Fate of Two Comp Alternatives Lies With Courts
The push to reform state workers’ compensation systems to allow employers to opt out is by no means secure in Oklahoma, the first state to enact such reform. Similar efforts face new challenges in Tennessee, the second state to seek opt-out legislation.
Eight of nine current Oklahoma Supreme Court justices received their appointments from Democratic governors. In April the justices will hear a constitutional challenge to the law allowing employers to leave the Sooner workers’ comp system by implementing an alternative benefits plan.
By contrast, a conservative legislature and Republican governor friendly toward business interests adopted the opt-out legislation in 2013, bringing the opt-out alternative into law beginning in early 2014.
Claimants presenting the constitutional challenge before Oklahoma’s Supreme Court argue the law is unconstitutional because it denies injured workers due process and creates two sets of workers with disparate rights.
The court’s justices may be sympathetic to such an argument.
Past Oklahoma Supreme Court rulings make it apparent the body leans more liberal in judgment than the state’s “very, very conservative legislature,” said Trey Gillespie, senior workers’ comp director at the Property Casualty Insurers Assn. of America.
“I think everybody in Oklahoma will agree the Oklahoma Supreme Court is significantly more liberal in their view of the construction of laws and the application of laws than the Oklahoma Senate and House of Representatives,” Gillespie said. “There have been instances…where it appears the Oklahoma Supreme Court seems to get a lot of joy out of declaring certain acts of the Oklahoma legislature unconstitutional.”
Bill Minick, president of consulting firm PartnerSource and a chief proponent of efforts to allow opting out of state workers’ comp systems, called the Oklahoma Supreme Court’s makeup “a legitimate consideration.”
But Minick argues that the lawsuit’s goal of preventing employer’s from opting out of Oklahoma’s workers’ comp system will fail in the long run. It “is clear that the Oklahoma legislature is committed to do anything necessary to preserve” the law adopted as the Employee Injury Benefit Act, he said.
Gillespie said opt-out backers are already urging Oklahoma legislation that would adjust the law to mitigate the impact should the lawsuit plaintiffs prevail.
Gillespie and Minick will both speak at the National Workers’ Compensation and Disability Conference & Expo to be held November 11-13 in Las Vegas. They will present two divergent viewpoints on opt out.
Meanwhile, on March 25, Tennessee legislators in the House Consumer and Human Relations Subcommittee deferred taking action on opt-out legislation, which could delay further consideration of its passage until next year.
Two days prior, a Tennessee Advisory Council on Workers’ Compensation voted 6-0 against recommending the legislation that would allow employers to leave the state’s workers’ comp system and set up alternative plans.
The advisory council provides research and recommendations to Tennessee’s General Assembly and to state agencies. Mr. Gillespie testified before the council against the opt-out legislation, embedded in Senate Bill 0721 and House Bill 0997.
Tennessee is the first state where proponents for laws allowing employers to opt out of state workers’ comp systems are seeking favorable legislation after winning the right to do so in Oklahoma.
Conditions for Oklahoma’s adoption of an opt-out alternative were ripe at the time of that legislation’s signing into law by Republican Gov. Mary Fallin. Oklahoma employers were frustrated with a dysfunctional workers’ compensation system while neighboring Texas provided an example of advantages employers could gain by opting out.
Texas has allowed employers to opt-out of its workers’ comp system since that system was first created.
The case Oklahoma’s Supreme Court is scheduled to hear on April 14, is Judy Pilkington and Kim Lee V. State of Oklahoma.
Pilkington was injured in 2014, while working for retailer Dillard’s Inc. Lee was also injured in 2014, while an employee of Swift Transportation Co. of Arizona, according to their legal filing.
They claim Oklahoma’s opt-out law strips them of the right to have their workers’ comp cases heard by an unbiased body.
“There is no due process protection in allowing an Oklahoma employer to OPT OUT of the statutory workers’ compensation system, set up its own benefit plan, make all the decisions regarding benefits, determine who and how a plan can be reviewed, and have total control of the development of the record for appeal,” the plaintiffs’ Supreme Court filing states. “Nowhere along the way is there an agency or court or unbiased tribunal to look at the merits of an injured worker’s case. OPT OUT employers are allowed to replace a judge with a committee chosen by the employer.”
