Posts Tagged ‘SIGs’

Risk, mining industry growth, drug repackaging, E&O, SIGS & more news of note

Monday, June 4th, 2012

Risk roundup – Nina Kallen posts the latest Cavalcade of Risk at Insurance Coverage Law in Massachusetts – check it out.
Mining – Joe Paduda talks about the growth of the mining industry, noting that it is up almost 60% over the last ten years, with an increase of 12% since the beginning of 2011 – a growth rate that looks like it will surpass the BLS ten-year projection of 24%. Joe notes that regulators, work comp executives and providers should be on alert since this growth will have a dramatic impact on selected states, citing North Dakota as one example.
Disparity in healthcare costs – Dave DePaolo has an interesting post on the wide disparity in cost for cash paying patients vs insurance. He points to a recent LA Times article that cited numerous real world examples (routine blood work was charged $782 by the hospital, $415 by the insurer, and $95 if paid in cash.) DePaolo asks: “What would fee schedules look like if those in charge of these pricing decisions shared with payers and regulators all of the data that identified each friction point in insurance based reimbursement schedules versus getting paid cash?”
Florida drug repackaging – Do the people who write the biggest checks to politicians determine the cost of workers comp in Florida? That’s a question many keep raising, and it appears so. In the article drug-bill battle is lucrative for lobbyists, legislators, Aaron Deslatte of The Orlando Sentinel talks about how Broward County’s Automated Health Care Solutions has invested nearly $6 million into lobbying to protect the practice of drug repackaging by physicians. Why should this issue be of concern to Florida employers and insurers? Joe Paduda offers a primer on repackaged drugs and the effect on work comp costs.
E&O and workers compWorkers’ compensation is the leading cause of agent in E&O claims, accounting for approximately 10% of all claims annually, according to Curt Pearsall. He notes the majority of claims involve the following issues: Questions involving coverage for sole proprietors, partnerships or single-member LLCs; Dealing with a broker to place coverage for that “tough” risk; Dealing with the state workers’ comp market to place coverage; Ensuring employees in all states are covered; Placing clients in a trust/alternative program; and U.S. Longshoreman and Harbor coverage.
On reforming SIGS – At LexisNexis Workers’ Compensation Law, John Stahl offers a summary and some of the salient points of the International Association of Industrial Accident Boards and Commissions’ (IAIABC) recent report on self-insurance groups (SIGs): Regulatory Challenges Regarding Self-Insured Groups: Failures Prompt New Regulation. He notes that employers liked the low cost of joining an SIG but did not realize the potential liabilities associated with that choice, and that many employers made the false assumption that they were protected by state regulation. The full IAIABC report is available for $45: Self-Insured Groups for Workers’ Compensation: Effective Regulatory Strategies.
CA protects hair care workers – Jon Gelman posts about a groundbreaking settlement in California that protects hair care salon workers. The settlement was between California’s Attorney General and manufacturers of Brazilian Blowout hair smoothing products that contain a cancer-causing chemical. In addition to paying fees and penalties and implementing safeguards for workers, hair care facilities must warn the public about the cancer-causing potential of the chemicals used in the procedure and must cease deceptive advertising.
Poultry workers push back – Citing concerns over worker and public health, poultry workers, safety advocates, and groups ranging from the Southern Poverty Law Center and the National Council of LaRaza, to the American Public Health Association and Nebraska Appleseed all united in opposition to USDA’s proposed ‘modernization” plan that would shift work from inspectors to workers. At The Pump Handle, Celeste Monforton talks about this issue: Public health officials urge USDA to withdraw plan to ‘modernize’ poultry inspection, worker and food safety will suffer.
A Request for Help Bob Wilson calls all UR hands on deck for participation in Health Strategy Associates’ survey. Learn more here: Your Opinion Needed on Critical Utilization Management Survey.
Migration from Mexico – Peter Rousmaniere posts about a recent Pew Hispanic Center Report on Mexican migration, which states that, “The largest wave of immigration in history from a single country to the United States has come to a standstill. After four decades that brought 12 million current immigrants–more than half of whom came illegally–the net migration flow from Mexico to the United States has stopped–and may have reversed.”
Some of the factors cited as contributing to this change include the weakened U.S. job and housing construction markets, heightened border enforcement, a rise in deportations, the growing dangers associated with illegal border crossings, the long-term decline in Mexico’s birth rates and changing economic conditions in Mexico.
it would be funny if it weren’t so true – Cartoonist Jen Sorenson issues An Open Letter To The Supreme Court About Health Insurance.
Death on the Job The Weekly Toll.
More noteworthy news


