Will The New Administration Change The Workers Compensation System?

I have received a few questions since the elections concerning any major changes that may take place with the new administration. In my opinion, there will not be very many changes as long as each state regulates its Workers Compensation system. I do not think that Workers Comp will be under a Federal program any time soon. There would be too much of a backlash if it became a federal system.

This is one of the most appealing times for proponents of federalizing the Workers Compensation system to consider a system that would be overseen by a bureaucracy. With the bailout of AIG and other insurance companies, the federal government would end up owning more of a stake in insurance companies than at any other time in the history of Workers Comp. There may be some rhetoric produced about how that states could not properly oversee their insurance companies, so a federal program would be more appealing.

One main point is that AIG's insurance operations WERE NOT failing. It was the investment side of AIG that failed miserably. It is my opinion that insurance carriers that are failing should not be bailed out for their insurance operations. As was in the past, the insurance company would go into receivership in each state, and the Insurance Commission would move in to assist or divest the carrier. That model worked. Can one imagine the mess if there was a federal overseer for the state insurance commissions? The term "nightmare" would be a compliment.

How Do I Cut My Company's Workers Comp Claim Costs?

In my opinion, controlling the medical treatment is the quickest way to cut your Workers Comp costs. Controlling the medical costs not only means using the medical networks to reduce the cost of the medical bills, but to control the doctors that treat your injured workers. A great industrial-minded treating doctor can also control the weeks out of work and the permanent disability rating.

As I have commented quite a few times in this blog and in my presentations, the main reason to maintain control of the employees' medical treatment in a Workers Comp claim is that all Workers Comp courts, state bureaus, etc. consider the treating physician as being the only impartial witness in the claim. The medical testimony is usually going to be the "ultimate decider" in the claims process.

I have never seen the Workers Comp judge throw out the treating doctor's medical testimony completely. So, the bottom line is "Control the medical treatment and your company will control the claim costs." I have performed quite a few studies that shows this to be very true.

California started using MPN's (Medical Provider Networks) in 2005. That is the one of the reasons for the sharp decreases in Workers Comp insurance rates in CA.

Ohio Bureau of Workers Compensation (BWC) Loses a Major Court Case

I had previously posted about how the BWC of Ohio is not acting as a true insurer and is using number voodoo to charge smaller employers outrageous premiums while giving certain employer groups enormous discounts. Ohio small businesses were being discriminated against due to the their size in the area of Workers Compensation premiums.

Last week, a judge ruled against the BWC and issued a restraining order blocking the Ohio Bureau of Workers' Compensation from implementing its prospective group rating plan for policies incepting next year. The bureau must implement a retrospective rating plan based on loss history for group policies rather than its established method of determining premiums by anticipating future losses. I still do not understand how they can predict future losses without looking at the prior losses. As I said earlier, it was all number voodoo.

As I have said many times before in this blog, monopolistic state funds are becoming dinosaurs in the area of Workers Compensation. If a private insurance carrier operated in the same manner as the WSI in North Dakota or the BWC in Ohio, the insurance commissioner would fine them and/or place them in receivership.

An insurance system cannot be operated like a government agency in the current Workers Comp marketplace. There are four monopolistic state funds. I wonder how long they can survive.

Two Monopolistic State Funds Strike Again

I do not wish to pick on any of the monopolistic state funds. I have passed over commenting on quite a few articles referring to Ohio and North Dakota. However, these two news items were too major to ignore.

North Dakota

The State Fund's (WSI) reserve levels topped out at $174 million. The Attorney General of North Dakota had commented that WSI is figuring the surplus figures incorrectly. The WSI has refunded quite a large amount of the surplus to the policyholders by way of dividends.

I am of the opinion that a large surplus indicates that the WSI or any carrier is charging too much premium to their policyholders. Instead of receiving a multi-year free interest loan from the policyholders and then refunding it back, it is best to set premium levels at a fair rate. As I see it, there should be a very small amount of surplus in a government-backed agency.

I will cover Ohio tomorrow, as I have to research the situation a little more. A judge has made a ruling against the BWC.

A Question From A California Employer On Workers Compensation Records Storage

One of my blog readers from California asks how long should records for Workers Comp be stored before being destroyed. My answer actually applies to all states with all types of Workers Compensation coverage - even self insureds.

