disputed charges were for Terrorism Risk Insurance Act coverage.  More than twenty states questioned the particular rate structure AIG used for this coverage, but only Florida was threatening to hold hearings on the subject.

Of course, if major insurers like AIG and Liberty Mutual get their way and are allowed the option of being federally chartered (as is being proposed in Congress) then they could get away from all this pesky state oversight of insurance rates.  And they've got their pet experts ready to swear that state oversight of insurance is inefficient (which it is, although they're working to reduce this) and harms consumers (which is a different argument altogether).  Inefficient it may be, but state oversight also provides invaluable limitations on the abilities of major insurers to overcharge policyholders--something that might well be sadly lacking in whatever federal oversight gets approved by the best national legislature money can buy.  And the insurance industry has plenty of money to spread around the halls of Congress for something as big as freeing them from state insurance regulations.

Welcome To The Jungle, 21st Century Style

September 15, 2006--Remember Upton Sinclair's book, The Jungle?  A lot of us read this famous muck-raking expose in school, as an example of the kind of workplace abuses that led to the creation of much of our modern regulatory apparatus to watchdog industrial food production.  And as we shuddered over the gruesome industrial landscape depicted in the book, we could at least take solace in the knowledge that nowadays such rank workplace malfeasance and abuse couldn't take place.  But it looks like we were wrong.

Sad to say, greed and indifference to human suffering have not been banished from our workplaces, in spite of all the regulations and lawsuits that have occurred since the days of The Jungle.  For proof, consider the sobering stories recounted in recent weeks in such publications as the Chicago Tribune and the McClatchy Washington Bureau,  about how employers hire undocumented immigrant workers to perform hazardous work, and how these workers are later unable to obtain  Workers' Compensation benefits when they are injured on the job. Sometimes the workers themselves are afraid to make the claims, sometimes insurance companies fight to deny them benefits on the grounds that their undocumented status means they are not eligible.

Thus the economic interests of unscrupulous employers and short-sighted insurance company practices combine to treat human beings as disposable, dispensable non-entities.  The anti-cruelty laws of most states would preclude treating animals in such a manner, but undocumented workers apparently have no such protections.  In the name of saving money, human beings are left crippled, maimed, burned, or dead, and the employers and insurance companies who are supposed to at least make compensation for such injuries laugh all the way to the bank.

Employers are certainly right to be concerned about the costs of Workers' Compensation insurance.  And insurance companies need to be vigilant against fraudulent claims.  But neither of those legitimate interests can be accepted as a license to exploit vulnerable people and leave them mangled and suffering, without recourse to the very Workers' Compensation system we have created to ease that suffering.  Clearly, we need to change our laws and our insurance regulatory system to end these practices, and we need to do it now.

South Carolina to Issue WC Refunds After All

August 26, 2006--The South Carolina Department of Insurance has reversed their earlier decision and has ordered insurers to make refunds to employers of premium overcharges that occurred due to ratemaking errors by NCCI.

Previously, the SC Department of Insurance had decided to allow insurers to make up for the overcharges by making adjustments to future rates.  But criticism from business groups in the state has led regulators to change their minds and mandate refunds to employers in the state.

Regular readers of this page may remember that AIM has been active in spotlighting the errors by NCCI over several past years that caused rates for some classifications in a number of states to have been miscalculated.  Originally, NCCI and the National Association of Insurance Commissioners had attempted to keep these ratemaking errors by NCCI low-profile.

For more information about this story, scroll down and take a look at earlier entries on this subject in CompWatch.  For more information on the South Carolina story, check here. 

For older entries, check our archive

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