Archive for March, 2009

AIG: Failure’s Fat Rewards

Monday, March 16th, 2009

We continue to be amazed at the ongoing saga of AIG. We learn in Sunday’s New York Times that 400 employees of the financial products unit (yes, the geniuses who destroyed the company) are receiving bonuses ranging from $1,000 (the hard-working and relatively innocent) to $6.5 million (the brains behind the fiasco). Commitments to pay these bonuses were made in the spring, after the troubles began, but before the proverbial all hell broke loose. Outside counsel (presumably paid at their usual and customary rates – and no doubt in advance) confirmed that the promised bonuses must be paid.
AIG’s current CEO, Ed Liddy, expained to Treasury Secretary Tim Geithner that the bonuses were needed to keep the most skilled executives. “We cannot attract and retain the best the brightest talent [unfortunate choice of words, Ed] to lead and staff the AIG businesses – which are now being operated principally on behalf of American taxpayers – if employees believe their compensation is subject to continued and arbitrary [arbitrary?] adjustment by the U.S. Treasury.”
So the bonuses are being paid with taxpayer dollars: had AIG been allowed to fail, there would be no money to pay these obligations. We surmise that the checks were cashed immediately, before the feds had an opportunity to figure out a way to shut this scam down.
As a tax-paying owner of AIG, you will be delighted to know that the top 25 executives of the financial products unit – all of whom needed the incentive of huge bonuses to stay on the job – have agreed to reduce their salaries for the remainder of the year to one measly dollar. Their pay is finally aligned with their performance. And for the record, that annual salary won’t buy them a cup of coffee, but it will cover more than one share of AIG stock.
If AIG survives this current crisis, the company will be on the hook to repay the bonuses to taxpayers. Don’t hold your breath. The company that is too big to fail probably should fail, precisely because it is too big.
Is there a moral to this sordid saga? Perhaps. The Bhagavad Gita, India’s great spiritual document, describes three gates to hell: lust, anger and greed. Perhaps I am hallucinating, but I believe the logo inscribed over the third gate is that of its most recent corporate sponsor, AIG.

Cavalcade of Risk and Quick News Takes

Thursday, March 12th, 2009

Jason Shafrin of Healthcare Economist hosts this week’s great edition of Cavalcade of Risk, and he precedes it with a Surgeon General’s warning about possible side effects that might ensue from use of this product. Given that we are living in “interesting times,” there is no shortage of good risk reading. Jason is also looking for volunteers to take a 50-question economic survey, par to his dissertation research. We think he’s a very smart guy and encourage any efforts to make him even smarter. And if you participate before March 20, you may win a $25 Amazon gift certificate.
Quick takes
Safety Modifications Important for Aging Workforce
Prosecutor: Mine collapse was ‘perfect’ disaster
The Case of the Exploding Solvent Can
Poor Image Hindering Insurers When Recruiting Best & Brightest For Claims
Gearing Up for OSHA’s Crane Hearing
5 Distractions That Cause Workplace Hazards
Could Actuaries Have Prevented the Banking Crisis?

Collapsing Empires at the Hedge Fund Hotel

Wednesday, March 11th, 2009

I have a few shares of AIG stock, which is currently trading at 35 cents a share. I do not like to dwell on the pathetic disappearance of this particular asset, so it’s an opportune time to seek comfort in history. This is not the first collapse of a financial empire, nor will it be the last.
The financial products division that brought down AIG rented space at One Curzon Street , a tony part of London. The building, owned by the Abu Dhabi royal family, features elegant curves, polished white stone, sweeping windows and a panoramic atrium. On the street it’s known as the hedge fund hotel. Its tenants include GLG Partners, a once high-flying fund that has fallen on hard times, the struggling Swiss bank UBS, and on the fifth floor, its most famous tenant, AIG.
Nice digs for Joe Cassano and his crew. A great place to gamble with other people’s money and pocket nearly $300 million in personal swag. If you are going to lose half a trillion dollars, you may as well do it in style. The bad news is that tax payers have already ponied up over $200 billion to cover Cassano’s bad bets. The really bad news is that we may eventually be on for more than double that amount!
The Fall of Empires
Joe Cassano, the son of New York City cop, became a financial moghul, hanging his hat in the fanciest building on Curzon street. The street was named, of course, for Lord Curzon, one of the great figures of the Victorian age. Curzon’s fame derived mostly from his time as Viceroy of India. He shot tigers from the backs of elephants, took his afternoon tea on the veranda, and made policy for India’s millions. Like most of the British administrators who ran India, he came away with a substantial personal fortune.
In 1899, India suffered from a terrible famine. The death toll was six to nine million people, give or take a couple million. Among other administrative actions taken during the crisis, Curzon cut back on rations, which he characterized as “dangerously high” and tightened relief eligibility requirements. You know: stiff upper lip and all that. Even as Curzon ruled India with an arrogant hand, a dimunitive Indian national named Mohandas K. Ghandi was organizing fellow Indians in South Africa. Ghandi would eventually lead the movement toward self rule for India, and in doing so, would bring a formal end to the British Empire.
Curzon was born at Kedleston Hall, built on the site where his family, who were of Norman ancestry, had lived since the twelfth century. While at Oxford, he was the inspiration for a piece of doggerel which stuck with him in later life:
My name is George Nathaniel Curzon,
I am a most superior person.
My cheeks are pink, my hair is sleek,
I dine at Blenheim twice a week.
Joe Cassano cannot match Curzon’s pedigree, but he surely lost more money than Curzon ever dreamed of. Joe did his thing and brought down the biggest insurance company in the world. One hundred years from now, other folks, consumed by a similar raw greed, will bring down some corporate entity beyond our current imagining. But one thing is certain. The street where the debacle takes place will not be named Cassano Way.