My opinion is that no insurance documents of any type, whether or not it is pertaining to Workers Comp should ever be destroyed. Back in the prior years, destroying documents after 10 years might have been OK to keep from drowning in paper. With the advent of multi-page scanners, there is no reason to have any documents on paper for many years. I recommend scanning all documents more than seven years old and saving them to a pen-drive or a thumb drive. This includes the associated payroll records. I recommend then backing up the pen-drive or thumb drive with burning a CD of the information.

Why would I recommend saving insurance documents more than 5 years old? We are now reviewing the premiums for insureds in West Virginia and New Jersey that involved old contractor sub-contractor agreements. The one that we are reviewing in New Jersey requires us to go back 11 years, as there was an ownership change that will likely make a difference on how the companies are structured. This makes a big difference on the client's Workers Compensation premiums right up to today.

We have some clients that scan everything and are basically paperless. That is a great way to save space, aggravation, and paper. The main thing we recommended to those clients is to backup the scans to two different backup places.

If your company does not have a multi-page scanner, you can purchase one very reasonably on EBay. Most copiers now have scanning capabilities, even the low-end budget all-in-one machines.

Why I posted on this subject is the lack of documentation of prior Workers Compensation information has cost some of our clients dearly. A thumb drive has saved me many times when I needed old data.

I Received A Large Number of Questions About The Assigned Risk Pools

Last week, I posted a short note about the Assigned Risk Pool for Workers Compensation in West Virginia. I received quite a few questions about the Assigned Risk Pool from West Virginia and other states. It seems that quite a few additional employers are being placed into the Assigned Risk Pool that even have good E-Mods. I will try to answer some of the questions in this and the next few posts.

A good E-Mod is one that is less than or equal to 1.0. A good E-Mod can even go up to a 1.2 under certain circumstances.

The trucking industry had experienced that situation a few years ago. A trucking client of ours had an E-Mod of .89 and was placed into the Risk Pool. This was due to the market tightening/hardening on risk. They are now out of the Assigned Risk Pool even though their E-Mod had increased to a 1.19 due to a few severe accidents!

We were consulted by an asbestos removal company that tried to get out of the Assigned Risk Pool. There was no market to place them in, even though they had not had an accident or occupational illness in the last 10 years.

The quickest way to get out of the Assigned Risk Pool is to heavily shop the insurance market for your Workers Compensation coverage. If you are in West Virginia, you are free to choose a carrier besides Brickstreet, but if you are assigned to the Risk Pool, you must take whatever carrier you are placed with by the Insurance Commissioner and NCCI.

The best way to get out of and stay out of the Assigned Risk Pool is to increase the safety standards that you have in place for your company. If your E-Mod is above 1.1, you are headed to the Assigned Risk Pool. The key to a great E-Mod is not avoiding the one big accident--it is avoiding accident repetition. That is the way the Workers Compensation Experience Modification system has been built. Right or wrong, the system penalizes frequency much more than severity.

My next post will cover Five Keys to Reducing Your Workers Comp Claims, which in turn will quickly bring down your E-Mod.

West Vriginia And The Assigned Risk Pool

As of 1/1/09, Brickstreet will have the option to not renew Workers Compensation policies with certain employers. These employers may be placed in the Assigned Risk Pool.

The Assigned Risk Pool is where a group of insurance companies will be assigned to provide coverage for employers that could not find coverage in the voluntary/regular market. The carriers will accept the employers placed in the Assigned Risk Pool, but will charge the employers a much higher premium versus the same employer in the voluntary market.

At the West Virginia NCCI conference that I attended on 11/12, the presenter said there were three carriers that would accept assigned risks. Surprisingly, Brickstreet was not one of those carriers. I had to step away from the conference and did not hear who the Assigned Risk Pool carriers were going to be as of 1/1/09.

If you are placed in the Assigned Risk Pool, that does not mean that your company is a bad risk for Workers Compensation. It could result from the carriers in the voluntary market not wishing to write Workers Comp policies for a certain type of employer. For example, trucking companies could not find policies without being placed into the Assigned Risk Pool, even though some of their E-Mods were less than .8!

