September 2008 Archives

September 30, 2008

 

This is part 2 in a 3-part series. For part 1, click here.

Step 3 – Develop an injury action plan
Many employers think that when an injury occurs responsibility for getting the injured worker back to work shifts to the claim adjuster. Nothing could be further from the truth, and it is this basic misunderstanding that causes many claims to deteriorate with oftentimes tragic consequences for both worker and employer.

The claims adjuster’s job is to determine compensability, coordinate benefits, follow the law and work within it and the workers’ compensation insurance contract to resolve the claim satisfactorily. And while adjusters play a vital role in the process, they can never be your human resource director.

Misunderstanding the role of the adjuster creates an atmosphere in which injured employees are left to drift, groping their way through a quagmire of medical services, uncertain benefits and a cloudy future. In fact, a truism in workers’ compensation is, “When a claim goes south, costs go north.” As the employer, you need to structure a clearly defined path from the moment of injury through early return to work back to full employment. What you do or don’t do in the first few hours after an injury has a significant impact on your ultimate costs.

Employers need to create a turnkey action plan – a clear set of policies, procedures and expectations with supporting tools and documentation. The plan must include a way to stay in continuous contact with injured workers throughout the recovery process, keeping employees connected to your organization and motivated to return to work.

Step 4 – Establish a relationship with a high-quality medical provider
A close relationship with medical providers of exceptional quality who understand work-related injuries is essential to managing costs. The pivotal emphasis should be on quality, not price. This sounds paradoxical in these times of higher and higher medical costs, where medical treatment now accounts for nearly 60% of workers’ compensation loss costs. However, ample research shows that doctors who specialize in occupational medicine with a sports medicine approach and who follow ACOEM (American College of Occupational and Environmental Medicine) guidelines, consistently provide injured workers with high-quality treatment while shepherding them back to the workplace in a compassionate and caring manner. Board-certified occupational medicine physicians know that a worker should remain out of work no longer than is medically necessary. This leads to an active recovery and lower costs.

Take the time to shop for a provider who offers the highest-quality care with an active sports medicine philosophy. Look for physicians who will take the time to understand your needs, perhaps through actual work site visits. Once you have identified a potential provider, develop a written agreement that sets explicit procedures for handling workplace injuries. Be sure that the provider is willing to identify specific restrictions resulting from injuries and work with you to accommodate appropriate modified duty placements.

Now, admittedly, this approach can be difficult in the 21st century workers’ compensation medical environment. Large medical management companies have enrolled more physicians than there are entries in the New York City telephone directory and have wrung out of each a discounted rate for service. This arrangement might be good for the medical management companies, but not necessarily for you. In workers’ compensation, like in most everything else, you get what you pay for. So, our suggestion is that you should be prepared to negotiate higher payment for the good service you expect. It is well worth it in the long run.

As with any valued vendor, you should provide positive feedback to physicians who take the time to care well for your injured workers. However, while everyone appreciates praise for a job well done, you should always remember that a physician’s first responsibility is to the patient. The more that the physician understands that you have the same outlook, the more the physician will trust you and work with you to accommodate the injured workers needs appropriately.

Step 5 - Stress early return to work
Time away from work can be frightening and debilitating for injured workers. Their physical, emotional, and financial well-being are often in turmoil. They are worried about their job and how they will pay their bills, particularly so in today's economic climate. They often begin to think of themselves as “disabled.” The longer they are out of work, the harder it becomes to get them back into the work routine. Consequently, it is crucial to speed recovery through the use of modified duty, one of the most important tools an employer has to reduce loss time and costs.

Modified duty is a bridge back to full duty, keeping workers active and part of the team. Instruct your medical provider to focus on what the employee cannot do while injured, clearly delineating work restrictions.

For a moment, put yourself in the skin of the injured worker and imagine you are talking with your doctor about your injury. Would you want the doctor to list for you the potentially countless physical tasks you could actually still do while injured? Or, would you want the doctor to tell you the realistically few things you should not do? The latter approach is the one doctors prefer, too.

