The author of this study has a glaring conflict of interest. His lack of candor by not disclosing his financial interest in his subject and his refusal to disclose data used to draw these questionable conclusions shows that he has something to hide, probably the truth. In my mind, the publication of this article has done irreparable damage to the credibility pf the Insurance Journal.
But the author DID disclose and IJ reported that he had a financial interest– which is more than most industry studies disclose. I agree with what Rita wrote in earler post– the study isn’t invalid just because you don’t like the results.
The public options would not be doing as well if they did not get so much subsidy from the government. If it was an even playing field, most of them would go down. Consider this: No Federal or State income taxes, many have employees that work in highly subisdized or free office space owned by the state, many have the state’s retirement program (free or low cost), most are not beholden to the NAIC for proper reporting of results, nor the Department of Insurance for rating and solvency, so we never know for sure what their real results are. When they need a favor, they do have to political clout to get what they want. When they deny claims, even when in the wrong, they have more clout because they have the state to back them up. Many states, the bad faith claims acts do not apply. They do not have to mark down securities on income statements. etc., etc., etc.
Many state funds are sitting on a ton of cash, while others are broke. Both can run with loss ratios over 100% and still “beat” the competition.
Many states want to privatize their state funds, while the US govt wants to use a national “state fund” in health care in order to run everyone else out of business. Huge subsidies from the US gov’t make for competitiveness. And for most state funds, service is almost non-existant. They advertise heavily and have an positive image among those who have not needed the service, but have you ever tried to actually contact them?
Some of what you say makes sense but some of what you offer trades on outdated assumptions and prejudices against state funds. It might be time for private industry to take a fresh look at how these funds operate, especially in the area of loss prevention. “Most” do not get state subsidies and are mandated to have actuarial sound rates. A few but not “many” states are looking to privatize– a few others want to sell them off because they are so financially attractive. As more and more risks go to the non-traditional market, what are private carriers doing to retain and improve the risks that remain in neeed of traditional workers’ comp? As the author of this study says, apples and oranges can learn from each other. But not if one of them doesn’t want to.
draw your own conclusions or ignore if you want but Conning is a reputable insurance consulting firm. most insurance industry studies are done by firms with a stake in the industry –that doesn’t necessarily mean they are invalid. whether by advisen, am best, ncci, iso, iihs or irc — take their studies for what they’re worth but they’re not worthless just because you don’t like the findings
As we all know the funds are legally allowed to charge less than the private carriers and private carriers are seldom capable of getting access to a free market underwriting system. In addition to charge differentials the funds don’t always keep the premium dollar in trust for the exclusive use of paying claims. They are beholden to the state government.
I don’t know what this firm is trying to sell, I have clients in State programs in several states and they can’t wait to get out of them because of poor loss control and adjusting of claims. The advantage of no taxes and fees is huge.
Let just put tort reform in place like Florida did (rates down 60% in 6 years) now that is impact. Just think what would happen if they did that with Health Care. Reductions without a penny of tax pater contribution!
New York is asking companies that participated in group self insured pools that they the state administered to pay funds WAY beyond the participants liability because they are broke. What a joke.
**
I love think tanks!
This isn’t my area of insurance so I am a bit ignorant, I’ll be the first to admit. My interest is how they can draw a conclusion based on a selective few states? It makes me wonder about the data not evaluated. Were the others left out because they didn’t fit? Did they base the selection on similiar legal characteristics or a selection from the different types? I don’t like drawing conclusions on limited facts. If I did that, all my insureds would be negligent or not legally liable depending on what I chose to investigate…
The OK legislature is trying to come up with a way of selling Oklahoma’s Quasi State Fund to a private insurer. If a “public option” is great, why get rid of it?
I think the abbreviation “OK” should answer your question…
The fact is the WA State fund which I have been paying all of my 30 year career is about 2/3 as costly as the private insurer that we are paying for out of state service on out of state employees.
State funds are GOOD for small business. Whoever says otherwise is operating by ideology NOT by real life financial results.
They didn’t use selective states– they studied every state that has a state fund– there are 25. The other states do not have one. Other states may have assigned risk or high risk pools for WC but that’s not what this study is about.
Without seeing the data upon which the Conning report is based, and with the usual suspicion aroused whenever a rosy endorsement is given for an entity by one of its own vendors, it would certainly seem prudent to question whether these findings present a suitable “argument not to fear public options if they’re properly structured”. Assuming the best about the report, why did West Virginia abandon their state run plan in 2005, and their monopolistic plan in 2008? Also, with state run plans operating in Oklahoma, Texas and Louisiana, why are their rates so much higher than neighboring Arkansas which has no state run plan (residual market aside)? If the report’s conclusion is public work comp plans perform better financially than public plans, okay. However, it would seem questionable to further conclude from this one report that its findings necessarily translate to better service for the work comp insurance industry from public rather than private plans.
My considered opinion after dealing with the NYSIF for 36 years on behalf of nsureds, is that they are anti-business, autocratic, nasty, unsupervised, completely anti-consumer. They should be reformed and put under the control of the NYS Dept. of Insurance. I pity everyone who has to deal with this outfit to try and stay in business in NYS. Too bad the IIABNY and PIA of NY have never seemed too interested in advocating for their member agents to gain some standing and respect with the NYSIF. That’s why I’ve stopped donating to their PACs.
