Some employers in Colorado and New York are learning that the so-called long tail of workers comp has more than one meaning. In the wake of a multitude of insurer insolvencies in recent years, many state guaranty funds are buckling under the burden, and turning to employers to help pick up the pieces.
Like many other states, Colorado has been suffering the ill effects of insurer insolvencies. In recent years, at least 14 insurers have gone out of business. The 1971 demise of Reliance is the most prominent and most notorious example. The Colorado Insurance Guaranty Association has been paying claims for injured workers of the insolvent insurers, but the Association now faces more than $40 million in unfunded liabilities. To shore up the troubled fund and continue paying claimants, the Association has taken to a new tactic: billing 26 of Colorado’s larger employers more than $2 million.
… recently, employers have been surprised by letters announcing, in some cases, that they owe the association hundreds of thousands of dollars for claims that were paid. The association has had the power to recover money from large employers for more than 10 years, experts say, but few policyholders knew about it.
It has only been recently — within the last 18 months — the association has sought payment.
This comes as an unwelcome surprise to the employers who are being assessed. Employers are already contributing to the guaranty fund by way of a 2% surcharge on their premium.
This is a scenario that may soon be playing out in New York as well in the form of increased employer assessments. We recently posted an item about the dire straights of the Workers’ Compensation Security Fund. The Fund was scheduled for complete exhaustion as of the end of February leaving 7.500 injured workers in the lurch, but a deus ex machina in the form of an unexpected sum of cash from another state fund and from the liquidators of Home Insurance Co. bought a few weeks.
Among the proposals to shore up the Fund:
A doubling of assessments on some employers is part of the Pataki administration’s recommended solution to the impending bankruptcy of the Workers’ Compensation Security Fund, along with borrowing $50 million from another state insurance fund. Both are subject to approval by the state Legislature.
Colorado and New York aren’t alone, simply the two states that are in the headlines this week. Obviously these short-term fixes are band-aids at best, and injured workers and employers alike deserve more security and more protection from our industry.
For those of you interested in a more in-depth treatment of the issue of insurer insolvencies, here are two policy-orientated papers of note:
Managing the Cost of Property-Casualty Insurer Insolvencies in the U.S. (PDF) from the Center for Risk Management and Insurance Research, Georgia State University, December 2002. Note that one of the authors of this report is a fellow blogger, Martin Grace of RiskProf.
Managing Insurer Insolvency 2003 (PDF) prepared for the Foundation for Agency Management Excellence by Stewart Economics, Inc., September 2003.
Posts Tagged ‘workers compensation’
The long tail of insolvencies: Colorado, New York employers face potential assessments
Tuesday, March 8th, 2005SEC reserve inquiry of Interstate Bakeries intensifies
Tuesday, February 1st, 2005Roberto Ceniceros of Business Insurance reports that the SEC intensified its probe of Interstate Bakeries, moving from an informal to a formal investigation of its workers comp reserves. The company employs more than 30,000 workers and is the nation’s largest wholesale baker. Think Twinkies, Hostess, Drakes, and Wonderbread.
According to Columbus Business First, the inquiry began last July when the Kansas City-based company said it might have incorrectly accounted for reserves. More recently, the company filed for Chapter 11 and ousted executive staff:
“Interstate Bakeries in December removed its treasurer and senior vice president of finance after identifying a “material weakness” that allowed the $40 million workers’ comp charge to go unreported for two quarters.
According to unaudited financials the company recently released, the $40 million charge accounted for most of the company’s swing from a $27.5 million profit in fiscal year 2003 to a $25.8 million loss in fiscal year 2004.”
$40 million is a lot of cupcakes. Reserves have been the demise of more than one company, let’s hope this large employer will be able to weather the challenge. We recently discussed reserve problems in the context of a Kentucky self-insurance group (SIG) that was grossly under-reserved, and also discussed what happens to workers comp claims when an insurer defaults. This bears watching.
Free safety educational materials
Monday, January 17th, 2005Some state workers compensation authorities have very robust educational materials and information on their websites, and from time to time, we will point to tools or resources that we find. Several states have state funds – that is, the state provides insurance to employers, either exclusively or on a competitive basis. One might expect a certain level of depth to the educational materials provided by state funds. Here are a few we’ve found:
Utah Workers Compensation Fund Safety Topics. More than 60 safety topics, many in both English and Spanish, are available in PDFs.
Ohio Bureau of Workers Compensation Safety Publications. More than 40 guides and manuals are available in PDFs.
Washington State Department of Labor and Industries has a variety of posters and safety guides available in PDFs. The site also offers some employee and employer training guides, including PowerPoint presentations.
Lousiana Workers Compensation Commission Safety Articles. More than 60 archived articles on various safety topics are available online.
A note of caution: workers compensation laws vary state to state, and while many of these materials are general in nature, certain materials may be state-specific.