New York: A Matter of Trust(s)

Wednesday, May 11th, 2011

New York continues to deal with the failure of the self insurance groups (SIGs) managed by CRM. As is so often the case, the question is who pays? Who assumes the debts incurred by the failed management company? When a conventional insurance company fails, the state usually covers the benefits for the injured workers and then passes some of the costs on to insurance companies and their clients, in the form of assessments. Given the large number of insurers and their clients, these assessments are relatively small for any individual company. In the CRM failure, unfortunately, the financial implications for all SIG participants are enormous.
The New York approach to SIG failures has been to expand the concept of “joint and several liability” to include not just the companies in a given (failed) SIG, but any and all companies who participate in SIGs. In other words, when NY companies join a SIG, they are responsible for their own losses, the losses of other companies in their group, and the losses of all companies involved in SIGs. Such open-ended parameters for exposure should raise red flags for any risk manager thinking about joining an Empire State SIG.
In April 2010, Justice Kimberly O’Connor ruled that the assessments on healthy SIGs were unconstitutional. She appeared to strike a blow for fairness. Alas, she has been over-ruled by the state supreme court, which has determined that the comp statute allows the state to seek reimbursement from all SIGs. The sins of the few are to be borne by those who played by the rules.
Misplaced Trust
CRM, which has filed for bankruptcy, apparently managed SIGs like a Ponzi scheme: they under-priced the insurance to attract new customers; they under-reserved claims to give the appearance of profitability; and they charged exorbitant management fees every step of the way. Like all Ponzi schemes, tt worked beautifully until it collapsed. By the time the state uncovered the problem (therein lies a tale), CRM was on the ropes. The state settled CRM’s liabilities for about 10 cents on the dollar. Where does the rest of the money come from? The state is reaching into the pockets of all SIG participants, those who participated in CRM SIGs and everyone else, thus including companies that paid fair rates for insurance, focused on managing their losses and, in general, played by the rules.
Well, as they say, let no good deed go unpunished. The comp statute protects the interests of the state. The law is quite clear. Members of the solvent SIGs share the liabilities incurred by SIGs that failed to live up to their responsibilities. Is it legal? Apparently, yes. Is it fair? Well, no.
The state legislature is tinkering with the assessment plan, trying to come up with ways to ease the pain of the current assessments and insure the solvency of SIGs going forward. Don’t hold your breath.
The Nature of Trust
Trust is defined as having belief or confidence in the honesty, goodness, skill or safety of a person, organization or thing. The saga of CRM has shown that trust can be misplaced, and that when it comes to participating in SIGs in NY, any and all trust is misplaced.
My advice to NY companies is simple: forget about SIGs. Find yourself a nice, guaranteed cost plan from a conventional insurance carrier, then go to sleep knowing that your premiums will reflect two things, one good, one bad: the good? The premium you pay will be based upon your own losses; you are not responsible for anyone else. The bad? You operate in a state where, despite inadequate benefits paid to injured workers, the cost of comp insurance is way too high. But that’s a tale for another day.