They also argue that the Oklahoma Injury Benefit Act creates disparate rights for accessing benefits. For example, injured employees working for employers that do not opt out generally have one year to file a claim while an employer that opts out may allow only a 24-hour statute of limitation, they claim.
Oklahoma’s constitution prohibits separate treatment of members of the same class of people, said Bob Burke, an attorney representing the plaintiffs.
Asked whether the Supreme Court justices about to hear his case are likely to be influenced by the fact that 8 of them were appointed by Democratic governors, Burke said that “the court has a tradition of maintaining access to justice for injured workers and anyone harmed.”
Risks of Hearing Loss Remain Flat, With Exceptions
The prevalence of hearing loss among U.S. workers has remained at 20 percent for the last 30 years. Researchers say there have been improvements in most areas, but certain sectors continue to put workers at risk.
Occupational hearing loss is permanent and potentially debilitating but preventable, according to government experts. They looked at audiograms for 1.8 million workers between 1981 and 2010 to estimate hearing loss trends in various industries.
“The adjusted risk for incident hearing loss decreased over time when all industry sectors were combined,” according to their report, published in the American Journal of Industrial Medicine. “However, the risk remained high for workers in healthcare and social assistance, and the prevalence was consistently high for mining and construction workers.”
Some 22 million workers are exposed to noise hazards at work. Hazardous noise, a single instantaneous high noise exposure, or exposure to chemicals that damage hearing can result in occupational hearing loss. The study from researchers at the National Institute for Occupational Safety and Health is said to be the first to offer a broad look at hearing loss risks to workers over a 30-year period.
The construction industry had the highest number of new hearing loss cases during the study period, possibly due to less stringent hearing conservation requirements compared with other industries. Also, the seasonal nature of work involving independent contractors makes it difficult to implement preventive measures.
Mining has the highest percentage of noise exposed workers than any other industry, the report said. A small fraction of workers in the health care and social assistance sector are exposed to hearing risks. However, the vast majority report not wearing protection.
“There is no industry where workers can be considered ‘safe’ from hearing loss.”
2015 General Liability Renewal Outlook
There was a time, not too long ago, when prices for general liability (GL) insurance would fluctuate significantly.
Prices would decrease as new markets offered additional capacity and wanted to gain a foothold by winning business with attractive rates. Conversely, prices could be driven higher by decreases in capacity — caused by either significant losses or departing markets.
This “insurance cycle” was driven mostly by market forces of supply and demand instead of the underlying cost of the risk. The result was unstable markets — challenging buyers, brokers and carriers.
However, as risk managers and their brokers work on 2015 renewals, they’ll undoubtedly recognize that prices are relatively stable. In fact, prices have been stable for the last several years in spite of many events and developments that might have caused fluctuations in the past.
Mark Moitoso discusses general liability pricing and the flattening of the insurance cycle.
Flattening the GL insurance cycle
Any discussion of today’s stable GL market has to start with data and analytics.
These powerful new capabilities offer deeper insight into trends and uncover new information about risks. As a result, buyers, brokers and insurers are increasingly mining data, monitoring trends and building in-house analytical staff.
“The increased focus on analytics is what’s kept pricing fairly stable in the casualty world,” said Mark Moitoso, executive vice president and general manager, National Accounts Casualty at Liberty Mutual Insurance.
With the increased use of analytics, all parties have a better understanding of trends and cost drivers. It’s made buyers, brokers and carriers much more sophisticated and helped pricing reflect actual risk and costs, rather than market cycle.
The stability of the GL market also reflects many new sources of capital that have entered the market over the past few years. In fact, today, there are roughly three times as many insurers competing for a GL risk than three years ago.
Unlike past fluctuations in capacity, this appears to be a fundamental shift in the competitive landscape.
“The current risk environment underscores the value of the insurer, broker and buyer getting together to figure out the exposures they have, and the best ways to manage them, through risk control, claims management and a strategic risk management program.”