Once you have the medical restrictions, work with your supervisors to develop progressive, short-term transitional jobs and tasks. Most important, make sure that employees and supervisors carefully follow the physician’s restrictions: The goal is to speed recovery, not aggravate the condition and make things worse. As medical treatment continues and your medical provider gradually lifts restrictions, increase job demands to ease the employee back to his or her original job.

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September 29, 2008

 

Many companies have recognized a basic truth about workers' compensation: that the worksite is the best place to control losses, and that they, as employers, have the maximum leverage to lower losses. These employers no longer try to hand the problem off to their legislators, their insurers or their attorneys; instead, they manage workers' compensation as a controllable expense. This fundamental shift in attitude empowers employers to take charge of workers’ compensation.

How have they done this? What are the key steps foresighted employers take? Over the last 25 years, our company, Lynch Ryan, has been privileged to assist many of America's leading corporations as they struggled with this issue. I've now concluded that there are eight essential strategies that help savvy employers turn workers' compensation liabilities into assets. The principles are simple, founded on basic human values. They involve a concrete action plan and sound management. More important, they work.

Today, we'll focus on the first three steps, and over the course of this week, we'll post the other five.

Step 1 – Make a commitment
As with any major corporate endeavor, commitment starts at the top. Make sure that workers' compensation is afforded priority status throughout the organization. Set realistic and attainable goals, and communicate them to the organization from the top down.

If you approach injury management simply as the "idea of the month," you will certainly fail. Commitment involves building safety and injury management into the very fabric of your organization. You should never lose sight of your goals. And you should never compromise your commitment to safety by drifting toward expedient, short-term objectives that place production quotas above the safety of your people.

Step 2 – Focus on reducing lost time
Chances are, your company has been working to create a safe working environment. That’s good. Safety is essential in controlling workers' compensation, but it's only half the equation. Good safety programs have a positive effect on the frequency of injuries, but the best safety program in the world will not eliminate all accidents. People being human, injuries will happen. Try as we all do, work conditions change and we make mistakes. To really attack workers' compensation costs, you need to focus on reducing severity: the length of time injured employees stay out of work. Severity is the real cost driver in workers' compensation. Every day that an employee is off the job costs you money.

When your machines break, you fix them immediately. Think of something as simple and common as a department's copier. When you purchased or leased that machine, you insisted that prompt maintenance or even replacement was part of the deal. An out-of-order copier slows production. You need to do the same for your most important resource, your employees. So your goal must be to keep days away from work to an absolute minimum. You need to focus, laser-like, on the goal of returning every injured employee to work, through modified or transitional duty if needed, and to the original job as quickly as possible. That's good for you and it's also good for the employee.

Steps 3 through 8 will be posted over the course of the week.

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September 25, 2008

 

A new edition of Cavalcade of Risk is posted at American Consumer News, and as you might expect, quite a few bloggers weigh in on Wall Street-related matters.

Also related to the financial goings-on:
Business Insurance features a special section on AIG in Crisis with daily news coverage updates and other features.

Insurance Journal conducted a survey of 1,000 insurance producers and learned that about 25% have moved business from AIG to competitors, while about 35% said the financial crisis is not likely to have any effect on their placement decisions.

RIMS has scheduled a two-part webinar - Risk Management Strategies in an Unsettled Financial Market - taking place today, September 25 and tomorrow, September 26. They have been designed to assist risk managers in developing short- and long-term coverage strategies, and to consider the implications of the current environment on bonds, capital markets and the insurance market. Today features The Insurer's Perspective from 1-2 PM, EST, and tomorrow features The Broker Perspective. These are free to members of RIMS, $30 for nonmembers.

And in other news ...
Healthcare documentary - PBS has what looks to be an interesting film about health care on P.O.V. this coming Tuesday. "Critical Condition" by Roger Weisberg puts a human face on the nation's growing health care crisis by capturing the harrowing struggles of four critically ill Americans who discover that being uninsured can cost them their jobs, health, home, savings, even their lives. You can see a preview of Critical Condition or access a number of resources on information about health care reform and the presidential candidates' stances on health care, as well as some basic facts about the uninsured.