When incentive-based compensation programs and bonuses backfire
Wednesday, October 6th, 2004George’s Employment Blawg (which, incidentally, is always a good read) treats the legal downside of incentive-based compensation, pointing us to an article by Chiree McCain of the Birmingham Business Journal entitled Compensation systems also have legal negatives
The article uses examples of bonuses that may inadvertently encourage drivers to short-shrift safety or drive beyond legal limits and bonuses for accident-free days that may impede accident reporting. While the article doesn’t discuss piecework, we’d put that in the category of a compensation system that often leads to safety problems. It certainly wreaked ergonomic havoc in the textile industry, although today, with much of that industry being outsourced offshore, injuries are probably less in evidence here in the U.S.
In most instances, incentives are intended to be a positive force, motivating employees to excellence but they can be a fertile playing ground for the law of unintended consequences, bringing to mind the age-old saw about the road to hell being paved with good intentions. We’ve certainly seen bonuses for accident-free days backfire, particularly because they are often awarded to a group of workers or a manufacturing division so you have the carrot of financial gain AND the stick of peer pressure at play.
The article suggests possible initeneded consequences of incentive-based compensation:
“They’re [the employer] not saying, ‘I’ll give you extra money if you go break the law’ … but the company can face liability for the conduct that is illegal,” he says.
Gittes says employers could face liability for on-duty actions by an employee or an independent contractor because, either way, that person is acting as an agent for the company.
And if a plaintiff can identify a pattern of accidents or illegal behavior, a compensation system that encourages that behavior might raise the stakes from negligence to deliberate disregard and therefore introduce punitive damages into the mix.
“If they were put on notice that their policy was being interpreted by employees in ways that threatened the safety of others and they continued to do it anyway, there could be an issue about punitive damages,” Gittes says.
The downside can be costly. In January, we reported on a $12 million lawsuit based on bad faith for a claims handling practice allegedly involving incentives to claims staff for lowering the cost of claims
9/11 news roundup: health, insurance, and disability-related issues
Saturday, September 11th, 2004Most Ground Zero Volunteers Still Waiting For Workers’ Comp
From Adjuster.com: “A study of workers’ compensation claims from the cleanup at the World Trade Center site after the Sept. 11 attacks found that about 90 percent of the 10,182 claims for workers’ comp have been resolved. In contrast, less than a third, or 31 percent, of the 588 volunteer claims were resolved as of June 30, 2004, the Government Accountability Office, the investigative arm of Congress, found.
Sept. 11 attacks didn’t bankrupt U.S. insurers: Study
Business Insurance reports on a forthcoming study from Ball State University in Muncie on the effects of 9/11 on the insurance industry that states that the impact on the insurance industry was less than anticipated, partly due to the federal compensation fund. .
Breathing and mental health problems widespread among Ground Zero rescue and recovery workers
Preliminary data from screenings conducted at The Mount Sinai Medical Center show that both upper and lower respiratory problems and mental health difficulties are widespread among rescue and recovery workers who dug through the ruins of the World Trade Center in the days following its destruction in the attack of September 11, 2001.
An analysis of the screenings of 1,138 workers and volunteers who responded to the World Trade Center disaster found that nearly three-quarters of them experienced new or worsened upper respiratory problems at some point while working at Ground Zero. And half of those examined had upper and/or lower respiratory symptoms that persisted up to the time of their examinations, an average of eight months after their WTC efforts ended. In addition, more than half of the Ground Zero workers who were examined had persistent psychological symptoms. (via Pulse).
9/11 Impact on Marsh & McLennan Cos. Nothing Short of Devastation
Claims Journal features an interview with Marsh & McLennan Companies Chairman and CEO Jeff Greenberg reflecting on the lingering aftermath of the loss of 295 employees in terms of both the human and the business impact.
Additional stories:
Lingering 9/11 anger finds its outlet in courts
Court declines to hear appeal of 9-11 Workers’ Comp benefit case
No answers for kin of Mexican 9/11 victims
WTC rescue workers still ailing, study finds
Terrorism insurance is now common
World Trade Center Health Registry
Cantor Fitzgerald sues al-Qaeda over Sept. 11
The Port Authority of New York and New Jersey to join 9/11 lawsuit against Saudis
The miracle survivors – coping with recovery
Workers Comp and terror: the long shadow
Minnesota Issues Workers Compensation System Report
Tuesday, August 10th, 2004Minnesota’s Department of Labor and Industry just issued a Workers’ Compensation System Report that covers data and trends in the state’s system from 2000 through 2002. The good news? Claims fell by more than 15% during that time. The bad news?
” … cost per $100 of payroll rose 18 percent during the same two-year period. The report estimates the cost rose to $1.58 per $100 of payroll in 2002 from $1.34 in 2000.
This echoes a national trend of a decrease in frequency and an increase in severity. Also, for the first time in the state, the medical portion of the claim eclipsed the indemnity portion in terms of overall costs. The full report can be accessed online through the link provided above.