CRM: Wreaking Bi-Coastal Havoc in Self Insurance

Monday, December 6th, 2010

You may recall the New York saga of Compensation Risk Managers (CRM), who single-handedly brought down the entire workers comp self-insurance group (SIG) industry in the empire state. Well, CRM is back in the news, this time in California, where their dubious business practices have collapsed a self-insurance group for the construction industry. The name of the failed SIG is “Contractors Access Program – get it? “CAP.” As in, “your exposure is capped; you have nothing to worry about.” To paraphrase a legendary President, “we have nothing to fear except fear itself” – to which we must add, unfortunately, the legitimate fear of predatory insurance administrators.
New York regulators took a very hard line in their response to the insolvency of a dozen SIGs operated by CRM. Someone had to make up the deficit created by CRM’s mismanagement, so they decided to penalize all the SIGs operating by the rules. This harsh and rather expansive definition of “joint and several liability” led the well-managed SIGs to abandon the state.
At this point, it’s not clear how California is going to pursue the $38 million shortfall. They will probably go after the actual participants in CAP, but it’s highly unlikely they will find anywhere near the cash to cover the insurance deficit. Meanwhile, eleven of the SIG members are suing CRM, the agent who sold the product and the SIG’s board of directors (some of whom are SIG members). If you total up the premiums paid by those filing the lawsuit, you only come up with $5.2 million. So the scale of the losses – $38 million – appears large enough to put every one of the SIG members out of business.
Promises, Promises
One of the interesting aspects of the lawsuit is the way the plaintiffs have quoted the marketing spiel right back at the defendents. They were promised “superior underwriting, claims oversight, loss control and administration.” The “rigorous underwriting” would provide savings “while preserving the integrity of the program.” Potential clients were assured that their exposure was limited to the premiums paid (a complete misrepresentation of the nature of SIGs) and that reinsurance kicked in on any claim above $500,000. (In reality, there was no reinsurance.) The agent who sold this dubious product promised to function as “much more than a broker.” They brought “particular expertise” to the program and would serve as the clients’s “partners in risk management functions.” Some partner!
What apparently was not disclosed to members and prospects was the fact that the SIG was losing money almost from the very beginning. CRM had a fall out with the original broker, which resulted in $6 million of SIG funds being used to pay him off.
The CRM website is still up, where you can read about “the CRM advantage.” They have an advantage, all right: they take advantage of naive and trusting companies seeking a little edge in the competitive comp market. It’s a killer edge, to be sure.
Thanks to Work Comp Central (subscription required) for the heads up on this case.

Trusts in Trouble

Friday, May 7th, 2010

We recently blogged the collapse of the self-insurance trust market in New York. When CRM Holdings, a Bermuda based operator of self insurance groups (SIGs), folded like a house of cards, the New York comp board went after the healthy SIGs to cover CRM’s liabilities. They hit these innocent folks with a whopping $11 million assessment. As a result, a number of SIGs abandoned the New York market, only to learn two years later that the comp board’s assessments were illegal. Oh, well. It seemed like a good idea at the time.
Now we move a few miles to the east and find a similar situation brewing in Connecticut. Municipal Interlocal Risk Management Agency (MIRMA) has been writing comp policies for municipalities since 2002. The great thing about comp is that it’s so easy: offer coverage at rates lower than competitors, collect the premiums and pay the claims as they come in. Unfortunately, the premiums MIRMA has been collecting are not covering the claims generated by the insured municipalities. So MIRMA is in the uncomfortable position of trying to collect additional funds from cash-strapped municipalities. For example, North Branford owes $600,000, Westbrook owes $158,000; and Killingworth owes $71,188. In these trying times, that’s not exactly chump change.
The legislature passed a bill to give the municipalities more time to come up with the money. The bill would have amended the amount MIRMA was required to keep in its reserves, and thereby allow the towns to pay the amounts they owe, interest free, over four years. Governor Jodi Rell is not buying that approach; she vetoed the bill. The governor issued a statement:

MIRMA has been undercapitalized since its creation. Although it has been given several years to remedy its financial situation, it has failed to do so. Now, providers are not being paid and injured workers are at risk of not being treated. MIRMA can no longer exist in its current state of outright capital inadequacy.

