Insight, analysis & opinion from Joe Paduda

Nov
4

The Public Option in Workers Comp

Thanks to the good folks at Workers Comp Insider, I learned of an intriguing study conducted by Conning and Company that concludes (in part) that private work comp insurers don’t perform as well as public ones.
Here are a couple of excerpts from the article in Insurance Journal:
25 public and quasi-public workers’ compensation insurance plans perform better financially than the private market in a number of performance categories and at least as well when it comes to the bottom line.
– public workers’ compensation providers tend to have higher losses than the workers’ compensation insurance industry as a whole, they more than offset those losses with lower expenses, higher investment returns, bigger dividends to employers and better injury prevention efforts.
– through more stable reserves and superior investment income, state funds have managed to achieve operating income on a par with that of the workers’ compensation industry as a whole.
– Spurred by their mission that includes improving safety and their state’s economy, state funds blunt the impact of bigger losses through concerted loss prevention efforts. As Jablonowski put it, “They are able to convert the marginal and poor risk into something better.”
The public providers offer employers significantly higher dividends, which provide an incentive for businesses to adopt safety measures. These dividends can also create a competitive advantage and build customer loyalty, according to the study.
Congratulations to the good, hard-working, effective folks at SCIF in California, Texas Mutual, NYSIF in NY, the North Dakota state fund, Beacon Mutual in Rhode Island, and the rest of the state funds. While all is not perfect, and as Peter Rousmaniere has pointed out, often quite a distance from perfect, some of the findings of the Conning study are illuminating.
I’m also thinking the study should be carefully reviewed by Federal legislators, as the conclusions may help inform the discussion about the public option in health reform. I’d point to them to this quote:
“When you look at the entire insurance world, there are obviously insurance companies in the private world that do a great job of loss prevention control,”[the study’s author said] “But the unique thing about funds is that they all do it. Twenty-five of them and they all do it. So it’s not a random sample; it’s a sample that suggests that this group puts an emphasis on loss prevention control.”
That’s exactly, precisely what we need to do with health care – prevent preventable claims that lead to high costs and lousy outcomes.
What does this mean for you?
Once again, the health insurance world can certainly learn something from workers’ comp.


3 thoughts on “The Public Option in Workers Comp”

  1. Which group did SCIF fall under? It is not part of the State of California. See Ca. Ins Code section 11771 and 11771.5.

  2. Re the Conning Study, I agree, it’s interesting, though not sure apples were compared w/ apples here in all instances. I do like the point about local guys doing LP for local industry. A little unfair, methinks to look at investment results over a last 3 years time horizon – a good point that conservative investments did better, but that won’t always be the case.
    The other problem for me is that many of the state funds are pretty good sized. A very large part of the WC market is serviced by pretty small carriers, who are likely all over the map w/r/t the issues considered in the study. What would happen if you took the SFs and compared them w/ the larger private carriers?
    they also seem to leave CA out when it suits but include them at other times. I thought I understood from CWCI that their combined ratio was over 140 at some point this year. That’s a lot to make up w/ LP.

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Joe Paduda is the principal of Health Strategy Associates

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