According to the Property Casualty Insurers Association of America, the report by Conning Research and Consulting -- Workers' Compensation State Funds: Evolution of a Competitive Force -- presents an erroneous and flawed conclusion.
The study revealed that state funds write approximately a quarter -- $11.3 billion in net premiums written -- of the comp market, and that the market share of these funds is increasing in many of the states in which they write. However, according to PCIAA, the Conning report failed to provide any quantitative analysis to support its findings. Specifically, officials from the group said that the study omitted any statistical analysis of how the federal tax exemption for government insurance funds subsidizes their build-up of surplus and allows funds in some states to undercut the private marketplace.
The study also indicated that state funds report lower expense ratios than private insurers. However, PCIAA said the report did not provide definitive statistics on the state funds' operational advantages that positively impact their expense ratios. These advantages, the group said, include additional state subsidies through the use of public buildings, data systems, and personnel services; exemption from many types of taxes and fees paid by private insurers; lower or no acquisition costs because many state funds do not solicit business or pay commission; and large captive accounts.
According to PCIAA, single-state workers' comp state funds that are required to "take all comers" and act as the state's residual market use the tax exemption they receive to provide an important government service. However, the group said that in some states, government insurance programs have expanded their territorial and coverage options and ballooned into a market of first resort, using tax advantages and capital subsidies to displace the private marketplace. PCIAA noted that in eight states, government-run funds are writing more than 50 percent of the market.
"Marketplace competition in some states is already deteriorating from the harmful competitive effects of an unlevel playing field," PCIAA said in a statement. "These states and their consumers have been ultimately harmed by less competition and lower tax receipts and an increasingly socialized marketplace."
PCIAA also said that the Conning report created a false impression about the comparable dedication of private sector insurers to workplace health and safety.
"Both private and public insurers work diligently with their policyholders to provide safe and secure work environments by providing risk management expertise and safety programs tailored to the policyholders," the group said. "In fact, private insurers are able to use an additional wide array of tools such as large deductible plans and retrospective rating plans as an incentive to policyholders to maintain and improve safety."
Read more at the WORKERSCOMP ForumTM homepage.
November 19, 2009
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