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Worker compensation overcharges are the
result of a complex system designed by actuaries, implemented
by clerical personnel, and overseen by 50 state regulators.
The premium that you pay for this insurance is derived from
a complex interrelationship between classifications, rates,
payrolls, and your experience modification. Some of the reasons
for overcharges follow.
Insurance Industry Turnover
Personnel turnover in the insurance industry
is notoriously high. Underwriters, premium auditors, and technical
personnel typically move between jobs and companies once their
job is learned. It is common knowledge that insurance companies
are little more than training grounds for more stable and
better paying careers. An insurance company branch office
is as much a classroom as it is a business. A typical underwriter
or premium auditor begins his or her career at the insurance
carrier. In a few years he or she will move to an insurance
agency or broker where their skills are refined. The more
ambitious will eventually move to private industry and assume
the role of Risk Manager.
Local Regulators
Insurance regulation is conducted at the
state level. There are fifty state Insurance Departments and
each department implements and enforces its own set of laws.
Each state relies on expertise from one of the 13 different
state rating bureaus or the NCCI. When an Insurance Department
is contacted for assistance from a policyholder they often
defer to the local bureau or NCCI. And the Workers Compensation
bureau or NCCI is itself a creature of the insurance industry.
Together, they have developed an incredibly complex system
that is, at the same time interrelated and independent.
Aggressive Pricing
The complex system to determine premium
allows for mischief. Since there is no significant oversight,
there exists little to inhibit the impulse to maximize premium.
Some insurance companies, even after they have learned of
a mistaken procedure, apply that wrong procedure to other
policyholders. In some cases, it is normal to overcharge.
Once discovered, the insurance company will rectify the mistake,
but only for the policyholder that complains. Everyone else
continues to be overcharged.
Complexity
The workers compensation pricing system
in incredibly complex. The scope of classifications alone
is mind-boggling. While most states have approved about 600
different classifications, the number actually ranges from
480 (Massachusetts) to 725 (New York). Interpretation of classifications
varies from state to state.
Insurance underwriters, premium auditors,
and technicians frequently handle multi-state territories.
They are required to know all the rules and nuances of multiple
jurisdictions. As a practical matter, even conscientious staffers
are overburdened.
Overworked
In 1979, as the Premium Audit Manager for
a regional insurance company, I realized that most employers
could save significant monies if they were familiar with the
rules and just knew how to complain. I knew that as an advocate,
the playing field could be leveled between insurers and policyholders.
The last twenty-three years have proven that thesis to be correct.
I also know that insurance agents and brokers,
though skilled at what they do, just do not have the background
in this area of workers compensation. Most are generalists
in the sense that they are familiar with many lines of insurance.
They must also know insurance markets and policy coverage.
Finally, they have a business relationship with insurance
carriers that they would just as soon not jeopardize.
By focusing on just one segment of workers
compensation (premiums) I have a better grasp
of this specialty than insurance agents. Also, since I am
usually paid a percentage of the funds that are saved, my
incentives closely parallels the client's
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