PCI Disputes Cuomo Claims Of Employer Savings In NY Workers’ Compensation Reforms

April 10, 2013

A.M. Best Company, Inc.

The Property Casualty Insurers Association of America disputes New York Gov. Andrew Cuomo's claim that workers' compensation reforms would save employers about $800 million in costs, saying instead that the elimination of the Reopened Cases Fund will trigger a cost increase.

Cuomo commented on the recently passed 2013 state budget that contains the reforms. He said $500 million in costs to self-insured employers would be saved simply by consolidating assessments and a large portion of another $300 million in savings would occur via elimination of the RCF, for which payers are charged an assessment.

But Trey Gillespie, senior workers' compensation director at Property Casualty Insurers Association of America, questioned Cuomo's figures. Gillespie said Cuomo's estimate runs counter to an earlier projection by the New York Compensation Insurance Rating Board, which forecast an increase in future loss costs for employers of anywhere from 4.4% to 5.3%. The cost increase would be triggered in part by the closing of the RCF, a move that places $1.1 billion to $1.6 billion in unfunded liabilities onto carriers, he said. The IRB report said the removal of the assessment would largely offset at least part of any increase.

Cuomo's office issued a statement saying the RCF closing would eliminate the need for New York businesses to make payments into the fund. Other savings measures, the governor's office statement said, will increase competitiveness in the workers' compensation market and combat costs.

The savings to the self-insured "will eliminate an overly complicated and bureaucratic system that was not only expensive for the state but also for employers,? Cuomo's statement said. ?The new system will achieve administrative efficiencies and provide predictability to employers.? Of the savings for self-insured businesses, more than half will be generated for businesses in New York City.

One part of Cuomo's initial workers' compensation package that was excluded from the final reform bill was the plan to change the Aggregate Trust Fund. Cuomo sought to eliminate mandatory deposits and to prohibit future deposits into the ATF, which protects claimants whose carriers default on payments, but supporters of reform indicated that the payments were now handled by the Workers' Compensation Guarantee Fund (Best's News Service, Feb. 20, 2013). Carriers and employers believe the ATF to be a cost driver, Gillespie said. The IRB report indicated that long-term savings resulting from elimination of the ATF were needed to help offset the remainder of the cost increases expected on employers under the reform package.

The top five writers of workers' compensation insurance in New York state during 2011, according to BestWeek, were State Farm Insurance Fund of New York, with a 35.98% market share; American International Group, with 14.33%; Liberty Mutual Insurance Companies, with 7.87%; Hartford Insurance Group, with 7.51% and Travelers' Group with 5.06%, according to BestLink.

I do agree with PCI that eliminating the reopened cases fund will result in increase in costs, considering the fact that as per my previous blog, closing the reopened cases fund is bad for employers and insurance companies because they were able to pay less for these claims. Furthermore, employers will probably not see any savings for the next several years from this fund’s closure. Currently, employers in New York are paying a 4.9% assessment for this fund but as there will still be many claims to administer, this assessment will probably not decrease significantly any time soon. The same holds true for the second injury fund whose assessment still remains at 9.6% despite closing down the fund in 2007. I wouldn’t be surprised if the second injury fund assessment stays high for close to another 10 years or more. 

To summarize, per this article, there may be over a billion dollars in unfunded liabilities from closing the reopened cases fund. On top of that, even if there were no future liabilities, due to plenty of pending claims, the assessments for employers will likely continue for several more years.

However, I do feel that Governor Cuomo's overall proposal is great for brokers and employers and creates a more competitive marketplace and is an overall win for brokers and employers (assuming that the assessments that the State Insurance Fund will start paying is the same assessments as private carriers).

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