Health Wonk Review — The “Just the Facts, Ma’am” Edition – hosted by Vince Kuraitis at e-CareManagement – Dragnet fans take note!
NCCI report on medical benefits – The medical share of total losses has grown dramatically — from just over 40% in the early 1980s to almost 60% today. NCCI takes a closer look: Analyzing the Shift in the Medical Share of Total Benefits (PDF)
Price hikes forecasted – economists at Swiss Re are predicting a deep recession and price hardening across all lines of insurance through 2010, insurance and reinsurance inclusive.
Walmart death – This topic has been making waves in the law blogs. Troy Rosasco talks about the likelihood that exclusive remedy will preempt any lawsuits in the case of the trampling death of a Walmart employee in a post-Thanksgiving sale stampede, and talks about how the retailer could face criminal investigations. Of course, that doesn’t mean that lawsuits haven’t been filed – Eric Turkewitz updates us on the family bringing suit; Walter Olson offers his perspective on “5 minute after” suits. My colleague Jon had blogged about this last week: Walmart’s Killer Bargains.
Can you say Joint & Several liability? – a recent study profiled in Risk and Insurance shows that small business owners are not fully aware of the financial risks involved in obtaining workers’ compensation insurance through self-insured groups. Despite several high-profile failures, “…85 percent of respondents indicated that they had not seen, read or heard about the closure of several self-insured groups over the past year. More than one-half (58 percent) of respondents reported that they were unaware that companies belonging to self-insured groups remain financially responsible — often for years — for the claims of all companies in their group, not just their own businesses.” See: joint & several liability.
Fumes and confined space – We noted a sad story last month about two amateur winemakers in France who died after being overcome by fumes while trampling grapes. While this might sound like unusual circumstances, the issue of confined space and the danger of fumes is a significant agricultural risk. Hydrogen dioxide-related deaths (PDF) also occur in manure pits – there have been several instances when rescuers enter the pit only to succumb to the fumes as well.
Posts Tagged ‘rates’
Health Wonk Review, medical costs, price hikes, joint & several liability, and more
Thursday, December 11th, 2008Florida lawyers win, employers lose
Monday, November 17th, 2008Florida employers have seen about a 60% rate decrease since the 2003 workers compensation reform but it looks like all that is about to change. NCCI has just filed for an 8.9% Florida rate increase in the wake of a recent Florida Supreme Court ruling. This is an enormous change, particularly in light of the 18.9 percent decrease that had been proposed prior to the ruling.
Why such a giant leap? In Murray v. Mariners Health/ACE USA, the court struck down a cap on attorney fees, which had been a hallmark in Florida’s 2003 workers compensation reforms. Hourly legal fees were eliminated and replaced with contingency fees capped at 20 percent of the award.
An article in Insurance Journal at the time of the ruling tracks some of the reaction by employer and industry groups. Unsurprisingly, this ruling is wildly unpopular with those groups. According to Cecil Pearce of the American Insurers Association:
“A key driver of claim costs prior to the reforms was hourly attorney fees, which made the cost of litigated claims 40 percent higher in Florida than in any other state because of the increased litigation. The 2003 reforms linked attorney fees to the value of benefits secured through a fee percentage schedule, eliminating the ability of claimant attorneys to bill by the hour. With that law now overturned, it is expected that an increase in workers’ compensation premiums will be inevitable.”
A 2001 benchmark study of Florida Workers’ Compensation Claim Costs conducted by the Workers Compensation Research Institute (WCRI) noted that Florida was among the most litigious of the eight large states studied. According to Richard A. Victor, executive director of WCRI:
“The involvement of defense attorneys in workers’ compensation claims – an indicator of litigiousness – is highest in Florida and growing … About 30 percent of claims with more than seven days of lost time involved defense attorneys in Florida, a nine percentage point increase for claims with 24 months’ experience since 1994. By contrast, defense attorneys are involved in less than 8 percent of claims in Texas and Wisconsin.”
The study revealed that defense attorney expenses were also the highest in Florida at more than $2,600 per claim – three times higher than Connecticut, the study state with the lowest expenses.