Not sure why this is surprising to anyone. 1) You have a commodity the Gov’t says that business’ must purchase. In other words all insurers whether private or public are taking advantage of Government intrusion into the marketplace. Don’t let the private firms delude you with assertions of their capitalistic fervor. 2) Accounts that perform poorly are adverse selected against and placed with the insurer of last resort – usually the applicable State Fund. 3) Loss histories of these insureds result in the application of modifiers / surchages that elevate rates and provide more loss holding capacity for the insuring entity. 4) Insureds determine they need to reduce their insurance expense and so actively work to improve results and do so.
Any of the offended private firms could apply the same business model and make money. The Government forces cliets into their marketplace – what more do they want??
Okay, seriously now, looking at the actual Conning Report, there’s some quackery going on in the post-publication interpretation of the results:
– state funds hold a boatload more reserves than private companies, which helps on the investment income, but also 2007 and 2008 look hellishly low for industry and high for state funds; think you might to further investigate that data, Conning, and maybe not assume it’s a long-term deal?
– combined ratios for companies are a whole lot better (about 8 points) than state funds
– all the averages are unweighted, so small state funds are as ‘meaningful’ here as big ones.
Meh. Next time it might help to get someone who understands financial statements involved.
I’ve looked at the financials of the state funds trying to figure out how they can charge such low rates. They pay low commissions, but most importantly, they have a huge amount of surplus that earns interest income. It’s an extremely inefficient use of capital, but it works. It’s more than enough to offset their underwriting losses. If the funds had to get a ROE of more than 0%, I doubt that they could compete with the private market.
As an active member of IIABNY, I must take issue with NY Yankee’s comments that we (nor the PIA) have advocated enough for agents. On teh contrary, for decades, IIABNY has lobbied the state legislature to allow the NY SIF to pay a commission to agents and be placed under the scrutiny of the Ins. Dept., but those proposals have fallen on deaf ears for the same amount of time. NY does not want to change anything about the SIF – undoubtedly because it is a cash cow. Its reserves consist mainly of IOUs from NY State’s General Fund which periodically raids the State Fund for cash. Years ago, one former state senator even told us to forget asking for any changes in the Fund, saying it’s not going to happen.
As for no longer contributing to either association’s PACs, how do you expect anything to happen if funding isn’t available? Do you think that “punishment” is going to help improve anything?
The author of this study has a glaring conflict of interest. His lack of candor by not disclosing his financial interest in his subject and his refusal to disclose data used to draw these questionable conclusions shows that he has something to hide, probably the truth. In my mind, the publication of this article has done irreparable damage to the credibility pf the Insurance Journal.
New York SIF, knows this term quite well as they don’t believe in “business acquitition costs” – they don’t pay commissions.
They also are the only Fund who refuses to use or accept ACORD applications, making it harder to do business with
Welcome to New York!
But the author DID disclose and IJ reported that he had a financial interest– which is more than most industry studies disclose. I agree with what Rita wrote in earler post– the study isn’t invalid just because you don’t like the results.
The public options would not be doing as well if they did not get so much subsidy from the government. If it was an even playing field, most of them would go down. Consider this: No Federal or State income taxes, many have employees that work in highly subisdized or free office space owned by the state, many have the state’s retirement program (free or low cost), most are not beholden to the NAIC for proper reporting of results, nor the Department of Insurance for rating and solvency, so we never know for sure what their real results are. When they need a favor, they do have to political clout to get what they want. When they deny claims, even when in the wrong, they have more clout because they have the state to back them up. Many states, the bad faith claims acts do not apply. They do not have to mark down securities on income statements. etc., etc., etc.
Many state funds are sitting on a ton of cash, while others are broke. Both can run with loss ratios over 100% and still “beat” the competition.
Many states want to privatize their state funds, while the US govt wants to use a national “state fund” in health care in order to run everyone else out of business. Huge subsidies from the US gov’t make for competitiveness. And for most state funds, service is almost non-existant. They advertise heavily and have an positive image among those who have not needed the service, but have you ever tried to actually contact them?
Well dip me in excrement. If this is true it’s just about the first time that anything run by the government has done better than the private sector.
Some of what you say makes sense but some of what you offer trades on outdated assumptions and prejudices against state funds. It might be time for private industry to take a fresh look at how these funds operate, especially in the area of loss prevention. “Most” do not get state subsidies and are mandated to have actuarial sound rates. A few but not “many” states are looking to privatize– a few others want to sell them off because they are so financially attractive. As more and more risks go to the non-traditional market, what are private carriers doing to retain and improve the risks that remain in neeed of traditional workers’ comp? As the author of this study says, apples and oranges can learn from each other. But not if one of them doesn’t want to.
Two sentences popped out of this article and hit me in the forehead like the V8 commercial.
The author has state funds as clients. The author did not not disclose stats. That would get any artilce thrown out. Why was this trash published?