Top 10 reasons injured workers retain attorneys
Monday, July 26th, 2004The Public Entity Risk Institute (PERI) has a wealth of resources on its site so we’ll be adding it to our sidebar under “organizations.” In digging through the site we came upon a symposium topic that was presented last December by Massachusetts plaintiff attorney Alan S. Pierce entitled Top Ten List as to Why Injured Workers Retain Attorneys. (pdf) The article presents a good overview of practices that are fairly guaranteed to drive an injured worker into the arms of an attorney – all from the perspective of an attorney who has seen his share of worker grievances. It’s instructive reading in how not to treat an employee who has been injured on the job. You can read his full remarks in the linked article, but here’s an overview of his top ten reasons:
1. Claim is denied
2. No contact by employer or insurer
3. Overbearing or intrusive contact by the employer
4. Bills unpaid, prescriptions unreimbursed
5. Lawyer advertising/solicitation
6. Advice of friends, family, or medical provider
7. Lack of modified duty work/employer harassment after return to work
8. Worker/employer dissatisfaction
9. Loss of health insurance; other benefits
10. The accident that never should have happened
PERI offers access to a wealth of other risk management articles and papers by industry experts from past symposiums, and while some are geared to topics that are specific to the needs of its member organizations, (e.g., fire departments) many cover general employer-related issues.
Lightning strike prevention and survivor resources
Saturday, July 17th, 2004A recent news story about a 42-year old Bradenton, Florida carpenter who was killed by lightening is sad a reminder that this is the prime season to be on alert for electrical storms. Every year, workers, account for about one third of the total number of people struck by lightening.
Lightning strikes are most likely to occur between 2 pm and 6 pm from June to August. While lightning strikes can occur anywhere, this lightning fatality distribution map demonstrates that there is a greater risk in southern and midwestern states. According to the National Lightning Safety Institute, “eighty five percent of lightning victims are children and young men ages 10-35 engaged in recreation or work. Twenty percent of strike victims die and 70% of survivors suffer serious long-term after effects.
Outdoor workers (or anyone outdoors, for that matter) should take precautions at the early onset of an electrical storm (pdf). These include seeking appropriate shelter and knowing the steps to take as last resort safety measures when in immediate peril.
Workers who spend time outdoors should be trained in prevention. Employers should include lightning safety policies and procedures as part of their overall prevention program, and should review these policies seasonally.
Roofers, construction workers, road crews, and farm workers are examples of jobs at risk, but risk managers should be aware of the risks for inside workers and those in vehicles, too…every year, people are injured or killed by lightning traveling through telephone lines.
According to the National Weather Service, about 20% to 30% of the strikes result in fatalities. The medical conditions resulting from strikes can be complex and sometimes rather mysterious, differing markedly from voltage shocks. In an article entitled Disability, Not Death, Is the Main Problem With Lightning Injury (pdf), Dr. Mary Ann Cooper discusses some of the medical complexities that can plague those recovering from the aftermath of a strike. Lightning Strike & Electrical Shock Survivors International, Inc. (LS&ESSI) is a nonprofit support group for survivors and their families.
More lightning resources
Hazard alert – lightning protection – from the Electronic Library of Construction Occupational Safety & Health (In English and Spanish)
Human Voltage – What Happens When People and Lightning Converge – from Science @ NASA
Lightning’s Social and Economic Costs and other extensive resources from the
National Lightning Safety Institute – an organization that consults and trains in lightning safety and lightning engineering issues.
Lightning survivor stories and lightening photos – from the National Weather Service
Ohio getting tough on premium compliance
Friday, July 16th, 2004Employers in Ohio would do well to ensure that they keep their workers’ compensation premium payments up to date. The Ohio Bureau of Workers Compensation (BWC) recently issued a press release naming employers who have lapsed premium payments.
Ohio is one of five states where a state fund is the exclusive provider of workers insurance. The other states are North Dakota, Washington, Wyoming, and West Virginia.
According to the release, more than 1,710 Ohio businesses are breaking the law by letting their premium reach a lapsed status of more than $1,000. The BWC takes efforts to bring employers into compliance, but when unsuccessful, the Attorney General pursues legal action. By publicizing the top 150 noncompliant Ohio employers, the state fund is enlisting the help of the public.
“Businesses that do not pay their premiums have an unfair advantage,” [James] Conrad [administrator and CEO] said. “In competitive bidding situations, Ohio employers that do not pay into the workers’ compensation system can undercut competition and unfairly win a job. By stealing from BWC and Ohio, these companies are also stealing work they normally might not win, and it’s imperative the bureau, along with state’s employers and taxpayers, put a stop to this type of activity.”
As part of the push to secure compliance, BWC has added an employer coverage look-up tool to its website. BWC suggests the following scenarios where the tool might be useful:
- Ohio homeowners who have recently hired a contractor for their services;
- Ohio employers who are curious about those with whom they do business;
- Ohio contractors who want to check on the coverage status of subcontractors.
With some few exceptions, failure by employers to secure workers compensation coverage for their employees is illegal in most states, and considered as fraud. Other types of premium fraud include under-reporting the number of employees or payroll, misclassifying employee occupations, or any other scheme to avoid or underpay premium. Many states encourage employees to report any suspected employer fraud to either their state insurance authority or the state