A Florida Insurance Council Backgrounder on 2003 Comp Reforms noted that today, “The percentage of workers’ comp cases with attorney involvement remains higher in Florida than the national average – 20 percent in Florida compared to about 16 percent nationally. The percentage of cases where the injured employee represents him or herself is the same or less than before the 2003 reforms.”
Insurance in the storm: buyers can expect the onset of a hard market
Monday, November 10th, 2008Because AIG has been at the epicenter of the economic earthquake, many non-industry observers point to insurance as one of the villains and the industry is getting a black eye that may not be warranted. AIG’s problems did not surface in its insurance operations, which remained sound, but with their dubious investment portfolio which rocked the entire organization.
Not that insurance companies mightn’t have gotten in more trouble if left to their own devices, but the nature of the beast is that the industry operates in a highly regulated environment, both a blessing and a curse. In this case, more of the former.
In a recent gathering of its agency members, our partner and client Renaissance Alliance featured Robert Hartwig as a speaker. For those who don’t know Bob, as president of the Insurance Information Institute, he is the foremost public spokesperson for our industry. In his detailed presentation, he outlined 6 reasons why property-casualty insurers are better risk managers than banks and should therefore better weather the storm – reasons that I paraphrase here:
- Risk management is based on underwriting discipline, pricing accuracy, and management of loss exposure
- Low leverage – insurers don’t rely on borrowed money
- Conservative investment philosophy
- Strong relationship between underwriting and risk bearing
- Strict regulation by state and federal authorities – more so than banks
- More transparency to regulators and the public
That being said, just as a rising tide raises all boats, a lowering tide will affect all boats, too. One of the anticipated after-effects of the financial crisis will be an increase in regulation. Another is that the current economic downturn likely signals the bottom of a soft market. Buyers can expect a hardening of prices. Insurers depend on investment income. Currently, investment returns are going down as claim costs are going up due to inflationary pressure – that leaves only one place for prices to go.
Despite the fact that many brokers report that they see no end in sight to the current soft market, many industry insiders are predicting the onset of a hard market in the not-too-distant future. Here are a few opinions on the matter:
Market Scout: “The financial markets have experienced a meltdown, several major insurers are in serious trouble, underwriting results are slipping and investment income is anemic at best. As a result, the soft market is winding down.” – see the accompanying charts.
Joe Paduda notes that although workers comp rates are still dropping, there are two major factors that presage a hardening: First: “Medical trend in the group world is approaching double digits. Historically the work comp medical trend rate has been somewhat higher than group trend.” Second: “The investment market has imploded, likely driving down the value of the funds held for reserves and surplus. While most investments are in what used to be thought were ‘safe’ instruments, it may well be that regulators and rating agencies, newly sensitized to the potential problems with even ‘safe’ vehicles, will require carriers to take down the value of funds held in reserve.”
During recent earnings conference calls, Evan Greenberg, chairman and CEO of ACE Limited and AXIS CEO John Charman both agreed that a hard market is in the making.
Reinsurers are predicting rising prices: “The world’s No. 1 and No. 4 reinsurers, Munich Reinsurance Co. and Hannover Re Group, on Monday predicted some business lines would see price increases of 10% or more in talks over the coming weeks to renew reinsurance contracts for 2009.”
Ken A. Crerar, Council of Insurance Agents & Brokers president: “We won’t know until January 2008 renewals what toll the economic crisis has taken on the industry in general … What we do know is that investment income is down dramatically, carrier profitability is being eroded, net underwriting losses are higher and combined ratios are inching up over 100. How long carriers can maintain price cuts without damage to their financial health is anybody’s guess. These are very uncertain times.”
OK, what can a buyer do when faced with likely price increases? Some of the same things that a homeowner does in anticipation of foul weather: Tighten things up and go back to the basics. Be aggressive about preventing all workplace injuries and about managing any injuries that do occur. Strengthen your provider relationships. Tighten up your return-to-work programs. It’s our experience that when rates are low, workers comp can slip as a priority and get moved to the back burner. If it isn’t there already, it’s time to move workers comp back to the front burner.
