By JOSHUA CLIFTON, a Chicago-based writer who covers workers' comp and disability issues
Efforts to privatize state workers' compensation funds continue to spread throughout the country. While the circumstances may differ in Ohio, Colorado and other states exploring the option, in each case, advocates for privatization all point to the same story as a model for success--Nevada.
More than a decade ago, lawmakers in the Silver State rolled the dice on privatization and hit pay dirt. Douglas Dirks, now the CEO and president of Reno, Nev.-based workers' comp carrier EMPLOYERS Holdings Inc., was there for it all. Dirks was brought in to help stabilize the state fund when the Nevada workers' comp system teetered on insolvency due to an estimated $2.2 billion in unfunded liability.
"We were within 18 months of total liquidation," Dirks told Risk & Insurance®. "It was a significant financial crisis."
As chief financial officer for the Nevada fund, Dirks worked with former Gov. Bob Miller's office to draft a series of legislative reforms in the mid-1990s, which ultimately opened the door to competition in the state. When Gov. Kenny Guinn took the reins of the state in 1999, he envisioned further changes for the system.
"The governor called me into his office and asked me why the state was in the insurance business," Dirks said. "Shortly thereafter, we had draft legislation to convert the state fund to a private mutual insurance company."
PRICES, POLITICS AND PREDICTABILITY
Since that time, the company has transformed into a national, publicly traded workers' comp provider, EMPLOYERS, distributing $850 million in stock and cash in 2007 to the 6,600 businesses in Nevada that had been its owners. While the road to privatization wasn't without its share of bumps along the way, Dirks remains steadfast in his belief that change has been for the best.
"When I look at Nevada, the level of insurance, it is better than it ever was," he said. "Competition drove down prices, which was critical to part of the success. And the need to compete dramatically improved service to employers. What had been an extremely political environment became less political, and it is a far more stable marketplace than it once was."
While policyholders celebrate the lower prices for insurance, it isn't the only benefit for employers, according to Dirks.
"Insureds definitely care about what they are paying, but they also need to know that it is somewhat predictable, which wasn't the case (when the) fund was controlled by the state," he said. "The construction industry, for example, cannot have rates fluctuating all the time."
PRIVATIZATION OF THE FUTURE
Given his expertise, Dirks has been sought out by privatization supporters to testify in North Dakota, Oklahoma, Colorado, Utah and Idaho. Many states that are in the process of evaluating privatization plans can learn from some of the challenges that were faced in Nevada, he said.
"If you look at West Virginia, they had the benefits of watching us," Dirks said. "One of the most complicated transitions was adopting the National Council on Compensation Insurance's rating plan. We rolled that out the day we opened the state to competition. Our advice was for West Virginia to implement the rating plan while the state fund monopoly was still in place, which gave the state more control and made the process much smoother."
Dirks said when it comes to predicting the outcomes for many of the states currently exploring privatization, it isn't easy to see what the future holds.
"It is hard to be a prognosticator," he said. "All politics are local, and there are many sensitive issues involved. But I will always argue that a competitive marketplace is better, and leveling the playing field better serves everyone's interests."
The key to a successful transition, no matter the situation, is having the right people leading the charge, Dirks added.
"In the absence of that leadership, it would have been difficult to get this done," he said about the accomplishment in Nevada. "For the states that are looking at this issue, I would say that good public policy and strong leadership win out every time."
Read more at the WorkersComp Forum homepage.
September 24, 2010
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