We have been following the fate of self insurance groups (SIGs) in New York, where the innocent pay for the sins of the guilty and where what is legal is by no means fair. We read in WorkCompCentral (subscription required) that an appeal to over-rule the onerous assessments imposed on the trusts who played by the rules, to cover the liabilities of trusts who did not, has been rejected by the U.S. Supreme Court. [The Insider is quoted at length in the article.] Had employers known just how expansive the risks of SIG participation were, they would likely have chosen to purchase conventional insurance.
The appellate court wrote that “a fair reading of [comp law] within the context of the related provisions and the legislative history, leads to the conclusion that group self insurers were intended to be included among those to be assessed to provide the funds to cover the defaults of all private self-insurers, including groups.”
The court went on to say that the liability of individual employers “is proportional to their role as self-insurers within the workers’ compensation system.”
The New York appellate court has expanded the concept of joint and several liability way beyond the members of a given trust, including not only all those who participate in self insurance groups, but virtually every self insurer in the state. There is no way a company can reasonably assess the scope of this risk. Why would anyone put their trust in trusts?
The Law of Small Numbers
The problem for the dwindling number of employers who participate in New York SIGs is the inverse of the law of large numbers: because their numbers are relatively small (compared to the total number of employers and comp premium in the state), they own a disproportionately large share of the open-ended liabilities generated by the failed trusts. Given the now-established legality of the assessments, and given the impossibility of verifying the viability of every self-insured risk, New York has basically eliminated self insurance as an option. That’s too bad, especially in the context of the state’s relatively high costs for comp.
Perhaps the state’s 800,000 employers could push for fundamental changes in the way workers compensation is managed: they could argue that the system is too complex and too costly for employers, even as the benefits for injured workers are way too low. As a group, they would have the law of large numbers in their favor, which is certainly more than can be said for the hapless remnants of the state’s self insurance groups.
NOTE: For access to the Insider’s numerous blogs in this issue, enter “New York trusts” in the search box.
Posts Tagged ‘state costs’
New York: Busted Trusts and the Law of Small Numbers
Wednesday, April 18th, 2012Cavalcade of Risk #66 and sundry workers comp news notes
Wednesday, December 3rd, 2008Cavalcade of Risk #66 is posted at Political Calculations, where the blogger who goes under the alias of Ironman takes an innovative approach by offering two editions with all posts presented in a grid-like format, applying a blog post rating system. See Investment Grade and Kit and Caboodle versions for this week’s entries.
State cost variations – Risk & Insurance looked at variations in state workers comp costs for employers in all 50 states and determined that in this regard, Arizona is the most favorable place for employers. Other states with low workers’ comp costs include Arkansas, Indiana, Virginia, North Dakota and South Dakota. Michael Keating reports on survey results and discusses various structural factors within a state system that contribute to workers compensation costs. Note: my colleague Jon Coppelman was quoted in the article.
Ohio – another scandal brewing? – According to The Cleveland Plain Dealer, “Federal agents are investigating links between Cuyahoga County Auditor Frank Russo and a politically connected firm that manages medical claims of injured workers and employed Russo’s son, according to subpoenas and interviews.” It’s a complicated story, and apparently part of a larger story on a federal investigation into Cuyahoga County corruption.
The $18 million fraud charge – The CEO and CFO of Staffing Services, a firm based in southern California, are being charged with conspiracy to defraud the State Compensation Insurance Fund of $18 million in premium payments. While news reports aren’t specific as to how, the pair are being charged with providing false information. While we can’t know specifics in this case, such charges often relate to misclassification of employees. The stakes for this type of fraud are high – if convicted, each of the two men face the potential for 20 years in prison and up to $40 million in fines.
Weathering the storm – worth your time: The Financial Crisis & the P/C Insurance Industry: Challenges Amid the Economic Storm – a presentation and analysis by Robert Hartwig of the Insurance Information Institute. This was presented to the Excess/Surplus Lines Claims Association in late September.
Blood-borne disease and healthcare workers – the Centers for Disease Control has recently issued the results of a study showing that health care workers face an increased risk of dying from blood-borne diseases, such as HIV, and related illnesses compared with workers in other fields. The study encompassed data over a 20-year period, including 248,550 deaths from HIV/AIDS, hepatitis B and C, liver cancer and cirrhosis. Researchers were unable to determine how much of the increased risk is related to occupational versus non-occupational exposure.