The effect of obesity and other comorbidities on workers comp

Tuesday, March 10th, 2009

Historically, the tendency has been for employers to segment potential employee health and disability issues into two discrete silos: occupational safety, prevention, and other issues related to workers comp are most often managed by risk managers and safety staff. General employee health issues are usually tucked under an organization’s benefits and human resources department as part of group health – or under a wellness program, if one exists. But increasingly, data shows that the two are often inextricably linked and it makes good sense to address health issues with a more holistic approach. This seems an area rife for attention given the recent multi-year trend of decreased claim frequency and increased claim severity in workers comp. It’s also a critical issue given the aging work force. Employers need to recognize the effect that co-morbid conditions such as obesity, diabetes, and high blood pressure can have on disability recovery and medical costs – and to get more upfront about preventing and addressing these health conditions.
Roberto Cencineros, writing for Business Insurance notes that NCCI has released preliminary findings on an upcoming report on obesity which shows that workers comp medical claims open for one year cost three times as much when the injured employee is obese, and claims that are open for five years are five times more costly when involving an obese claimant. For smaller claims, the study will show that the cost differential can be even greater.
This should not be eye-opening news – there have been numerous other studies linking obesity to high medical costs and longer duration of lost time. One 2007 study documenting the cost link between obesity and workers comp by researchers at Duke University found that obese workers filed twice the number of workers’ compensation claims, had seven times higher medical costs from those claims and lost 13 times more days of work from work injury or work illness than non-obese workers.
Ceniceros notes that the workers comp industry has focused on treating specific injured body parts while overlooking so-called co-morbidity factors, such as obesity, that increase claims duration and costs. Comorbidities not only can lengthen the recovery period, they may also be a precipitating factor in claims. According to the article, “…some employers even have begun collecting obesity data to help fend off future claims that may not be work-related, particularly those involving police and firefighters who must take pre-employment physicals and whose heart attacks and other ailments often are presumed to be work-related, said Glenn Backus, senior vice president for Alternative Service Concepts L.L.C., a Reno, Nev.- based claims administrator.”
For more on the dawning awareness that workers comp programs should not be divorced from overall employee health issues, see the Bill Thorness article in the 2008 NCCI Issues Report, Wellness Comp, (PDF) where he addresses the issue of whether there is a place for health promotion programs in workers comp. “The bottom line is that workers compensation specialists should at least be at the table for discussions on how to make the workforce healthier. Health and productivity shifts the basic value proposition, according to AON, into the question of “How can [healthcare] plans be modified to incent employees to adopt healthy behaviors, moderate cost increases, and minimize absenteeism and presenteeism?”

Health Wonk Review, economic stimulus & insurance, AIG, and choosing MDs for quality

Thursday, March 5th, 2009

Brady Augustine of MedicaidFrontPage is this week’s host of Health Wonk Review – the Watchman Edition – catch up on this week’s buzz among health policy wonks.
In other news…
Economic stimulus & insurance – Robert Hartwig of the Insurance Information Institute discusses the potential impact of the economic stimulus plan on the insurance industry. He states that workers’ comp is the most likely beneficiary – the administration’s target of 3.5 million jobs would translate into $1.1 billion in private workers’ compensation premiums. He notes that any effects would not be likely to be seen until late 2010.
AIG – Our friend and colleague Joe Paduda has a post on The AIG breakup – implications for workers comp. Having previously been a manager at AIG, Joe has been in the media spotlight for commentary lately – check out some of his recent appearances on Fox news and his commentary in a New York Times article on AIG.
Quality over quantity – For workers’ comp medical networks, “less is more” is the operative rule. Peter Rousmaniere offers a seven-step process for selecting quality physicians for your medical provider network in his column in .

Taneka’s Law

Wednesday, March 4th, 2009

Back in December we blogged the sad story of Taneka Talley, who was stabbed to death while working as a clerk for Dollar Tree. Her assailant, Tommy Joe Thompson, singled her out simply and solely because she was black. At first, Dollar Tree denied the claim, under the theory that Talley’s race – not her employment – was the cause of the attack. After public outcry, Dollar Tree’s insurer decided to pay death benefits to Talley’s 11 year old son.
This case generated a lot of comment from Insider readers, who were divided on the whether the incident should have been compensable under workers comp. Now a California assemblywoman, Mariko Yamada (D-Davis), has filed a bill to address the ambiguities of this case. AB 1093 would forbid the denial of a comp claim where the motivation for the injury or death was related to an “immutable” personal characteristic – such as race, age or gender.
Here is the proposed language to amend Section 3600 of Labor Code:

(c) No workers’ compensation claim shall be denied solely because the motivation behind what caused the employee’s injury or death was related to an immutable personal characteristic of that employee.

