Commercial Insurance Blog

I am a Massachusetts independent agent, so my comments will echo those of MAIA president, Frank Mancini.

I am also a small business owner who pays workers compensation premiums, and spends every day talking to other small business owners.  Many small business owners consider workers compensation a tax, and I’m not proposing that a massive increase would be healthy for a broad swath of industries in Massachusetts.  Nobody wants their taxes raised, least of all small businesses already struggling with high costs and still lukewarm economic conditions.

But the existing system is unhealthy.  Market health can be accurately gauged by the number of accounts that end up in the assigned risk pool.  Today too much business is heading toward the pool; anecdotally it is 1 in 4 accounts.

The problem with a pool mechanism for a growing share of the market is that carriers assigned to handle this business don’t have incentives to allocate resources to great claims management and other forms of loss control.  A dollar of expense on claims management and other loss control will return only the market share percentage of gains back to the carrier.

Thus, too much business in the pool ultimately increases underlying costs; and we can all agree that underlying costs drive future prices.

The assumption that profitable rates necessarily gouge consumers is flawed.  If profits are excessive, other carriers offer services for less.  When prices are regulated below market, as they appear to be today, the price discovery process of the market is undermined.  Additionally, services such as payment options and underwriting flexibility for consumers evaporate.

A Main Street example of an account I’m working on is illustrative.  This is a nice account I’ll work hard to write.  Their dissatisfaction with workers compensation arises out of a highly variable payroll... last year’s audit was substantial and put excessive pressure on the business’s cash flow.  Our solution is to have a payroll service provider collect the workers compensation premium in line with payroll, thereby allowing all labor costs, including workers compensation, to be collected in the periods when revenues support it.  Unfortunately, we’re having trouble finding an insurance carrier that offers a payroll services payments program willing to write this risk.  

In summary, I believe a modest increase would bring choice and competition back to the market, and provide incentives to carriers to continue to invest in loss control and claims management that would boost long term health.

To discuss your workers compensation program, call one of the Gordon Atlantic Insurance professionals toll free at 800+649-3252.  Prefer to type versus talk?  Use the contact form at the top left of this blog for a return phone call or email.