Oregon’s state rankings for workers’ compensation premium rates
Tuesday, November 4th, 2008If you are an employer with operations in multiple states or if you are just plain curious about how your state’s workers’ comp costs stack up to other states, we have just the tool for you. The Oregon Department of Consumer and Business Services has just released its biennial report on state rankings for workers’ compensation premium rates (PDF). The report ranks all 50 states plus the District of Columbia for rates that were in effect in January 2008. Alaska, Montana, and Ohio take the win, place, and show awards for the three highest rates – not a race you want to win. Quick on their heels are three of our New England neighbors – Vermont, New Hampshire, and Maine – coming in at third through sixth respectively. On the opposite end of the spectrum, the three states with the least expensive rates were North Dakota, Indiana, and Massachusetts. The home state of the survey’s authors didn’t fare too badly, ranking at #39.
See Table 2 to find a listing of states. The costliest states appear at the top of the list. The table shows an Index Rate which the study authors define as “the payroll weighted average premium for $100 of payroll based upon the 50 occupations in Oregon with the greatest losses.” The table also shows current ranking against the ranking in 2006 so you can determine if a state’s costs have negative or positive momentum. A shift up or down by a few points may not have much significance but a sharp increase up or down is a good indication that something is going on in the state that deserves another look.
For more reports of this nature, see Tom Lynch’s post about this report in 2006. He offered some good commentary, as well as links to other state ranking reports. He comments that all three reports have value, but the Oregon report is notable for being free and accessible while the other reports must be purchased.
Related:
Oregon’s press release on the report
Your Government at Work – Worker injury research you can actually use
Eight steps to controlling workers’ comp costs in your company Part 2, Part 3
New York Update: CIRB Kicked to the Curb?
Tuesday, September 11th, 2007That reverberant thud we hear coming out of Albany, NY, is the sound of the other shoe landing. And it’s dropped straight on top of the New York Compensation Insurance Rating Board (CIRB).
In early March of this year, New York Governor Eliot Spitzer signed into law a major and much needed workers’ compensation legislative reform. In February we had discussed New York’s urgent need for reform, and, immediately following the Governor’s signing, we analyzed New York’s reform measure.
There’s no need to rehash the reform here, except to say that the Insider was generally quite supportive of it. We were happy that a number of our suggestions wound up in the reform. However, two sections of the new law carried huge implications and consequences for the Property and Casualty (P & C) insurance industry in New York, and each took dead aim at the future of the CIRB. A reading of these sections suggested that the CIRB’s future may actually be behind it.
The first of the two sections required that the Superintendent of Insurance report on the performance of the CIRB to the Governor, the Speaker of the Assembly and the Majority Leader of the Senate by 1 September 2007.
“Such report shall address, among other matters the Superintendent may deem relevant to the compensation insurance rating board including: (1) the manner in which the insurance compensation rating board has performed those tasks delegated to it by statute or regulation; (2) whether any of those tasks would more appropriately be performed by any other entity, including any governmental agency; and (3) the rate-making process for workers’ compensation.”
Then Section 2313, subparagraph S, contained these two gems:
“The workers’ compensation rating board of New York… shall mean the compensation insurance rating board until February first, 2008, and thereafter such entity as is designated by law.”
“…no rate service organization may file rates, rating plans or other statistical information for workers’ compensation insurance after February first, 2008.”
Well, here we are in September and Superintendent Eric Dinallo has issued a whomping, 56-page report (PDF) that, while not killing the CIRB, certainly eviscerates it.
The Current System – Nearly Everywhere
In 39 states, the National Council on Compensation Insurance (NCCI) gathers loss and premium data, calculates experience modifications, and files rate proposals on behalf of the P & C industry. A few states, such as Massachusetts, Michigan, Pennsylvania and New York, have independent Bureaus that do the same thing. These Bureaus are funded by the insurance carriers doing business in the states and are governed by committees elected by those insurers. The Bureaus gather and analyze loss data, both current and historic, and file rate proposals with their respective insurance commissioners. Actuaries from both sides testify at public hearings, after which insurance commissioners render decisions about the appropriateness of what the insurers want and establish new rates, which can be higher, lower or, occasionally, exactly what was proposed. Theoretically, this is a system with built in checks and balances where math and science should rule, and it is the way New York’s workers’ compensation system operated until the recent reform.