The governor went on to state that MIRMA stopped paying workers’ compensation claims simply because it does not have the money to pay, which is “wholly unacceptable.” She wrote that MIRMA’s deficit has grown by more than 300 percent in the last six years, and is predicted to reach well over $15 million by 2013. That might seem small by CRM standards – their deficit was upwards of $50 million – but then again, Connecticut is a lot smaller than New York.
Untrustworthy Trusts
The governor has ordered a complete review of MIRMA’s finances. I could write the report without even looking at the books. In their effort to build market share, MIRMA underpriced their policies. They probably spent a lot on marketing and frills. To balance the books, they under-reserved claims, hoping to cover the cash short-fall by building market share. It worked until it didn’t. Now they have run out of money, so they cannot pay the claims. If the auditors have a sense of history, they will conclude that MIRMA operates like a subsidiary of CRM.
NOTE: CRM, still operating in California, appears to be on the ropes.
Connecticut’s short term solution – requiring the insured municipalities to come up with the money – is fair, if hardly feasible. At least Connecticut is not going to penalize the municipalities who declined to participate in what appears to be MIRMA’s modified Ponzi scheme. That’s good. But it remains to be seen how cash-strapped municipalities – already facing substantial budget cuts – are going to come up with these substantial sums of money.
When it comes to self-insurance trusts in the Empire and Nutmeg states, it’s time to put away the beer kegs and cancel the golf outing: the party is over.

Joint and Several Bust

Monday, December 14th, 2009

Back in June we blogged the failure of several self-insurance groups (SIGs) in New York, all run by Compensation Risk Managers (CRM). There was bad news all around: participants in CRM SIGs were suddenly without coverage; and participants in other (non-CRM) SIGs were hit with a huge surcharge to make up the deficits created by CRM’s deficient management. Now the proverbial “other shoe” (presumably a Gucci) has dropped, directly on the heads of CRM managers: the company has been indicted by Attorney General Andrew Cuomo for fraud and sued by the state comp board. CRM is having what appears to be a well deserved, terrible, horrible, no good, very bad week.
In their own defense, CRM asserts that problems are industry wide:

According to the WCB’s website, of the 65 self insurance workers compensation trusts authorized by the WCB and subject to its oversight and regulation, as of November 2009, 32 were either insolvent, being terminated or were underfunded, 13 had been voluntarily terminated and only 20 were operating with no fiscal issues and no regulatory restriction. Compensation Risk Managers managed 8 of these 65 trusts. The Company believes that an industry-wide problem exists and that the WCB has unfairly singled the Company out. The Company intends to defend the WCB litigation vigorously and prove that the WCB’s unsubstantiated allegations are utterly without merit.

In other words: don’t hold us accountable for something everyone is doing.
Well, maybe other SIGs are in bad shape, but CRM is under fire for operating the insurance equivalent of a Ponzi scheme: the indictment charges that they deliberately under-reserved claims, leading to under-stated losses. The resulting “healthy” loss ratios became the basis for under-pricing the rest of the market, which led to increased membership in their self-insurance groups. The new premiums helped CRM keep up with increasing payments. It all came crashing down when insufficient reserves ran out and payments exceeded available cash. Heck, the experts at Madoff Consulting guaranteed that it would work… right up until the moment it didn’t.
Joint and Several Liability
Most people buy insurance with stand-alone policies. Each company is the master of its own fate. If the company performs well, they benefit from lower premiums. If losses are high, the experience rating process leads to higher premiums. As long as the carrier remains solvent (not a given these days), there are no big problems.
Self-insurance groups are different. They involve a much higher level of trust (and risk): not only are you accountable for your own losses; you are on the hook for the losses of other group members. A SIG is only as strong as its weakest member. Indeed, SIG participants in New York discovered that they were on the hook for losses in other SIGs, through a painful surcharge imposed by the comp board.
This brings to mind the response of the immortal Groucho Marx to an invitation to join an exclusive club: “I don’t want to belong to any club that will accept me as a member.” That’s just the kind of thinking that might have helped the unfortunate companies who find themselves swinging in the wind at the end of CRM’s tattered rope.

