The Stimulus Package – Will It Affect Workers Compensation
The stimulus package from the Federal Government caused a few changes in the financial markets. I wanted to cover the bullet points from my previous blog post. In looking at the bullet points, some of these have been covered by me in detail over the past few weeks.
The continued bailouts of the insurance companies will distort the market as this will allow them to be more competitive than they should be in quite a few areas. Some insurance carriers have already been accused of low-balling on bids to win the business. There are numerous articles in the insurance press covering this point.
The GAO has launched an investigation into one specific insurance company’s practices on bidding. What this investigation uncovers remains to be seen. A “smoking gun” may never appear to the investigators.
I had totally disagreed with the federal government allowing insurance companies to become quasi-banks/holding companies as this will distort the insurance markets even further. The slow repeal of the Glass-Stegall Act since the 1970’s contributed to this situation. This is just another method to obtain more bailout funds.
- Having a Federal Insurance Watchdog Agency – in essence to federalize the insurance markets along with Workers Compensation
- The shrinking employer market as the need for Workers Comp coverage will be reduced in proportion to the employers’ reduction in size
- The increase in claims filed as employees lose their jobs – this has been shown to be statistically true.
I do not think that federalizing the insurance administration and especially Workers Compensation would be a positive development. As we have seen (Digital TV Conversion, Bank Bailouts, etc.) when anything in federalized the costs increase dramatically and the level of service diminishes.
Would it not be a nightmarish situation if your agent not only had to keep up with state regulation, but also federal. For instance, if you were renewing your Workers Comp policy, your agent would possibly have an extra set of federal forms to fill out. Of course, there would be a tax on the premiums to keep a watchdog agency in place. You, as the employer would pay that extra tax. State regulation is still the way to go because Workers Comp and other lines of insurance vary so much between states.
The shrinking employer market is a fact. When more employees are taken off the payroll, then the amount of risk with that employer would decrease. However, there is another side to this discussion. The larger the payroll, the more an employer can spread the risk of a few bad claims. There are ratios in your E-Mod calculation that try to act as a balancing act between payroll, class codes and claims. As with most costs, the smaller employer pays a higher per dollar premium for the same Workers Comp coverage. It is not that fair, but it is the system put in place by NCCI and the State Rating Boards.
For many years, there have been numerous studies that show when employers lay off a large number of their staff, the number of Workers Comp claims spikes. Is this due to the employees worrying about future benefits and want to make sure they will receive an income after unemployment runs out or is it that employees may have been working with injuries that were tolerated as a part of work and now they want to file a claim now that they are unemployed? I think it is a combination of both. As I said in the previous paragraph, if an employer has lower payroll with many claims being filed, the E-Mod will increase dramatically costing an employer more for their Workers Comp in the coming years.
Overall, I think the only very negative development coming out of the current stimulus package is the federal watchdog agency possibly being created to administer insurance.
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