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TRIA’s Impact on Workers Comp

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Because of the significant financial impact of the Sept. 11, 2001 terrorist attacks, Congress created the Federal Terrorism Risk Insurance Act (TRIA). Its purpose is to provide a financial backstop to the insurance industry that would cap losses in the event of another large-scale terrorist event. TRIA was initially set to expire at the end of 2005, but it has been extended twice and is now set to expire Dec. 31, 2014.

When most people think of TRIA, they think of property insurance. Without TRIA, many high-profile properties would be difficult to insure in the commercial marketplace. However, TRIA also plays an important role in workers’ compensation coverage, and its pending expiration is already impacting some renewals.

Workers’ compensation insurers are particularly concerned about large accumulations of employees in small areas, also known as employee concentrations.

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When carriers model employee accumulations, they not only look at a single employer’s concentrations, but also their aggregate accumulation exposure for all their policyholders in a particular zip code or city and in some cases across multiple correlated lines of business. Because workers’ compensation underwriters are required to provide terrorism coverage by law, the only way to limit their exposure is to reduce the amount of capacity they offer.

If TRIA is allowed to expire or is modified significantly, employers in certain cities and industries with large employee concentrations will likely experience capacity shortages.

In fact, the uncertainty around TRIA’s reauthorization is already leading some workers’ compensation carriers to decline or non-renew risks in certain geographical areas, or ask for large rate increases.

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The healthcare, public entity, higher education, and financial sectors are particularly affected by employee concentration issues at the moment.

To mitigate the impact of TRIA’s uncertainty, employers should differentiate their risk. Since both insurers and reinsurers use catastrophic models to estimate their loss potentials, it is critical that employers provide the highest quality of exposure data to help distinguish their risk profiles from their peers.

Additionally, companies with multiple shifts or those that operate in a campus setting should make sure to report both the total number of employees and the number of employees working during peak shifts—as well as the actual buildings where the employees are located. The number of employees working during peak shifts is the actual exposure to a terrorist event, not the total number of employees.

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Also, companies with a large percentage of their workforce in the field or telecommuting, rather than in the office where their payroll is assigned, should give this information to insurers. Providing very detailed information can help overcome some potential pitfalls of the catastrophic models and better reflect an employer’s exposure to catastrophic losses.

Employers with a large concentration of workers, especially those in major metropolitan areas, should be prepared to provide the following information to underwriters:

  • Employee marital or dependency status, including dates of birth for dependents.
  • Employee telecommuting/hospitality practices and impact on concentration.
  • Physical security of the building, including information about guards, surveillance cameras, parking areas, and HVAC protections.
  • How access to the building is controlled.
  • Construction of the building and location of the offices.
  • Management policies around workplace violence, weapons, and employment screening.
  • Employee security procedures.
  • Emergency response/crisis management plans and procedures.
  • Fire/life safety program.
  • A list of security staff.

As we move into 2014 without Congressional action on TRIA, the reaction of the marketplace is expected to become more pronounced. It is imperative that employers prepare to address the concentration issues with their carriers. This will help lessen the impact of these concerns and position employers to receive optimal terms on their risk management programs.

California Seeks to Limit Pro Athlete Workers Comp Claims

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Over the past few years, several former NFL players including Deion Sanders, Marshall Faulk and Michael Irvin have filed workers compensation claims in the state of California despite playing their careers outside of California. On September 9 the California legislature passed a bill intended to prevent these types of claims.

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The bill, AB 1309, would prevent professional athletes who have played less than 20% of their career in California, or have played seven or more seasons outside of California, from filing workers compensation claims in the state of California. Under current law anyone who pays state taxes in California are eligible for workers compensation benefits. This includes professional athletes who play for teams outside of California, but do pay state tax when they play away games in California.

Supporters of the legislation, including the National Football League and the Los Angeles Chamber of Commerce, claim that the legislation closes a loophole that is costing taxpayers money. “The state has a guarantee corporation, funded by taxpayers, that assumes responsibility for claims made and approved in the state, so out-of-state claims cause rates to be driven up for employers and taxpayers in the long run,” said Gary Toebben, Los Angeles Area Chamber of Commerce president and CEO.

The NFL Players Association (NFLPA) and AFL-CIO feel that athletes who play games in California, regardless of whether they play for a California team, should be entitled to benefits because they pay California taxes for the games they do play. The NFLPA claims that professional athletes pay $300 million per year in California income tax. Former NFL player Mel Owens, a county attorney for NBO Law who represents at least 1,000 retired football players suing for workers compensation in the state, claims that professional athlete claims in the state cost “one-tenth of one percent” of total losses to the California comp system. “Calling the California workers compensation law a ‘loophole’ is a fallacy—anyone that has played in California and got hurt in California pays state taxes and is entitled to benefits here,” said Owens.

According to state workers compensation records, there have been more than 4,400 claims filed by professional athletes in the state of California.

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Many of these are for head and neck injuries, with nearly 80% of them coming from former football players. By some estimates these claims could cost professional leagues as much as $1 billion to resolve. More than 2,300 of these claimants were also plaintiffs in the federal concussion lawsuit which the NFL recently settled for $765 million.

AB 1309 was passed by huge margins in both the California Assembly and Senate and is now on the desk of Governor Jerry Brown. The governor has until October 13 to sign or veto the bill.

