Posts Tagged ‘reform’

New York Update: CIRB Kicked to the Curb?

Tuesday, September 11th, 2007

That 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.

And The Beat Goes On

Thursday, January 8th, 2004

The workers’ compensation goings on in California are proving that Gov. Arnold Schwarzenegger can flex his muscles in the legislature just as well as on the big screen.
He wants “real reform” on his desk by March 1 — or else.
“Modest reform is not enough,” the Republican governor said during his State of the State Address earlier this week. “If all I get is modest reform, I am prepared to take my workers’ comp solution to the people. It will be on the November ballot.”
California, the state which, if it were a country, would have the fifth leading gross national product in the world, also has workers’ comp costs that, at $29 billion, are more than twice as high as anywhere else in the country. The Governor has proposed a plan that, he says, will reduce costs by $11 billion. Understandably, the plan is as full of controversy as the Governor, himself.
Now, with his “I will take it to the people” stance, he has upped the ante considerably.
While Gov. Schwarzenegger’s plan seems, from our vantage point, to have a number of elements employers will find reasonable, it fails to address one of the major problems in the current system. That is, as Stanley Zax, president of Zenith National Insurance Co. in Woodland Hills said, the plan fails to address a provision in the state’s Labor Code that requires disputes to be “liberally construed” in favor of the worker.
We’ve seen a lot of states go through workers’ compensation crises over the last 20 years. They’ve all attacked the problem in one way or another, but in every case, the ones who’ve emerged with significantly better systems have done so by building coalitions among the vested interests who have been persuaded to compromise for the good of all.
What seems to be going on here is this: After a steady, inexorable slide into a kind of workers’ compensation black hole, California now has a kind of Governor who thinks he can yank the system back to where it belongs by the sheer force of his personality.
Maybe he can. Maybe he’s just bigger than life enough to do it, but we wouldn’t bet on it.

California Keeps Digging

Wednesday, December 3rd, 2003

Question: What is the first rule of “holes?” Answer: When you’re in one, stop digging.

Members of the public who have been following this column know that we, here at LynchRyan, have been absolutely fascinated with the workers’ compensation goings on in California, the state that, if it were a country, would have the world’s fifth leading gross national product.

While the eyes of the nation have been riveted on the political codswallop coming out of the “golden state,” California’s employer community is now paying workers’ compensation at the rate of 6.3% of payroll, more than three times the national average.

In the waning days of the Davis Administration, Senate President Pro Tem John Burton, D-San Francisco, maneuvered California’s legislature to approve a series of reforms aimed at reversing the runaway costs, which have climbed $20 billion in the last four years to reach $29 billion in 2003.

Davis signed the legislation and Insurance Commissioner John Garamendi estimated savings of $5 billion in 2004. But during his “campaign,” then-candidate, Arnold Schwarzenegger, called the legislation, “bogus bills.” As we all know, Schwarzenegger was elected and promised, during his inauguration speech, to cut workers’ compensation costs by $11 billion. And now “the game’s afoot.”

Last week, a state Senate committee voted to overturn the reforms. “If they think it’s a ‘bogus bill,’ if they think they can do so much better, they should have the opportunity,” Senator Burton said. “Let them sit in the endless meetings, let their constituents be all over them.” The legislature is now convening new committee hearings with the purpose of crafting new reforms.

Essentially, California is back at square one. We will continue to watch the fur fly.

California news updates

Monday, November 24th, 2003

Now it’s Schwarzenegger’s turn to enter workers comp fight
“Every recent governor has declared his steadfast intention to reform workers’ comp, lowering costs to employers and bringing more equity to disabled workers. None has succeeded; indeed, most of the legislation purporting to improve the situation has actually made it worse, most infamously an overhaul in the early 1990s that eventually led to more than a doubling of costs. Gov. Arnold Schwarzenegger is the latest to claim that he will reform workers’ comp in California for all the usual reasons.”
California fights tribe’s workers comp plan
“With sky-high workers’ compensation costs laying waste to California’s business climate, state officials are fighting an Indian tribe that sold hundreds of companies an inexpensive alternative to workers’ comp.”