Defense Contractors Working Overseas
Workers comp coverage for defense contractors working overseas may shift to a single insurer soon under a law recently signed by President Bush. The idea is based on risk pooling as a way to cut costs.
I have always been a supporter of pooling risks as long as the pool is large enough to invoke the law of large numbers.
The 2009 Defense Authorization Act will completely pool all of the workers comp coverage for overseas defense contractors and place the coverage with one provider. The pooling of workers comp risks with one provider was initiated due to a very sharp increase in accidents and payouts in 2006 and 2007.
Overall, this may be a good strategy. However, two concerns may make a single provider cost even more $:
- A single provider may not be able to handle the giant influx of claims. This would result in poor service and even a sharper increase in costs.
- The Department of Defense does not keep a loss history, which is beyond critical in providing data for a request for proposal.
There are other concerns that the insurance industry noted. We will have to wait about 7 years to see the results of this move due to the long-term development of the workers compensation claims.
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