The Dinallo Report
Superintendent Dinallo proposes scrapping this concept in New York in two ways, one of which we think is fine, the other we find fraught with danger.
First, the Superintendent proposes, quite rightly, we believe, to move to a loss cost system, where insurers, based on their own experience, would file loss cost multipliers that would be applied to the classification rates established by the Superintendent. This would introduce a competitive system already in place in all NCCI states. He proposes that the CIRB continue to gather loss data and calculate mods, because, first, it’s been doing it for more than 90 years and he thinks by now they have the hang of it; and, second, because between now and the sunset date of February 1, 2008 (just a little more than 4 months), there isn’t enough time to bring a new Rate Service Organization (RSO) on line. In short, Dinallo says New York’s stuck with the CIRB at least, in his words, “for the short term.”
Second, Superintendent Dinallo wants to take over the CIRB’s governing committee. This, in my view, is the biggie. Dinallo recommends that the governing committee be reconstituted to include representatives from labor, employers, the State Insurance Fund, and the Insurance Department. Yes, insurers would be on the committee, too, but they would be in the minority. Further, the Superintendent would require that the carriers continue to fund the CIRB, even though they would have little or no control over it. Sort of like the Russian model of requiring the condemned man to pay for the bullets.
Potential Adverse Consequences
This second proposal would eliminate the checks and balances from the system. Further, it could also eliminate actuarial science. New York could wind up with rates being determined by committee, and a politically charged one, at that. Finally, one last elimination might occur: insurers, themselves, who, after attending (in small numbers) that first committee meeting may decide to hop the next train out of town. After all, what member of the reconstituted committee, except for insurers, would ever want to see a rate increase?
In this affair the CIRB has not covered itself with glory. It has shown itself to be politically deficient, and its public relations efforts have been woeful. It has allowed itself and, by extension, the insurance industry, to be maneuvered into playing the role of the villain in this melodrama, and it is now squarely in the cross hairs. Nonetheless, even Superintendent Dinallo grudgingly admits that his every-three-year reviews show that the Board is performing satisfactorily. We believe that the prudent course is for New York to let insurers govern their own Board and to require the Superintendent of Insurance to continue to oversee performance.
We urge that Governor Spitzer and Superintendent Dinallo assure that the New York workers’ compensation playing field remains level and the goalposts where they are.
Nevada leads the way
Thursday, November 13th, 2003An interesting thing happened in Nevada today. And it may eventually affect employers around the rest of the country, especially in Massachusetts.
Workers’ compensation is amazing. It’s very stable in that every employee in the nation is covered by one form of it or another (except some of those in Texas; but we’ll write about that at another time).
But it’s also a very fluid social engineering concept because every state has its own version of the law. Fifty states, fifty laws.
Which brings us back to Nevada. The state, like most other states in the nation, is represented by the National Council on Compensation Insurance (NCCI) for purposes of rate filing. Some states, like Massachusetts, have their own “Bureaus” that represent insurers in the state and file rate request changes with their respective Divisions of Insurance.
Today, Nevada’s Commissioner of Insurance approved a rate filing request of the NCCI, and for most Nevada employers this will a mean a reduction in their next workers’ compensation premium of about 12.3%.
But the really interesting thing involves what is known as the ARAP. In Massachusetts, that stands for All Risk Adjustment Program, and is a kind of Experience Modification surcharge on top of the regular Experience Modification. In the rest of the country, ARAP stands for Assigned Risk Adjustment Program. Here’s what the difference is: in Massachusetts every emplpoyer, whether in the Assigned Risk Pool or the voluntary market, is eligible for an ARAP surcharge. In the rest of the country, the surcharge only applies to employers in the Pool. But regardless of where an employer happens to be, the maximum surcharge is 49%. That is, until today.
Hidden in the Nevada filing is a reduction in the maximum ARAP surcharge, from 49% to 25%. This is the main reason why overall rates in Nevada’s Assigned Risk Pool will drop by approximately 15%.
We’re going to watch further NCCI rate filings to see if the ARAP maximum surcharge is reduced in other states, as well. In addition, we’ll continue to lobby on behalf of Massachusetts employers to have the ARAP surcharge apply only to employers in the Pool. And we’ll keep you informed.
Peace to all.