News roundup: Health Wonk Review, WC recovery, fatalities, joint & several, AIG and web tools

Friday, August 21st, 2009

Things are sure getting ugly out there in the national debate on health policy. Read what the health policy wonks in the blogosphere have to say about all this – a fresh Health Wonk Review is posted over at David Williams Health Business Blog.
The recovery and WC – Joe Paduda offers an excellent analysis of the likely impact of economic recovery on various segments of the workers comp industry in his post The recovery is coming – what does that mean for work comp? He offers a word of caution for employers: as hiring increases, so too will injuries. “The good folks at the NCCI have looked at the impact of economic recoveries on workers comp, finding “Job creation is related to an increase in the proportion of workers who are inexperienced in their current job and, hence, more likely to sustain a workplace injury.”
Work fatalities down, suicides up – The good news: “A total of 5,071 fatal work injuries were recorded in the U.S. in 2008, down about 10 percent from a total of 5,657 fatal work injuries reported for 2007, according to preliminary government figures.” However, some of the drop is attributed to the economy and a decline in the number of hours worked. Researchers also think that numbers may be lagging since budget constraints at reporting agencies may have delayed classifying cases. One of the most troubling parts of the report is that workplace suicides were up 28 percent to a series high of 251 cases in 2008 – “…the highest number ever reported by the fatality census. Suicides among protective service occupations rose from 14 in 2007 to 25 in 2008.” Read more about the report in Insurance Journal’s story, Fatal Work Injuries Dropped 10% in 2008; Down 20% in Construction.
Joint and Several Liability in action – Roberto Ceniceros blogs about the hefty bills that some New York employers are facing after the demise of self-insured trusts (aka SIGs) in his post Self insuring comp claims has its risks. About 1,789 will be footing about $133 million in unfunded workers comp claims – an average of about $74,000 per employer.
AIG wins one – An NCCI suit alleging that AIG has been shortchanging state workers comp pools for 35 years was dismissed by a federal judge yesterday, but the suit was dismissed on a legal technicality, with no ruling on the actual charges.
Web tools – here are a few good web tools we’ve come across in our travels:
Choose the Best Search for Your Information Need – a guide to some specialty search engines
Wordnik – An ongoing project devoted to discovering all the words and everything about them. We’re liking this, and also recommend our long-term favorite word tool, OneLook.
Meeting ticker – log the number of attendees, enter the average hourly rate, and start your engines. You’ll be surprised to learn how much meetings cost!
ParkWhiz – find and reserve parking before you get there. Enter a date, time & address and get nearby parking garages, rate comparisons, and distance from your destination.
Down for everyone of just me? – enter the address of a website to see if the site is having a widespread problem or if the problem with the page is on your end. It’s surprisingly useful!

KY SIG members owe $51 million

Tuesday, December 14th, 2004

Members of a self-insurance group (SIG) in Kentucky are learning a harsh lesson in joint and several liability. More than 4,000 employers who are or were members of AIK Comp, a plan promoted by Associated Industries of Kentucky, face some $51 million in unfunded claims. Apparently, AIK reserves were insufficient to cover claims, and now all current members — and even some former members — are liable for the shortfall.
In workers comp, insurers often refer to the long tail. Essentially, this means that the costs of the claim extend well beyond the actual event or occurrence that the insurance covers. With most types of insurance, if a claim occurs, the payment is made within a short amount of time. With workers comp, payments cover medical costs and wage replacement (also called indemnity payments) over the life of the claim. Insurers estimate the ultimate cost of the claim and set aside reserves, the amount estimated as necessary to pay claims. In recent years, underreserving has been a factor in the demise of some very prominent insurers.
It’s too bad to see such a mismanaged pool because well-run SIGs can be viable and beneficial alternatives for small to mid-size employers that would not qualify for stand-alone self insurance. Recently, an A.M. Best report demonstrated that SIGs and captives often outperform traditional insurance programs:
“The combination of at-risk member capital, as well as joint and several liability, is a strong incentive to control losses, minimize frictional expenses, and detect and control fraud, according to the report. These factors benefit the results, with the five-year average loss and loss-adjustment-expense ratio for rated self-insurance pools at 60.6, vs. 89.3 for captives and 80.8 for A.M. Best’s commercial casualty insurance industry composite.”
Employers need to conduct rigorous due diligence before joining a SIG. As with any self-insurance program, they need to ensure their own house is in order and their loss experience is good – there are no shortcuts for good loss control; employers also need to ensure that the prospective SIG is very cautious in selecting its members, both in terms of member financial solvency and in terms of risk management and loss control requirements. If the entry threshold is low, that should be a serious sign for caution.