Another Voice / Workers compensation
Board needs to be proactive in monitoring group trusts
Updated: 08/25/08 6:54 AM
In New York State, small businesses are allowed to create self-insurance group trusts in which each member agrees to be jointly liable for the claims of the other members. Well-run groups benefit from much lower rates for workers’ compensation coverage, as well as their administrators’ ability to expedite claims handling, create safer workplaces and minimize fraud. For many New York employers, these trust groups have significantly lowered both the incidence of on-the-job injury and the cost of doing business.
But in the last few months, 11 of what were once 63 self-insured group trusts have been shut down by the Workers’ Compensation Board due to insolvency. These failed trusts owe millions of dollars more in claims than they have in assets. They either undercharged for coverage, oversold to less-than- qualified members or underestimated their potential liabilities — or some combination of the three.
In response, the New York Legislature recently approved a bill to help protect the integrity of self-insurance group trusts. This law requires licensing of all self-insurance group trust administrators; increases assets a group trust must have to cover losses; and places a cap of 500 employers on the maximum size of any group.
While this law is a first step towards fixing problems within the system, the New York State Workers Compensation Board must take a more proactive approach toward ensuring group administrators are monitoring their member employers more closely. So what should be done?
First, field examiners for the workers comp board need to make on-site visits to each administrator office every two to three years to review data and confirm its profitability. These on-site visits should be a mandatory step in the licensing review process with harsh penalties for failure, including license suspension or revocation.
Such strict standards would force group administrators to use rigorous selection criteria to evaluate potential group members, focus more on accident prevention and safety, and expel member employers who are unable to maintain low accident incidence rates.
Secondly, the board needs to develop “strength rating” criteria to issue public ratings on individual trust groups. Ratings should be based on a trust’s operating performance and its ability to meet financial obligations. Such ratings would pressure trust groups to be more transparent about their financial condition and profitability or lack thereof.
Finally, the board must strictly enforce the size limitations mandated by the new state legislation to assure trust groups remain a haven for a small number of quality, “preferred” companies.
Through such a proactive approach, bolstered by this new state legislation, workers’ compensation self-insurance groups will have the ability to remain a viable alternative to traditional insurance companies well into the future.
Kevin Gregory is president of NCAComp, a third-party administrator of workers’ compensation trust groups.