Follow-up - Workers comp is not a topic that often finds its way into presidential elections so we are following the developments with the Palin connection with some interest. Last week, my colleague Jon blogged about the Palin - workers comp connection, and today we have a followup with coverage from a local source, KTUU: Probe turns to workers' compensation claim. The Anchorage Daily News reports that Wooten's attorney saw no intervention, but he also said that doesn't mean the adjuster at the private Anchorage company that processed Wooten's claim didn't feel pressure to deny his benefits, a matter that is still under investigation. I am thinking we may need to send Jon Coppelman ot Anchorage to investigate further!

OSHA - EHS Today reports on the recent release of the Top 10 OSHA violations - they tend to be consistent year to year. Also, see their article on The Future of OSHA, a report on a panel at the recent National Safety Council (NSC) Congress and Expo in Anaheim, Calif. We were happy to see that our friend Jordan Barab, senior labor policy advisor to the House Committee on Education, was on this panel. We agree with Barab that OSHA needs to re-assert its leadership role in workplace safety. That role has been attenuated in this era of voluntary compliance; lately, we are seeing an example of the failure that can ensue with too little regulatory oversight.

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September 23, 2008

 

Milliman, Inc has just released a study that shows that Paradigm Management Services has remarkable rates of return to work for catastrophic and complex claims when compared to a benchmark database of 60,000 similar claims. Paradigm was five times more successful in getting patients released to return to work, 5 time better in getting patients returned to work, and 13 times better in getting employees returned to work in full-duty. The study notes that 20% of the Paradigm cases returned to work in full duty capacity compared to 1.5% of the benchmark claims.

Those are some pretty impressive numbers because just one catastrophic claim can have a serious impact on an organization's bottom line. But the costs go well beyond the financial - the harsh reality of a debilitating, life changing injury can have a profound effect on the worker who suffered the injury and on the injured worker's family and work colleagues. One problem that plagues workers comp all too often is that people tend to view it as a financial transaction when at its very heart, it is a human event. We've found that if you take care of the human event, the dollars and cents generally follow.

Most work injuries are relatively minor - soft tissue injuries such as sprains and strains, abrasions, cuts, burns. Most workers can be restored to good health and resume normal life and work activities within a few days. About one in every 4 or 5 injuries requires some degree of lost time, but even the bulk of those generally only require a matter of days or weeks. According to Paradigm, catastrophic injuries are 1/10 of 1% of all workers compensation claims, but can account for 30% of total medical dollars paid.

For this small percentage of injuries, the injured employee won't be able to resume "normal" life activities, at least in the sense of pre-injury levels. These types of injuries include spinal cord injuries, brain injuries, severe burns, amputation, and multiple trauma. Think the workplace equivalent of war injuries. These injuries are complex and costly, requiring sophisticated medical care and rehabilitative services.

Paradigm offers some good advice on managing catastrophic claims - see Managing Catastrophic Injuries, a handout by Jo Carter, RN, BSN, CCM from a recent presentation. It outlines some of the issues and best practices, and gives a window into why and how Paradigm is achieving impressive outcomes.

For more on the importance of return to work, we highly recommend the ACOEM Guideline Preventing Needless Work Disability by Helping People Stay Employed (PDF). This is a workers compensation "must read," authored by occupational physicians.

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September 22, 2008

 

The Long Island Railroad has an excellent safety record. They move millions of commuters safely to their destinations every year. You might assume, therefore, that railroad workers are relatively free from disabling workplace injuries. Well, yes and no.

According to a compelling piece in the New York Times by Walt Bogdanich, something terrible happens to L.I.R.R. workers once they retire (beginning at age 50). They become disabled after their working days are over - at an astonishing rate of 97 percent. Now before you pull out your dimes to call OSHA (as if that would do any good), I hasten to add that the vast majority of the disability awards appear to be bogus. Workers simply present evidence of a health problem. They use their own doctors. The ailment does not have to be work related. There are no Independent Medical Exams. (By the time we reach 50+, something is ailing most of us - and that something is grounds for a RR disability payment on top of regular retirement pay.)

