PCI: Reform Needed to Prevent Future Workers’ Comp Problems in Kentucky

The Property Casualty Insurers Association of America (PCI) is calling on Kentucky lawmakers to make changes to the workers’ compensation program in the Commonwealth in order to prevent future financial collapses like those recently revealed by one of the major group self-insurance funds operating there.

“The financial problems associated with AIK Comp would likely have been avoided if workers’ compensation group self-insurance funds were under the same regulatory scrutiny as private insurance companies,” Greg LaCost, PCI senior counsel and regional manager, said. “This clearly demonstrates the need to level the playing field by requiring these funds to meet the same strict requirements for financial reserves and be under the same accounting and regulatory microscope as the private insurers are in Kentucky.

“Additionally, it is crucial that these funds be rated by A.M. Best like all insurance companies so that consumers can judge for themselves how risky it is to transact business with them.”

LaCost said another major problem with the Kentucky system for some of the workers’ comp self-insurance funds is that they are not homogeneous in nature. Most self-insurance funds in almost every other state are limited as to the types of businesses they insure. This allows the funds to be aware of the type of risks that they write.

“Unfortunately, that limitation does not apply to certain funds in Kentucky,” LaCost said. “PCI is concerned relative to the solvency of each fund in Kentucky in this regard and we will ask that a close examination be done of each of them. We do not want to see consumers hurt by these funds walking blindfolded into a market in which they have no experience. This occurred in Florida several years ago to the detriment of consumers.”

LaCost said self-insurance funds like AIK Comp should be regulated under the same guidelines utilized by the Office of Insurance for private workers’ compensation carriers and Kentucky Employers Mutual Insurance (KEMI) and be subject to the more stringent audit requirements of insurers so there are adequate reserves to guarantee payment of claims.

“PCI advocates equal treatment for workers compensation companies, whether they are private or self-insurance funds,” LaCost continued. “We’ve seen these plans charging lower rates to gain market share. But those lower rates don’t always make financial sense. And in this case, the employers who paid into the fund may be left holding the bag and paying more in the long run to make up for their short-term ‘bargain’ rates.”

PCI member companies write about 56 percent of the workers’ comp market in Kentucky and more than 47 percent of all the property casualty insurance in the state.