When I come upon workers' compensation professionals who, facing a hard puzzle, behave with an intelligence rising to brilliance, I itch to tell you. Step in their shoes. How do you think they're doing? I am writing about the people running BrickStreet, a workers' comp insurer that is transforming the way work-injury risk is managed in West Virginia.
A few years ago, West Virginia would probably have been ranked the most costly state in workers' compensation insurance, had comparison been possible. A state fund was the sole seller of workers' comp insurance. In mid-2002, annual premium income was $539 million; expenses were $1.148 billion. Its deficit rose to more than $4 billion. Cash balances of the fund headed to zero.
Thus was the terminal bill, rung up over decades of statehouse policy to suppress costs, keep benefits high, tolerate huge inefficiencies and ignore the true tab. The system had become a work-to-grave safety net, sensitive to an extractive industry that, as recently as the early 1990s, made up a quarter of the state's work force.
I spoke by phone with Greg Burton, president and CEO of what is now the private BrickStreet Mutual Insurance Co., formerly the state fund. Burton and his colleagues have revitalized the insurance space, after essential changes at the statehouse.
In 2004, the political establishment abandoned cosmetology in favor of radical surgery--stat. The fund had to break even on a year-to-year basis. It had to resolve the accumulated deficit. And it had to make sure the remedies stuck.
One, cap awards that, in comparison to other states, were way high. The number of open claims was four times larger than Nevada's, even though Nevada had one-third larger the population. In mid-2003, the West Virginia Legislature cut benefits. That alone shaved $1.1 billion off the accumulated deficit.
Two, make the fund more disciplined. The legislature gave the fund more autonomy. It found for it a new name and made Burton, respected in the state, CEO.
Three, pay down the remaining deficit. The legislature created a plan using a premium surcharge, initially at 10.5 percent; increases in severance taxes for coal, natural gas and timber; state lottery proceeds; and some tobacco settlement money.
Fourth--and the most instructive step for you and me--teach people the real costs and causes of insurance costs. Burton is indefatigable at this task. His strategy involves the most basic remedies, plus state-of-the-art prevention and claims practices.
BrickStreet has made employers pay their premiums. It created a medical-provider network with real teeth to measure the providers. It paid broker commissions, odd because BrickStreet is the only provider of workers' comp until July 2008. But Burton calls upon brokers to educate customers on the transformation.
The insurance department has shifted to National Council on Compensation Insurance class codes, increasing the number of codes to 470 from 90. This will set off 10,000 epiphanies as employers learn finally their industry's prevailing costs.
Burton is planning to introduce the most aggressive incentive program I have heard from any insurer or regulator. Depending on its compliance with prevention and injury-management steps, an employer's premium will decline or increase by as much as 25 percent.
If this regime of shock therapy works, other insurers will confidently bid to take a lot of business from him when the market becomes competitive in 2008. What sweet and strange success for him that will be.
PETER ROUSMANIERE, a Vermont-based consultant and writer, is the workers' comp columnist for Risk & Insurance®.
February 1, 2007
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