Richard Palczynski, Senior Vice President, The Hartford Financial Group
But bad times are still ahead
By Len Strazewski
Richard Palczynski, Senior Vice President, The Hartford Financial Group
Workers compensation insurance rate increases may be slowing and combined loss and expense ratios improving, but the insurance industry is still suffering, says Richard Palczynski, senior vice president ofThe Hartford Financial Group and former chief actuary for property and casualty insurance.
Palczynski, a keynote speaker at the 12th Annual National Workers Compensation and Disability Conference and Exhibit, which will be held November 19-21 in Chicago, says he anticipates another 10% workers compensation rate increase for January renewals--an improvement over last year.
The combined ratios for 2003 also will be an improvement from 2002, expected to close out at 103, down from 107, he says.
However, while the worst of the hard market may be over, bad times are still ahead for commercial clients--and that may be a tough message for agents and brokers to deliver to their customers. Continued rate increases and limited availability are just symptoms of broader issues affecting workers compensation and disability management.
"Although some of the industry factors are improving, there needs to be a further improvement in combined ratio before the insurance industry can truly recover from the years of underwriting losses and generate an appropriate return on corporate equity," he says.
Palczynski says workers compensation insurers need to generate a true underwriting profit with combined ratios of 93 or 94 before insurers can appropriately stabilize rates.
Insurers also have to come to terms with a historic change in the global reinsurance market for excess reinsurance coverage. After decades of abundance, reinsurance capacity has fallen off dramatically--eroding their ability to spread the risk of large losses.
As a result, agents and brokers need to communicate to their clients a renewed need for safety and loss control to reduce the frequency of claims and a stronger commitment to "a return to work culture" to help minimize the long-term cost of claims.
Other issues surrounding workers compensation, disability and the services that support corporate risk management are also continuing to evolve, adds David A. North, president and chief executive officer of Sedgwick CMS in Memphis, Tennessee, a claims management services company.
David A. North, President and CEO, Sedgwick CMS
North is a lead presenter in a symposium on claims management that precedes the workers compensation and disability conference in Chicago.
The long period of soft workers compensation insurance rates followed by the sudden rate increases of the past two years caught many corporations by surprise, leading them to turn to their insurance advisors for risk management help and inspiration, North notes. And some have been found wanting.
"Agents and brokers need to take opportunities like this conference as a sort of veteran refresher--to learn about the latest tools and resources for their clients and relearn the lessons of history," he says. "They need to return their clients to the fundamentals of risk management such as loss control and claims management to help them manage their costs and their exposures."
Agents and brokers also need to be aware of the latest tools and techniques for management of disability risks, such as integrated disability management, North adds.
"Integrated disability is no longer limited to a simple combination of long-term disability (LTD) and short-term disability (STD). HIPAA and various state laws have created a whole new level of compliance issues that need to be managed with the more traditional risks."
Employers are integrating workers compensation, LTD/STD, HIPAA and other employee benefits into seamless programs designed to provide employees with a simplified way to manage their own benefits--while reducing administrative costs and managing claims costs.
"Federal and state courts continue to disagree about disability law....Employers must comply with the mandates of both, where applicable. The employee gets the benefit of the more liberal statute."
--Matthew B. Schiff, Esq, Partner, Schiff & Hulbert
For example, in September, Sedgwick CMS was selected to provide integrated workers compensation and disability management for General Motors Corp. When fully implemented in 2004, the program will be one of the largest fully integrated private occupational injury claims administration programs in the world.
"We regard the GM program as a model that can guide other progressive employers in establishing effective simplified support systems for workers who are coping with major life events," North says.
Market conditions and service issues are not the only industry concerns. State and federal disability laws continue to evolve, posing new considerations for employers and new challenges for the agents and brokers that advise them, according to Matthew B. Schiff, partner with Schiff & Hulbert in Chicago, and legal issues consultant to the National Workers Compensation and Disability Conference.
Schiff will address a series of emerging legal issues at the conference, highlighting recent court decisions that affect administration of employee rights under the Americans With Disabilities Act and the Family Medical Leave Act.
Among the court cases is a decision by the United States Supreme Court which holds that state government employers are subject to provisions of Family and Medical Leave Act--broadening the scope of the law to hundreds of thousands of new employees.
"The Court held state employees may sue their state employers. FMLA creates a private right of action to seek both equitable relief and money damages 'against any employer (including a public agency) in any Federal or state court of competent jurisdiction' should that employer 'interfere with, restrain, or deny the exercise of FMLA rights.'
"Congress defined 'public agency' to include both the 'government of a state or political subdivision thereof' and 'any agency of a state, or a political subdivision of a state,'" he says.
"Congress enacted FMLA in part to protect against gender-based discrimination in the workplace. Congress found that while state laws and policies were not facially discriminatory, they had historically been applied in discriminatory ways."
Confusion about the applicability of federal or state laws may also pose a challenge to the agents and brokers that advise out-of-state employers.
"The federal and state courts continue to disagree about disability law. While there is greater clarity on ADA than on FMLA, state statutes continue to be interpreted as broader than their federal counterparts. Employers must comply with the mandates of both, where applicable. The employee gets the benefit of the more liberal statute," he says.
While family leave is not an insured benefit, it is now managed along with LTD and STD in the new integrated programs and also makes employers subject to the confusion of conflicting state and federal laws.
For example, a new law in Illinois creates a completely new source of family leave issues.
The Illinois legislature found that domestic violence accounts for 15% of total crime costs and homicide is the leading cause of death for women on the job. Up to 50% of domestic violence victims lost a job due, in part, to domestic violence. Ninety-four percent of corporate security directors and safety directors at companies nationwide ranked domestic violence as a high security concern.
The Illinois legislature addressed this problem earlier this year with a new law, the Victim's Economic Security and Safety Act, which was effective immediately. Illinois employers with 50 or more employees, full or part time, must grant an employee up to 12 weeks of unpaid leave because of domestic or sexual violence. The leave may be intermittent, a reduced work schedule or a 12-week continuous absence.
Unlike FMLA, there is no 12-month length of service or 1,250 hours of service requirement before the employee is entitled to Domestic Violence leave. The employee is to provide at least 48 hours of notice, unless that is not practical. If the failure of notice causes an unscheduled absence, the employer may not take any action against the employee if the employer provides certification within a "reasonable period" after the absence, Schiff notes.
Like FMLA, employees who have taken leave under this new law are to be restored to their former position without loss of benefits. Also, unless it would impose an undue hardship, employers are required to make reasonable accommodation to employees to the known limitations resulting from the employee or family member being a victim of domestic or sexual violence. *