— David Perez, executive vice president and general manager, Commercial Insurance Specialty, Liberty Mutual
Dynamic risks lurking
The proliferation of new insurance companies has not been matched by an influx of new underwriting talent.
The result is the potential dilution of existing talent, creating an opportunity for insurers and brokers with talent and expertise to add even greater value to buyers by helping them understand the new and continuing risks impacting GL.
And today’s business environment presents many of these risks:
- Mass torts and class-action lawsuits: Understanding complex cases, exhausting subrogation opportunities, and wrangling with multiple plaintiffs to settle a case requires significant expertise and skill.
- Medical cost inflation: A 2014 PricewaterhouseCoopers report predicts a medical cost inflation rate of 6.8 percent. That’s had an immediate impact in increasing loss costs per commercial auto claim and it will eventually extend to longer-tail casualty businesses like GL.
- Legal costs: Hourly rates as well as award and settlement costs are all increasing.
- Industry and geographic factors: A few examples include the energy sector struggling with growing auto losses and construction companies working in New York state contending with the antiquated New York Labor Law
David Perez outlines the risks general liability buyers and brokers currently face.
Managing GL costs in a flat market
While the flattening of the GL insurance cycle removes a key source of expense volatility for risk managers, emerging risks present many challenges.
With the stable market creating general price parity among insurers, it’s more important than ever to select underwriting partners based on their expertise, experience and claims handling record – in short, their ability to help better manage the total cost of GL.
And the key word is indeed “partners.”
“The current risk environment underscores the value of the insurer, broker and buyer getting together to figure out the exposures they have, and the best ways to manage them — through risk control, claims management and a strategic risk management program,” said David Perez, executive vice president and general manager, Commercial Insurance Specialty at Liberty Mutual.
While analytics and data are key drivers to the underwriting process, the complete picture of a company’s risk profile is never fully painted by numbers alone. This perspective is not universally understood and is a key differentiator between an experienced underwriter and a simple analyst.
“We have the ability to influence underwriting decisions based on experience with the customer, knowledge of that customer, and knowledge of how they handle their own risks — things that aren’t necessarily captured in the analytical environment,” said Moitoso.
Mark Moitoso suggests looking at GL spend like one would look at total cost of risk.
Several other factors are critical in choosing an insurance partner that can help manage the total cost of your GL program:
Clear, concise contracts: The policy contract language often determines the outcome of a GL case. Investing time up-front to strategically address risk transfer through contractual language can control GL claim costs.
“A lot of the efficacy we find in claims is driven by the clear intent that’s delivered by the policy,” said Perez.
Legal cost management: Two other key drivers of GL claim outcomes are settlement and trial. The best GL programs include sophisticated legal management approaches that aggressively contain legal costs while also maximizing success factors.
“Buyers and brokers must understand the value an insurer can provide in managing legal outcomes and spending,” noted Perez. “Explore if and how the insurer evaluates potential providers in light of the specific jurisdiction and injury; reviews legal bills; and offers data-driven tools that help negotiations by tracking the range of settlements for similar cases.”
David Perez on managing legal costs.
Specialized claims approach: Resolving claims quickly and fairly is best accomplished by knowledgeable professionals. Working with an insurer whose claims organization is comprised of professionals with deep expertise in specific industries or risk categories is vital.
“We have the ability to influence underwriting decisions based on experience with the customer, knowledge of that customer, and knowledge of how they handle their own risks, things that aren’t necessarily captured in the analytical environment.”
— Mark Moitoso, executive vice president and general manager, National Accounts Casualty, Liberty Mutual
“When a claim comes in the door, we assess the situation and determine whether it can be handled as a general claim, or whether it’s a complex case,” said Moitoso. “If it’s a complex case, we make sure it goes to the right professional who understands the industry segment and territory. Having that depth and ability to access so many points of expertise and institutional knowledge is a big differentiator for us.”
While the GL insurance market cycle appears to be flattening, basic risk management continues to be essential in managing total GL costs. Close partnership between buyer, broker and insurer is critical to identifying all the GL risks faced by a company and developing a strategic risk management program to effectively mitigate and manage them.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.