Disability applications are reviewed by the federal Railroad Retirement Board, an obscure, depression era entity in Chicago. Applications are almost never rejected (unless the application itself is incomplete). The disability payments, which supplement regular retirement payments, come from federal (ie. taxpayer) coffers. Lest you think that only line workers participate in this windfall, white collar workers enjoy the same benefits. These include the former deputy general counsel, employment manager, claims manager and director of government and community affairs, all of whom assert that they are incapable of performing any work, due to their work-related disabilities. As usual, the fish rots from the head down...

So how much do the former engineers and conductors make? Given the byzantine work rules, they can make as much as $2,000 a day (!) while they are working and can retire on as much as $200,000 or more a year. Oh, as "disabled" retirees, they can play free golf (on their "good days") on certain New York courses. "All Aboard!"

The Times article has gotten the attention of New York's governor. As with the financial markets, changes are inevitable. Going forward, who knows, they might even inject a little accountability into the system. Meanwhile, hundreds of retirees soothe the pain of their "disabilities" by playing golf and fishing in Florida. This scandal shows that it's not just the Wall Street fat cats who live off the rest of us.

Perhaps riders of the L.I.R.R. felt sorry for the conductor punching their tickets, dressed in an ill-fitting uniform and wearing a silly hat. The jokes on all of us: the conductor is looking forward to a retirement that dwarfs the benefits most of us will see. That's some ticket, indeed!

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September 18, 2008

 

Jaan Sidorov's posted the Health Wonk Review, Political Convention Style at his Disease Management Care Blog, and it's a good one. We have three more HWR's before the election, and I think they will be a very good source of info on the candidate's health plans. They should be a platform for some spirited debates among some very smart people!

A few financial links:
Freakonomics has a very good, plain-speaking overview on the recent financial upheavals as explained by Douglas W. Diamond Merton H. Miller Distinguished Service Professor of Finance and Anil K. Kashyap, Edward Eagle Brown Professor of Economics and Finance, both of the University of Chicago Graduate School of Business.

Countdown to an Insurance Giant's Collapse - Eric Dash and Andrew Ross Sorkinof the International Herald Tribune offer a close up view of events as they transpired.

Interested in how various newspapers throughout the world are playing the U.S. financial news? You might enjoy Newseum which offers front page snapshots of 690 front pages from 63 countries. It can be an interesting resource when large events occur.

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September 17, 2008

 

I am pleased to report that workers comp has entered into the informed debate that characterizes our pending national election. It is inspiring to see the national dialogue confront - one by one - the complex issues that face this country as we creep on all fours through the new millenium.

Mike Wooten is a trooper with the Alaskan state police. He was involved in a messy divorce from the sister of Alaska Governor and GOP Vice Presidential nominee Sarah Palin. Palin and her husband, Todd (AKA "the First Dude") apparently had concerns that Wooten was collecting workers comp, even as he was participating in some heavy (as opposed to "light") duty functions away from work. Palin and the Dude believed that Wooten had gone “snowmachining” during his alleged disability. Perhaps he was just having a good day?

It also appears that Wooten had “applied for and got a ticket to go hunt a moose.” I can't speak for our readers, but I do know that when I strained my back a couple of years ago shoveling snow, my first thought was that it might help to go hunt moose, until I realized that there weren't any in my immediate neighborhood. A number of close friends advised me that the best cure for intense back pain is to go out and shoot something, preferably from a moving snowmachine. It was a compelling argument, which at that time I chose to ignore.

Fraud, Malingering or Politics?
In the fall of 2006, Wooten injured himself in the line of duty when he pulled a body from a wrecked automobile, slipped on icy pavement and injured his back. He underwent surgery and was on “light” duty and had filed for worker’s comp when he could not work. The records do not indicate how long Wooten was on light duty or why this assignment came to an end.

John Cyr, head of the union for state troopers, believes that the guv and first dude were up to no good. “Todd Palin was following Mike around snapping pictures of him,” he is quoted as saying. “Frank Bailey (Palin's director of boards and commissions) was getting people to say that Mike was lying on his worker’s comp form. The governor’s family was following Mike around everywhere. They forwarded that information to the worker’s comp division."