In quite a few of my previous posts, I pointed out how to get out of the Assigned Risk Pool. You should do everything in your power to get your company out of the Pool, as the rates for the Assigned Risk Pool can be very steep. If your E-Mod is over 1.5, a safety program will need to be instituted as soon as possible.

With 190 carriers that are or will write voluntary coverage in West Virginia, there are many options other than the Assigned Risk Pool.

The West Virginia NCCI Conference

I attended the November 12, 2008 NCCI Conference in Charleston, WV. One of the very interesting statistics is how many new Workers Comp carriers have filed to do business in the state due to the open market as of 7/1/08. The following statistics do not include Brickstreet, as they were the sole carrier of Workers Comp in West Virginia over the past few years.

According to NCCI:

• 190 Workers Comp insurers have filed to write polices in the state
• 124 have written policies
• 1500 policies have been written in the state since 7/1/08

The number of policies written should increase, as a large number of policies will renew 1/1/09. In response to the competition, Brickstreet had recently had to enter in a layoff period with a reduction of 50 in workforce. This is a small percentage, as Brickstreet had 500 employees before the layoffs.

The West Virgina NCCI Conference

If you have not had a chance to attend one of the NCCI State Forums, you should try to attend the one that is coming to your state. There is a list of them on the NCCI website. Search for State Advisory Forums on their homepage.

I am in the process of traveling to the one in West Virginia. As I have often posted, West Virginia has been through a tough period of transitioning from a monopolistic state fund into a free market system for Workers Compensation. I always try to make most of the conferences as we are doing quite a bit of consulting there and have been for the last two years.

If you cannot make it to the forums, all of the slides that are covered are posted soon after each State Advisory Forum. As the NCCI is the largest rate-setting organization in the United States, they have wonderful data to examine.

I will try to post something interesting from the conference as soon as I return from West Virginia.

It Is The End Of The Year Soon, What Can You Do About Your Workers Comp Policy?

If your Workers Compensation policy renews on 1/1/09, what can you do about your Workers Comp E-Mod? That answer is nothing at all.

I have found that quite a few insurance carriers will do claim reviews in the months of November and December to impress the policyholders. With a policy renewal date of 1/1/09, they are wasting your time.

Why can you do nothing even though the new policy has not started yet? I have covered this answer very often. The Workers Comp system is staggered. The Workers Comp reserve and Experience Modification system do not operate in-step. We often advise clients to concentrate on working with their agents during the last two months of the policy. The claim reserves can wait. Why?

Check back in next time and I will explain. If you know the answer, please email me and let me know the answer. If you use the search box on this blog, you can find the answer.

If you have a question that you wish to be covered in the blog, please email it and I will try to schedule it in over the next few days.

A Correction on The Number of Monopolistic States

I posted a blog a few months ago that indicated there were six Workers Compensation Monopolistic states. At the time, I had included Nevada. Nevada had already become an open market system. That would leave five Monopolistic states.

A monopolistic state for Workers Compensation does not allow any insurance carriers to cover the employers in their respective states. The Workers Comp claims are handled by a state agency or a quasi-state agency.

West Virginia became an open market state as of 7/1/08. The removal of West Virginia leaves the monopolistic state funds count at four. They are:

• Ohio
• Wyoming
• North Dakota
• Washington

As I mentioned in a few earlier posts, North Dakota and Ohio both had severe problems with their monopolistic fund.

Thanks to a CPCU from Missouri for pointing out my error.

ACE CEO Agrees With No Bailouts For Insurance Carriers

A few weeks back I wrote a very controversial article on how the federal government may actually be part of a big rigging controversy by bailing out AIG. Please use the search box and search for AIG to find the article.

It was my opinion that subsidizing an insurance carrier that was bidding against other insurance carriers for policies allowed the subsidized insurance carrier to bid lower, as they had "free money" to use to underbid the competition.

ACE's CEO Evan Greenberg commented on the situation this week. Under that scenario, "perfectly healthy insurers may well have to (participate) ... in order to compete with companies that do ... it will become a general government capital subsidy rather than a means of crisis correction," in a letter he wrote to Treasury Secretary Paulson.

The Bush Administration denied funds to GM this week. Will the handouts continue to insurance carriers? The damage to the market may be irreparable.