We have been following the developments in West Virginia, where a once monopolistic state for workers comp insurance has been transformed into a competitive market. The well-designed transition began in 2006 with the creation of BrickStreet Mutual Insurance Company, which for a couple of years offered the only available insurance to employers. Last year other carriers entered the state; Bricksteet, faced with competition and a reduction in market share, had to lay off some staff. Now they are shedding some bad risks.
Gary Burton, BrickStreet's President, announced that the carrier is dumping about 1,000 risks, most of which will end up in the state's new assigned risk pool. These accounts sport combined ratios (losses compared to premiums) in excess of 200 percent. Burton mentioned one with a whopping ratio of 14,000 percent: akin to $140,000 in losses for $1,000 in premium. From an underwriting perspective, those numbers might have been acceptable for a subprime mortgage, but they don't work very well for conventional insurance.
West Virginia's new assigned risk pool will be managed by NCCI, a natural choice as they already administer pools in 20+ states. The servicing carriers are Travelers, Liberty Mutual and American Mining. Employers unable to secure coverage in the open market are likely to pay significantly higher premiums in the pool.
Thus far, West Virginia's transition to a competitive market seems to be going smoothly. The pain has been distributed across the board: to a population of workers that had long viewed comp as an entitlement, to employers in favored industries who long benefitted from suppressed rates for coverage and to some of the former state employees who ran the old, rather bloated system. No one would describe the new approach to workers comp as perfect, but the competitive market appears to offer a reasonable balance between the often conflicting interests of workers and employers. The creation of an assigned risk pool for poorly performing employers is simply one more necessary step in the eternal search for an effective and equitable system.