While I'm impressed that the First Dude took it upon himself to run a secret investigation, thereby saving taxpayers the cost of hiring an outside investigator, he might have been better off leaving this to the professionals. Given the magnitude of the fallout from "troopergate," the First Couple might do better next time to "drop a dime" to the insurance fraud bureau through an anonymous call: I'm guessing that they still have pay phones in Alaska.

Regardless of what you think of their politics or their methods, Palin and the Dude have taken a pro-active stance on workers comp fraud and they deserve credit for raising the profile of this under-reported issue. The Insider embraces this opportunity to further the national dialogue on the compelling issues of our time, even as we peruse Craig's List for barely used snowmachines in good running condition.

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September 16, 2008

 

The collapse of AIG over the course of just a few days may be astonishing, but in some respects, it is not surprising. A few years ago, AIG stock sold for $100. Today, it's listed at $1.54. AIG is all about risk: much of it reasonable, but a significant portion of it fatally flawed. Remember David Halberstam's "The Best and the Brightest" - the story of how very bright men, led by Robert MacNamara, led this nation astray into the swamps of Vietnam? Now the very bright folks at AIG are up to their necks in an another repulsive form of the Big Muddy.

Our colleague Joe Paduda has a personal story to tell about AIG: he once worked for the behemoth insurer and was asked to sit in on a meeting of the executive staff, all of whom reported to the legendary Hank Greenberg. (We blogged a strange attempt to clean up Hank's public image here.) Hank had one question for everyone sitting around the conference table: how much money has your division made? No excuses. No stories about value added. No details about lives made better or risks averted. Hank wants to see the bucks! Grown men quaked as the time came to make their presentations.

As the owner of 12 percent of AIG, Hank just took a very expensive bath. He lost more money this weekend than all the readers of this blog will collectively make in their lifetimes.

So how did this happen? How did the biggest insurer on the planet suddenly run out of money?

Risk Transfer for Dummies
One of AIG's business units sold credit protection against the possibility of default in a variety of assets, including, of course, sub-prime mortgages. (Why were so many astute business people so anxious to lend money to folks they knew could not pay it back? What am I missing here?) AIG has lost at least $18 billion over the last three quarters. And according to some reports, they continued to understate the scale of the losses as recently as last week. Like their compatriots at the now-defunct Lehman Brothers, they kept paddling their canoes up de Nile.

The irony is that AIG has plenty of money. Unfortunately, it's tied up in the form of reserves, spread across their multi-faceted insurance operations. It's money set aside to pay claims. It appears that New York state is allowing AIG to access some of these reserves for cash flow. (Presumably, this will not impact AIG's ability to pay claims...) This will fall far short of the approximately $75 billion that AIG needs to survive the crisis.

Thus we have the bizarre prospect of a mostly profitable company going belly up because of the losses in one of its divisions. It's too bad Hank was forced out of the company by the now departed Elliot Spitzer. I would love to have been at a recent roundtable of company executives, answering Hank's one and only question.

The derivatives whiz pulls on the collar of his $400 shirt and sweats into his coffee mug. He mutters almost inaudibly, "$75 billion."

Hank lights up like a pinball machine: "You made $75 billion?"

Derivatives whiz whispers: "Lost."

Hank turns the color of an uncooked lobster: "Lost? You lost $75 billion?" Hank reaches across the table to throttle the whiz, but something seizes his body from within and sprawls him across the table. He is trying to talk, but no words are coming out of his mouth. A coffee colored foam dribbles from his lips.

It looks like a medical crisis, but no one moves. They just sit in their chairs, looking down at the table and straightening the lapels on their $2,000 suits...

OK, I'm no Raymond Chandler. But then again, not even Chandler could come up with a story as full of greed and self-deception as that of the once mighty AIG.

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September 10, 2008

 

Life is full of risk. Even the seemingly innocuous pursuit of blogging is not without its risks. The other day, I found out that some unscrupulous blogger is reposting much of our content under their own name. We are not alone. Stealing blog content is getting to be a big business. After her own run-in with this phenomenon, Janice Harayda of One-Minute Book Reviews has the lowdown on splogs (read: spam+blogs) and what to do to combat them.

