Competition high, prices soft for workers' comp, official reports

June 28, 2009
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The Accident Fund Insurance Co. of America was again the Michigan market leader in workers’ compensation insurance last year, according to the state insurance commissioner’s annual report.

In 2008, AFICA possessed a market share, based on standard premiums, of 13.68 percent, slipping from 16.43 percent in 2007. The affiliated Accident Fund National Insurance Co. held a market share of 6.63 percent in 2008, according to the report.

Together, the for-profit companies, owned by Blue Cross Blue Shield of Michigan, claimed 20.31 percent of market share last year, down from 22.35 in 2007. Earlier in the decade, their market shares was as high as 27 percent.

The nonprofit BCBSM claims the vast majority of the state’s health insurance market.

Insurance Commissioner Ken Ross issued the report in May. State law requires the commissioner to report on the state of competitiveness in the workers’ compensation market every year.

American International Group — the financially troubled AIG — ranked second in 2008 with a market share of 8.27 percent. AIG was followed by Frankfort Mutual Insurance Company at 3.41 percent.

The top 20 carriers held nearly 75 percent of the market, according to the commissioner’s 2008 report. Some 243 insurers wrote workers’ compensation policies in Michigan in 2008, less than half of the 559 firms authorized to do so.

Of 175,507 workers’ compensation policies written in 2008, 90 percent were in the marketplace and 10 percent were in the state’s special risk pool, which is funded by contributions from each insurance company.

Earlier this year, Michigan Attorney General Mike Cox appealed a Circuit Court decision that dismissed the last of his three legal challenges to the Accident Fund.

 The ruling affirmed the ability of the Accident Fund to own subsidiaries and expand into other states.

BCBSM purchased the Accident Fund from the state in 1994. Its board chairman is James G. Agee, former superintendent of Muskegon Public Schools.

Workers’ compensation was enacted in Michigan in 1912 and the state’s system, with a set of funds and appeals structures overseen by a state agency, is a national leader, said attorney Bert J. Fortuna Jr., a member of Miller Johnson. Fortuna specializes in representing companies in workers’ compensation cases.

“Insurers apparently were at least holding their own, if not doing well in 2008,” Fortuna said. “The economy has changed. Some insurance companies are feeling the pinch. It might come back to bite us over the next year or two.”

From Alticor to the city of Wyoming, many companies and other employers turn to self-funded workers’ compensation programs. Some smaller firms band together into groups for the purchase.

While the state’s workers’ compensation market has been insulated from the financial woes of AIG, Fortuna said, the legal community has kept an eye on the impact of the bankruptcies of Chrysler LLC and General Motors on workers’ comp. The court has allowed both companies to continue their workers’ compensation obligations in Michigan.

But if that had not been the case, Fortuna said the Self-Insurers Security Fund would have been swamped by Chrysler’s $25 million annual obligations alone, possibly requiring additional payments from others into the fund.

Another issue currently on the plate is the definition of disability, which the state Supreme Court sent back to the bureau, Fortuna said. The question revolves around whether a person should be considered disabled under the state workers’ compensation law if he or she still has the ability to earn an income, even if the actual physical disability continues.

“The actual test for that is now in question,” Fortuna said. “It’s going to evolve over time, as it always has in Michigan workers’ comp.”

The Cambridge, Mass.-based Workers Compensation Research Institute recently compared outcomes for injured workers in Michigan with 10 other states. The institute looked at items such as recovery of physical health and functioning, return to work, access to health care and satisfaction with health care. The information was juxtaposed with data on costs and medical care utilization. The report stated that on average, Michigan employers paid 27 percent less than in other states per each claim that involved more than seven days of lost work time. The study identified fee schedules that are lower than what was typical in the other states.

In the survey taken last fall of workers injured between October 2005 and September 2006, 10 percent said they had never returned to work and 14 percent reported they hadn’t been able to return to work for any more than a month at a time.

Also in the study results: 79 percent of injured Michigan workers were very satisfied with the timeliness of their first visit to their initial and primary provider; 14 percent were very dissatisfied, which was similar to the middle group of the other states studied; 12 percent said they had “big problems” in access to their primary provider of choice.

In his annual report, Ross concluded that the market bears reasonable competition for company owners, but the current market is soft, with falling prices.

“According to the OFIR (Office of Financial and Insurance Regulation) records, there has been a downward trend in the price of workers’ compensation insurance in Michigan,” Ross’ report stated. “Records indicate that most requests from an insurer for a rate change are to request a decrease. That is an indicator of a soft or price-competitive market.”

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