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by frank t. white
Whose Job Is It?
Last summer a top executive at one of Florida’s leading insurance companies
was asked whether he had any proposals to fix problems in the state’s workers’
comp system. His answer, in effect, was, "That’s not our problem. Let the
employer groups do it."
His is an opinion common among some in the insurance industry. Workers’ comp is a
small cog in their profit machine. Perhaps the cost of losing that line of business
doesn’t justify the cost of efforts to keep it from becoming twisted and warped.
At Associated Industries Insurance Company (AIIC), we look at the matter a little
differently. We are deeply involved in finding solutions to the ailments of the
workers’ comp system. Although we are not an employer group, AIIC was established and
is owned by Associated Industries of Florida (AIF), which is an employer group. For eight
decades AIF has advocated for the interests of the business community. Long before AIF ran
a workers’ comp insurance company, the association’s lobbyists were creating
far-reaching legislative solutions to the problems in that system.
The relationship between AIIC and AIF creates synergy, to use a faddish management
term, that helps us take action on reform of the system. Insurance companies may be the
experts on what’s right and wrong with workers’ comp, but employers have to
create the demand for reform at the grass roots level. That demand is what gives the
politicians the impetus to make changes that are unpopular with some special interests.
Right now the workers’ comp system is in trouble. Rates are too low to cover the
cost of benefits. At the same time, benefits are too low to compensate injured workers
adequately. This is because quirks in the system enrich those who exaggerate injuries or
manipulate the system through litigation, while the truly injured worker suffers.
Last year, the National Council of Compensation Insurance (NCCI), a private-sector
company that recommends premium levels based on actuarial studies, recommended a
13.1-percent rate increase. Insurance Commissioner Bill Nelson rejected that increase, in
part because NCCI was using data in its analysis that did not adequately reflect emerging
trends. Just as importantly, however, the insurance commissioner wasn’t given
sufficient justification to make a decision that was unpopular with his constituents.
When rates are set artificially low, employers who are safety conscious eventually end
up subsidizing the rates of those who aren’t because there isn’t enough leeway
to reward good risks with lower rates. In my personal opinion, NCCI’s rate increase
was overly optimistic; a 13.1-percent increase is not enough to cover the looming costs of
the system.
The only alternative to high rates is action to adjust abuses that are artificially
inflating costs. It’s a simple rule of business: You either raise prices or you lower
costs. Unless the Legislature takes action soon, workers’ comp will again become the
sick man of the insurance industry. More carriers will leave the market, forcing more
employers into the residual market, the insurer of the last resort, where rates are three
times higher.
Keeping rates artificially low only postpones the day of reckoning and, in postponing
it, makes it more painful.
Politicians won’t listen to insurance lobbyists who tell them that higher rates
are necessary. They will listen to employers who tell them that they’d better do
something because higher rates are unaffordable.
That’s why AIF and AIIC will, together, take on the job of fixing workers’
comp.
Frank T. White is executive vice president and COO for Associated Industries Insurance
Services, Inc.
March/April 1999 -- Florida Business Insight, PO Box 784, Tallahassee, Fla.
32302, (850)224-7173, insight@aif.com |