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The Most Extreme Workers Comp Fraud Cases

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In this position, I receive so many press releases that it’s difficult to keep up and some sit in my email inbox unread because they don’t relate to this industry in the slightest way. However, I recently received one press release that not only caught my attention, it amazed me and inspired me to write this post about it.

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It tells of a man named Paul Colbert, who is the president and CEO of Meridian Investigative Group, a workers comp investigation company. With more than a decade of experience, Paul has seen some of the worst workers comp fraud cases in history. Below are a few of the more severe ones he shared in the email (names have been changed):

  • Kristy G: She alleged that her right foot was so injured that she couldn’t walk for for extended periods of time or be a productive member at her place of employment. Video caught her walking into the doctor’s office with her crutches and ambulatory aid for her ankle. Later, she was videotaped walking around without the crutches and holding her boot in her hand, trying to hit someone with it and then walking off quickly without any aid or signs of disability.
  • Kathy V: Her alleged injury was to her neck and shoulders, and in her claim, she indicated that she gets regular injections in her arm for pain. Her pain was so severe, that she could not work. Video caught her riding in a rodeo competition on two different occasions, after her date of injury.
  • Eddie R: His alleged injury was to his back, left ankle and heel. Again, his injuries were to such a degree that he could not work anymore. Video captured Eddie handily pushing his pickup truck after it stalled.
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  • Burt F: Burt filed a claim indicating the he was allegedly legally blind due to his workplace injury, but apparently not blind enough to prevent him from working as a maintenance man at an apartment complex. He was captured on video driving a golf cart and performing maintenance duties.

Do you know of any extreme workers comp fraud cases?

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Workers Comp Turns 100

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100th birthday

2010 marks the 100th anniversary of workers compensation. That’s right — that little program that ensures that a worker will be paid if he or she is injured on the job now officially dates back a century.

These days, everyone is familiar with workers comp and we may even take it for granted sometimes.

Nancy Hamlet, senior vice president of Healthcare Solutions, wrote a feature for the November issue of Risk Management magazine (available online November 1st) that explores the long history and evolving future of workers comp. She notes that the first statewide workers comp law was adopted in Wisconsin in 1911, but “scholars have found evidence that the concept of formalizing payments to injured workers existed as early 2050 BCE.” Hamlet added:

The early Greeks, Romans, Arabs and Chinese all had compensation schedules for certain losses as well. For example, an Arab who lost a finger received more than someone who lost a thumb; the value of a lost ear was calculated based on its surface area.

Workers comp has (thankfully) evolved into a system that delivers value to both employers and employees by striving for fair compensation for workplace injuries. Workers comp systems vary from state to state, however. The Insurance Information Institute (III) has penned a lengthy article on the current state of workers comp in America (available online). The article examines some recent state activities, including:

Oklahoma: In an effort to make the state more attractive to new business, Oklahoma legislators passed a number of workers compensation bills in May, including HB 2652, which would modify the workers compensation court, effective November 2010. Oklahoma is one of a handful of states where the courts administer the workers compensation system. Among other things, it will reduce the number of judges on the court, require them to have at least five years of workers compensation experience prior to appointment and require Senate confirmation for new judges appointed by the Governor to fill vacancies. In addition, it would extend their terms from six to eight years.

Texas: A pilot return-to-work program, adopted as part of comprehensive workers compensation reforms that took place in 2005, has now been made permanent. The program, which was designed to promote early and sustained return to the workplace after a work-related injury, reimburses an employer with less than 50 employees for expenses incurred in making workplace modifications so that the injured employee can return to the work. Maximum reimbursements, which under the pilot program were $2,500, have been raised to $5,000. Insurers are required to inform policyholders of the existence of the program.

New York: In accordance with the provisions of the 2007 workers compensation reform bill, employers who establish a safety incentive program, a return-to-work program and a drug and alcohol prevention program will be eligible to receive premium credits. Employers setting up safety programs that conform to the regulations issued by the Commissioner of Labor or a return-to-work program will receive a 4% credit in the first full year and a 2% credit each consecutive year. Drug and alcohol prevention programs are eligible for 2% premium credits.

Florida: In May 2009 lawmakers passed HB 903 in response to a state Supreme Court decision that reinstated hourly attorneys’ fees. Hourly fees had been the largest cost driver in the state’s workers compensation system. Under the new law, attorney fees in workers compensation cases will now return to the sliding scale set out in reform legislation passed in 2003. As a result, the 6.4% workers compensation rate increase imposed in April after the ruling was rescinded, and the 18.6% rate decrease that would have taken effect before the ruling was reinstated in July 2009. Rates declined again effective July 2010, the eighth consecutive drop, bringing the overall rate decrease since the reforms were passed to 64.7%, according to the insurance commissioner.

California: The Workers Compensation Insurance Rating Bureau is calling for a 29.6% rate increase to take effect in January 2011. A hearing will be held at the end of September. The insurance commissioner rejected the last request for an increase.
The bureau’s recommendations are advisory only. The bureau noted that even with the proposed increase, rates would still be 53% lower than those in effect on July  1, 2003, the year reforms were adopted that have stabilized the system.

Hamlet notices a few more trends, which she includes in her article on the topic. Those are the upward pressure on medical care costs* due to the increasing obesity of Americans and an aging workforce; the growing digitization of medical care records, which will speed the review process and help the injured worker return to worker faster; and the impact of personalized prescription drugs.

*The III notes that spending on medical care for workers comp claims climbed a cumulative 200% between 1993 and 2007.