Turning to happier thoughts, Jason Shafrin, our favorite Healthcare Economist, reminds us that the NFL season begins this week. In celebration, he offers several football-related links, including one on how increasing uncertainty has helped an undermanned high school football team win games. That seasonal note seemed like a good way to kick off our new fall chapter of Cavalcade of Risk.

Risk & health matters
As the election heats up, healthcare reform remains a hot topic. Bob Vineyard of InsureBlog has some tough questions he'd like to pose to the candidates, starting with how they plan to control runaway costs. And Joe Paduda of Managed Care Matters has been doing some digging on where Gov. Sarah Palin stands on health care.

Meanwhile, Louise at Colorado Health Insurance Insider is concerned that health care reform is losing ground. She notes that while sweeping reform that would grant access to the millions of uninsured Americans would be ideal, she would settle for progress in that direction. Maggie Mahar of Health Beat points our that even having insurance is no guarantee of access to care.

In other health-related risk matters, David Williams of Health Business Blog comments on medical loss ratio regulation, a concept that California is toying with. David notes that instead of constraining health insurance premiums and expanding affordability, such a move might have the opposite effect.

Business of Risk
Inflation, stagnation, recession? A rose by any other name ... Nancy Germond of Risk Management for the 21st Century notes that a slowing economy can impact an organization's risk profile. She offers good advice for managing risk in economic downturns.

Some other bloggers have good tips for manging various aspects of business risk. Over at Securitas Operandi, Peter Gregory reports on one way to trim IT security costs is for companies to change how they spend their money. The folks at Procurement Insights take on the hidden risks in supply chains.

Leon Gettler of Sox First looks at how various industries are bracing for the impact of Hurricane Gustav. While much attention is paid to the potential effects on the petroleum industry, everything from tourism to Tabasco sauce is likely to be affected.

Not much one can do about an act of God, but things are more frustrating when the business risk comes from the lawmakers. Here at Workers Comp Insider, my colleague Jon Coppelman posts about how legislators are punishing profitable insurance carriers.

The housing and banking crisis
If you are even barely sentient, you know by now that Freddie Mac and Fannie Mae aren't the latest Hollywood "it" couple: they're two of the backbones of the mortgage market. Professor Richard K. Green of Richard's Real Estate and Urban Economics Blog has some insights on how they're also major risk transfer mechanisms, too.

Ever seen a desperate bank? Mike Shedlock of Mish's Global Economic Trend Analysis blog thinks Washington Mutual (WaMu) is showing signs of trouble, as evidenced by latest offering. And offering a new spin on laughing all the way to the bank, Jim of Blueprint for Financial Prosperity presents us with Fifty Fun Facts About Bank Failures.

If the banking scene has you unnerved, fivecentnickel.com tells us that there is some safety in NCUSIF-backed credit unions, where no credit union members have ever lost money on insured deposits.

Personal Finance
As part of his ongoing series on the "7 deadly sins of personal finance", Jim of Blueprint for Financial Prosperity discusses the importance of adequate insurance as a hedge against unknown events that could possibly bankrupt you.

And if you see your way clear of debts, purchase that insurance, and still have a few coins to put aside for your golden years, you are faced with the conundrum of deciding which of the multitude of financial products will offer the best returns. Matt of American Consumer News looks at ISAs vs Fixed Rate Bonds, offering suggestions for determining which is best suited for you. And Silicon Valley Blogger at The Digerati Life says that if you trade stocks, it's important to be aware of your risks. He offers 5 hot tips for first time investors. Dorian Wales at The Personal Financier reminds us that the trend isn't always your friend - improbable scenarios sometime present rare investment opportunities.

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September 9, 2008

 

Yay us! This month is our 5th year blogging anniversary so we were pleased to be named to Lexus-Nexus Top 25 Blogs for Workers Compensation -- and to see a few of our esteemed colleagues on the list, too. We have to laugh because when we started, we weren't sure we would find enough to post about to make it to year 2, let alone year 5. And back then, the business blogging landscape was pretty thin indeed, so we'd never have foreseen such a robust community emerging for such a niche topic.