“By introducing ‘Taneka’s Law,’ I hope that no other family in California will ever have to endure the unspeakable pain that the Talley family experienced,” Yamada stated.
Chain of Ambiguities
The proposed language raises an interesting issue: what exactly is an “immutable” personal characteristic? Would this include mental disabilities (such as “intermittant rage disorder”) or would such diagnoses be considered mutable? In terms of physical disabilities, where is the line between “permanent” (immutable) and “temporary” (mutable). Does anyone at maximum medical improvement (MMI) by definition have an “immutable” charateristic?
This bill is designed to close a loop hole in workers comp coverage. Should it become law, it will be interesting to track the inevitable loop holes that the new statutory language (inadvertantly) creates.

Title Dis-Insurance?

Tuesday, March 3rd, 2009

In most states, owner/officers of a company can opt out of workers comp coverage. So would it surprise you to learn that the scammers have parlayed this exemption into a scheme to avoid comp premiums? I didn’t think so. (On the scale running from naive to cynical, Insider readers inevitably tend toward the latter.)
Contractors Asset Protection Association (ConAPA), a company based in California, helps companies avoid comp premiums by designating employees in high rate occupations as stock-owning corporate officers. (The company website – no surpise – is down.) The California exemption applies to company officers who are also the sole shareholders of a corporation. So the folks at ConAPA don’t just have employers give workers inflated titles, they also issue these workers worthless shares of stock.
ConAPA focused on industries with high injury rates and expensive comp costs: housekeepers, security guards, roofers, maintenance and cooks. Thus, a housekeeper might become a “senior vice president, facilities.” A roofer becomes “VP for environmental protection.”
Jerry Brown (yes, that Jerry Brown), California’s attorney general, sued a similar operation called PacifiStaff in 2007. One of their clients, the now defunct Pic-A-Bagel, refused to pay the claim of a baker who carried the impressive title “Senior Vice President of Dough Making” (sounds more like a CFO). The denial fell apart on the employee’s testimony: he was never asked if he wanted to become a company officer and was not aware of any ownership in the corporation. That kind of ignorance is usually reserved for former presidents of brokerage houses or AIG, folks who never seem to have any idea how we got into the current mess. At least the poor bagel maker knows how the flour got onto the kitchen floor…

News Roundup: Cavalcade of Risk, good Samaritan update, Florida Murray decision follow-on, California fraud; more

Monday, March 2nd, 2009

Cavalcade of Risk went international last week with the Cavalcade of Risk, Downunder edition posted by New Zealand blogger Russell Hutchinson of the Chatswood Consulting blog.
Sorry for the brief hiatus last week – we have lots of news items to catch up on.
McDonald’s good Samaritan, part 2 – My colleague’s post on the McDonald’s employee who was denied workers comp for an injury sustained while playing good Samaritan elicited a lot of commentary both on our posting and beyond. Now, in a follow-on story by Fox16, the worker Nigel Haskett speaks about the incident and store owner Ray Nosler has stated that he expects McDonalds will support the claim, but states that “As a safeguard, if for some reason his claim is denied, and other insurance options are unavailable, I intend to cover the cost of his medical expenses. I’m doing this because it’s the right thing to do for Nigel.” The story includes surveillance video of the event.
Market conditions – Daniel Hays of National Underwriter reports that the much-anticipated hard market in property-casualty insurance is proving elusive, with average rates declining by 9% in January, according to MarketScout. Workers’ comp rates saw an average decline of 7%.
Florida – The Florida Supreme Court’s November decision in the Murray v. Mariners Health/ACE USA case has been viewed by many as an unraveling of one of the major components in the 2003 reform. More recently, legislation has been introduced to try to clarify and restore these reforms in terms of attorney fees.
California – From our “if it seems too good to be true” department: Marc Lifsher of The L.A. Times reports that Attorney General Jerry Brown is suing Contractors Asset Protection Assn. Inc. of Rancho Santa Fe and its founder-president, Eugene J. Magre over a workers’ comp avoidance scheme. The firm was allegedly advising small companies to avoid the cost of workers’ comp insurance by turning employees into stock-owning corporate officers.
SafetyInsurance Journal reports that President Obama’s proposed budget would boost funding for workplace safety programs by 4.7%.
ComplianceEHS Today features a helpful article by Kenneth Cybart on the electrical safety questions OSHA will ask during an investigation, with advice for employers on how to be prepared.
Data security – A recent survey of 1,945 people who were laid off, fired or quit their jobs in the past 12 months found conducted by the Ponemon Institute revealed that 59 percent stole company data when they departed and 67 percent used confidential information to help secure a new job. Twenty percent of those surveyed had worked in the financial services industry, which included the insurance sector. “Ponemon said its study revealed that companies are doing a very poor job at preventing former employees from stealing data, with only 15 percent of respondents’ companies reviewing or performing an audit of the paper and/or electronic documents employees are taking.”