What Happened in Workers’ Compensation in 2010

Soft market conditions with unabated price competition and a slow economy with reduced payrolls continued to affect commercial liens including the the workers’ compensation industry in 2010, as they did in 2009.

Robert Hartwig, president of the Insurance Information Institute, believes the property/casualty insurance industry will see growth in 2011 — the first time since 2006. Increase in demand for commercial insurance is in its earliest stages and will accelerate in 2011, he said, although there will likely be regional differences across the country. Workers’ compensation should be one of the growth areas.

One report — from SNL Financial — saw modest gains in premiums for workers’ compensation in the third quarter. But big broker Marsh found that workers’ compensation rates declined an average of 5.3 percent in the third quarter—a bit less than other commercial rates but still a decline. Primary casualty—comprised of workers’ compensation, general liability, and automobile liability—remained largely a buyer’s market, according to Marsh.

Insurers found themselves under growing pressure from two forces – low interest rates that could dampen investment income in coming years and competition that has made raising prices difficult. Analysts will be watching closely to see how insurers handle both challenges.

The industry found itself under increased pressure in 2010 to help return injured employees back to work while effectively managing costs, according to John Shilts of the Oregon Department of Consumer and Business Services. While injured workers claims are down, so is funding for return-to-work programs, anti-fraud efforts, and overall monitoring of state workers compensation systems, he told attendees at the Workers Compensation Research Institute’s (WCRI) Annual Issues and Research Conference.

Dr. Richard Victor, WCRI executive director, said businesses have been under more pressure to eliminate employer costs that do not improve worker outcomes. The WCRI noted that the industry is also trying to figure out the effect of the recession on the system across different industries and of aging employees who stay in the workforce longer due to the economic downturn.

Some research released in 2010 raised a few eyebrows.

The U.S. Labor Department reported that local and state government workers have much higher rates of injuries and illnesses requiring days away from work than workers in private industry. The rate among local and state government workers was 180 to 185 cases per 10,000 full-time workers compared to 106 cases for private firms. This was the first time incidence rates for public workers have exceeded those for private industry.

Federal officials and officials in North and South Carolina got into a tiff over workplace injury data. A new federal study estimating the rate of workplace injuries last year found North and South Carolina to be among the country’s safest in which to work. But some workplace safety experts questioned whether the research accurately reflects which states are safer.

Also, the Associated Press reported that U.S. oil refineries have an ongoing problem with accidents that turn deadly, losing four times as much money from such incidents than refineries in the rest of the world. The problem was highlighted by a deadly string of explosions, including the BP Deepwater Horizon explosion in the Gulf of Mexico that killed 11 and one that killed four people at a Tesoro Corp. refinery in Washington state.

In April, Massey Energy said it would provide financial packages providing health care and other benefits for the families of 29 miners killed in the nation’s worst mining disaster in 40 years at the Upper Big Branch mine in West Virginia. The tragedy sparked another national debate about safety at the nation’s mines.

In merger news of note in workers’ compensation, specialty insurer Markel Corp. struck a deal in 2010 worth at least $135 million to acquire Aspen Holdings, which sells workers’ compensation under the name FirstComp to small businesses in 31 states.

American International Group Inc. agreed to pay $146.5 million to state insurance regulators for alleged under-reporting of workers compensation premiums to states more than a decade ago. The deal resolves a multi-state probe that examined whether AIG violated premium reporting rules governing workers compensation insurance from 1985 to 1996. The misreporting had the effect of lowering the premium taxes and premium-based assessments AIG paid, according to regulators.

As always, there were noteworthy workers’ compensation events at the state level, where the coverage is regulated.

East

New York tried to rein in the use of self-insured trusts, following the recommendation of a task force formed in the wake of several high-profile trust collapses over the last several years.

Bowing to pressure from insurers and agent groups, Massachusetts eased workers’ compensation paperwork requirements for some out-of-state contractors.

Connecticut saw the largest workers compensation payouts in 12 years in connection with deaths at a Manchester beer distributor.

A deal reached by New York City and workers exposed to toxic dust at ground zero after the Sept. 11 terrorist attacks was expected to resolve a majority of the lawsuits over the city’s failure to provide protective equipment to the responders.

West

Several states, including California and Colorado, attempted to use monies from their state funds or state workers’ compensation insurer of last resort to help balance their state budgets.

The California State Fund appointed a new CEO, who agreed to change the insurer’s broker of record policy, which was welcome news for agents in the state.

There was controversy around Colorado’s state fund, Pinnacol, first over questionable expenditures on perks and then in a debate over whether to privatize it, which didn’t happen.

South Central

Oklahoma enacted legislation intended to improve its workers’ compensation system. One of the provisions requires Senate confirmation of judges nominated to the state Workers’ Compensation Court by the governor.

The Arkansas Supreme Court ruled that an employee who was injured when she fell down and broke her arm during a cigarette break is entitled to workers’ compensation.

The Texas Supreme Court ruled that an insurance company improperly denied workers’ compensation coverage for a woman injured while traveling in a company car from one workplace to another.

Midwest

A federal judge affirmed that Michigan’s workers’ compensation law blocks employee lawsuits against employers brought under federal anti-racketeering law.

In two separate decisions, the Supreme Court of Ohio upheld as constitutional a 2005 state law that limits the ability of workers who are injured on the job to sue their employers for a “workplace intentional tort” in addition to receiving state workers’ compensation benefits.

Ohio Governor-elect John Kasich named Senator Steve Buehrer as administrator of the Bureau of Workers’ Compensation. Kasich has made reducing workers’ compensation costs a priority for his administration.

Southeast

Georgia Gov. Sonny Perdue signed into law a bill allowing employers whose previous workers compensation carrier goes out of business to pay into the insolvency pool to cover injured workers’ claims. The law has been criticized by private insurers. It was a response to the liquidation order last October against Southeastern US Insurance Co. (SEUS).

Tennessee lawmakers agreed to delay a state law requiring workers’ compensation coverage for independent contractors who were previously exempt. The vote pushed the effective date of the law into 2011.

Kentucky Gov. Steve Beshear asked the state’s largest workers’ compensation insurer — Kentucky Employers’ Mutual Insurance — to again consider returning some of its $147 million surplus as a premium reduction or dividend to the small businesses that it insures.

The once public, now private West Virginia insurer, BrickStreet Mutual, expected to lose million of dollars in government agency contracts as the market opened up to other carriers and boards of education and other entities began switching to carriers with lower rates.

Workers compensation rates continued to drop in most states. However, Florida workers’ compensation insurers were given the green light to raise rates an average 7.8 percent starting Jan. 1, 2011. It is the first rate hike approved in seven years. In North Carolina, officials agreed to a slight bump of 0.6 percent.