You are reading post #934. In the 1680 days we've been keeping track, we've had 900,000 visits from 600,000 unique visitors. We generally have about 18 to 20 thousand visitors a month, and as would be expected, about 85% of our visitors come from the U.S., but Canada, the UK, and Australia also make a good showing. We've had visitors from about 200 countries, including some that challenged our geographic awareness: Kiribati? Burkina Faso? (sidetrack: how many countries can you name in 5 minutes?)

In honor of the event, we thought we'd dish up our top 15 all-time greatest hits. These posts reflect the most searched for topics, as well as the ones that you, our readers, have clicked on the most:

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September 8, 2008

 

When it comes to insurance, Florida is the land of Oz. You might think you know what risk transfer is, or how insurance companies operate, but the rules change as soon as you enter the Sunshine State. We already described Florida's strange approach to property coverage, where the state has pretty much self-insured for the inevitable catatrophe (which may be approaching, as we write, in the form of Hurricane Ike). Whereas the state has taken on too much risk in the property line, they have severely hobbled the ability of carriers to function in commercial lines.

Under the guise of eliminating "excessive profits" in workers compensation, employer liability, commercial property and umbrella coverages, Florida allows insurance companies an underwriting profit of no more than 5 percent over a three year year period. Anything above that amount must be returned to policy holders. (You can find the statute, 627.215, here.)

Florida Insurance Commissioner Kevin McCarty recently ordered six workers' compensation insurance companies to return $4.2 million in these "excessive profits" to their policyholders.

"This is further evidence that the workers' compensation insurance reforms implemented by the Florida Legislature in 2003 are working," said McCarty. "These policyholders are businesses that will get back some of the premium they've been paying for the past three years."

The six companies that have been ordered to return premiums to policyholders are: Alaska National Insurance Co. ($144,488), American Interstate Insurance Co. ($3,027,030), Church Mutual Insurance Co. ($768,259), Harco National Insurance Company ($4,819), Midwest Employers Casualty Co. ($218,337) and Petroleum Casualty Co. ($94,329).

Those mandated refunds look like chump change compared to the bill for The Chubb Group: McCarty issued a Consent Order requiring Chubb to refund over $13 million in excess profits to its customers. What was Chubb's sinful three-year loss ratio? An admirable thirty three percent.

Insurance Basics
Florida could use a little education in the basics of insurance. Yes, insurance companies seek to make a profit - we call this capitalism: like it or not, it's the way this country functions. Insurers make money by operating in the following manner:
1. Rate setting (where permitted by state law): carriers charge premiums that are likely to result in profit. Because the market is competitive, they cannot charge whatever they feel like. In fact, most rates for workers comp are significantly deflated by state regulation and local market competition.
2. Underwriting: carriers try to select only the best risks. Insurance companies want to sell insurance to people least likely to need it. It's a crap shoot at best, but some companies have a real knack for it.
3. Claims management: ideally, insurers try minimize comp costs by speeding recovery and getting people back to work; they might also arbitrarily deny claims, restrict treatment and make life difficult for claimants.
4. Claims reserving: by setting accurate reserves, carriers balance the books and avoid the future shock of under-reserved claims.

Insurers have good years and bad years. The problem with the "excessive profits" approach is that it severely limits profits in good years, which are required to offset losses in bad years. Florida does not care if a carrier loses money: when it comes to underwriting losses in the Sunshine State, the free market prevails! Thus Guard Insurance, running a five year loss ratio of 115 percent, and Safety National Group, with a whopping 184 percent, simply have to absorb the losses on their own. NOTE: Data provided by AM Best.

One final irony in Florida's approach: carriers must return "excessive profits" to all insureds, even those who have incurred substantial losses. So an employer with a three figure loss ratio (losses exceed premiums paid) actually gets money back. Isn't that sweet!

For many years, Florida's "excessive profits" statute has been dormant, as most carriers were losing money or barely breaking even. Now that changes in the comp statute have helped carriers turn the corner on profits, the day of reckoning is at hand. The carriers who have done the best job of pricing insurance, screening risks and managing claims are going to be hammered the most. Sometimes trouble comes in dramatic form, as with Hurricane Ike. Sometimes, it sneaks in through the back door, in the Ozian legislative kibosh entitled "excessive profits."

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September 4, 2008

 

Hank Stern has posted a fresh roundup of news from the health wonkosphere over at InsureBlog - check it out: Health Wonk Review: Early September Edition.

ADA update - The folks at George's Employment Blog has been keeping an eye on changes to the ADA. In July, George Lenard posted on what the ADA amendments will mean if they become law, and more recently, Karen Tofte has posted a second part in the series. She examines how the substantial limitation of major life activities element of the ADA's definition of disability would be altered.

MA health care - Bob Laszewski of Health Care Policy and Marketplace Review comments on a recent NY Times editorial that looks at the Massachusetts health insurance experience and finds it less costly than expected. Bob points to some problems that must be factored in when assessing the program.

Technology risks - Ergonomics in the News points us to the article The Downside of Mobility: Injury: "As Wi-Fi--and laptops and mobile devices--become more ubiquitous, users from kids to adults find themselves suffering from injuries ranging from carpel tunnel syndrome to "BlackBerry thumb." The first in a series of features and reviews on the ergonomics of Wi-Fi-induced mobility, this article offers tips on how to prevent injuries."

Going and coming - Judge Robert Vonada of Pennsylvania Workers' Compensation Journal reports that PA courts upheld compensability in the case of a home health nurse injured while traveling to her patient's home. The case was complicated by the fact that she provided services to several employers in the course of her day.

Safety - BLR's Daily Safety Advisor offers tips on Getting the most from your safety committee.

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September 3, 2008

 

I'm feeling Vince McMahon's pain. It's as if someone picked me up, body slammed me and then whacked me with a folding chair. Talk about ingratitude!

Three wrestlers affiliated with McMahon's colorful World Wrestling Enterprises (WWE) are suing the muscled entrepreneur. Scott Levy (AKA Raven), Christopher Klucsarits (Chris Kanyon) and Michael Sanders say they are WWE employees. McMahon says they are independent contractors. Maybe Raven, Kanyon and Sanders should dress up in FedEx uniforms and pile drive the haughty McMahon into the canvas.

As with FedEx drivers, the wrestlers have a pretty strong case. After all, I am shocked (shocked!) to report that wrestling matches are scripted. The "independent contractor" work is totally controlled by the writers at WWE: the wrestlers fall and rise on cue. They win when they are supposed to win and lose when they are supposed to lose. The remarkably ineffective officiating is also fixed. Given that the primary work of the WWE is wrestling, it's pretty tough to make a case that the wrestlers themselves are independent contractors. Without the work of the wrestlers, WWE ceases to exist (as FedEx disappears without its "contractor" drivers). Vince is going to lose this one.

I do have a suggestion for McMahon. Hold a mock trial in the ring: dress the wrestlers up as a judge and a bunch of lawyers. They could shout their speeches into a microphone and then pummel each other into submission. Under the script, of course, McMahon, bloodied and defiant, his fancy silk tie ripped to shreds, would ultimately prevail.

In the real courts of Connecticut, the procedure will be quite civilized and the outcome will likely go the other way. Given the scripted nature of the entertainment, it will prove very difficult, if not impossible, to demonstrate true independence for the wrestlers. While they do provide their own tools (costumes and make up, along with an occasional 2 x 4), every move is dictated by management. Wrestling is "entertainment" and the participants are actors.

This particular form of entertainment may seem far-removed from the traditional stage, where an actor is:

... a poor player
That struts and frets his hour upon the stage,
And then is heard no more. It is a tale
Told by an idiot, full of sound and fury,
Signifying nothing.

We might well argue that life in general has more meaning than this despairing assessment by a beleaguered MacBeth. But in the case of the WWE, it's spot on.


Thanks to Overlawyered and Daniel Schwartz for a heads up on this irresistable item.

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