As an insurance statistician, I think this is insulting to read.
draw your own conclusions or ignore if you want but Conning is a reputable insurance consulting firm. most insurance industry studies are done by firms with a stake in the industry –that doesn’t necessarily mean they are invalid. whether by advisen, am best, ncci, iso, iihs or irc — take their studies for what they’re worth but they’re not worthless just because you don’t like the findings
As we all know the funds are legally allowed to charge less than the private carriers and private carriers are seldom capable of getting access to a free market underwriting system. In addition to charge differentials the funds don’t always keep the premium dollar in trust for the exclusive use of paying claims. They are beholden to the state government.
I don’t know what this firm is trying to sell, I have clients in State programs in several states and they can’t wait to get out of them because of poor loss control and adjusting of claims. The advantage of no taxes and fees is huge.
Let just put tort reform in place like Florida did (rates down 60% in 6 years) now that is impact. Just think what would happen if they did that with Health Care. Reductions without a penny of tax pater contribution!
New York is asking companies that participated in group self insured pools that they the state administered to pay funds WAY beyond the participants liability because they are broke. What a joke.
**
I love think tanks!
This isn’t my area of insurance so I am a bit ignorant, I’ll be the first to admit. My interest is how they can draw a conclusion based on a selective few states? It makes me wonder about the data not evaluated. Were the others left out because they didn’t fit? Did they base the selection on similiar legal characteristics or a selection from the different types? I don’t like drawing conclusions on limited facts. If I did that, all my insureds would be negligent or not legally liable depending on what I chose to investigate…
The OK legislature is trying to come up with a way of selling Oklahoma’s Quasi State Fund to a private insurer. If a “public option” is great, why get rid of it?
I think the abbreviation “OK” should answer your question…
The fact is the WA State fund which I have been paying all of my 30 year career is about 2/3 as costly as the private insurer that we are paying for out of state service on out of state employees.
State funds are GOOD for small business. Whoever says otherwise is operating by ideology NOT by real life financial results.
I always thought the articles were somewhat slanted, Now I know for sure.
They didn’t use selective states– they studied every state that has a state fund– there are 25. The other states do not have one. Other states may have assigned risk or high risk pools for WC but that’s not what this study is about.
Without seeing the data upon which the Conning report is based, and with the usual suspicion aroused whenever a rosy endorsement is given for an entity by one of its own vendors, it would certainly seem prudent to question whether these findings present a suitable “argument not to fear public options if they’re properly structured”. Assuming the best about the report, why did West Virginia abandon their state run plan in 2005, and their monopolistic plan in 2008? Also, with state run plans operating in Oklahoma, Texas and Louisiana, why are their rates so much higher than neighboring Arkansas which has no state run plan (residual market aside)? If the report’s conclusion is public work comp plans perform better financially than public plans, okay. However, it would seem questionable to further conclude from this one report that its findings necessarily translate to better service for the work comp insurance industry from public rather than private plans.
My considered opinion after dealing with the NYSIF for 36 years on behalf of nsureds, is that they are anti-business, autocratic, nasty, unsupervised, completely anti-consumer. They should be reformed and put under the control of the NYS Dept. of Insurance. I pity everyone who has to deal with this outfit to try and stay in business in NYS. Too bad the IIABNY and PIA of NY have never seemed too interested in advocating for their member agents to gain some standing and respect with the NYSIF. That’s why I’ve stopped donating to their PACs.
Not sure why this is surprising to anyone. 1) You have a commodity the Gov’t says that business’ must purchase. In other words all insurers whether private or public are taking advantage of Government intrusion into the marketplace. Don’t let the private firms delude you with assertions of their capitalistic fervor. 2) Accounts that perform poorly are adverse selected against and placed with the insurer of last resort – usually the applicable State Fund. 3) Loss histories of these insureds result in the application of modifiers / surchages that elevate rates and provide more loss holding capacity for the insuring entity. 4) Insureds determine they need to reduce their insurance expense and so actively work to improve results and do so.
Any of the offended private firms could apply the same business model and make money. The Government forces cliets into their marketplace – what more do they want??
Okay, seriously now, looking at the actual Conning Report, there’s some quackery going on in the post-publication interpretation of the results:
– state funds hold a boatload more reserves than private companies, which helps on the investment income, but also 2007 and 2008 look hellishly low for industry and high for state funds; think you might to further investigate that data, Conning, and maybe not assume it’s a long-term deal?
– combined ratios for companies are a whole lot better (about 8 points) than state funds
– all the averages are unweighted, so small state funds are as ‘meaningful’ here as big ones.
Meh. Next time it might help to get someone who understands financial statements involved.
YOU KEEP YOUR HANDS OFF MY HEALTH CAR….um…State Fund……..
I’ve looked at the financials of the state funds trying to figure out how they can charge such low rates. They pay low commissions, but most importantly, they have a huge amount of surplus that earns interest income. It’s an extremely inefficient use of capital, but it works. It’s more than enough to offset their underwriting losses. If the funds had to get a ROE of more than 0%, I doubt that they could compete with the private market.
As an active member of IIABNY, I must take issue with NY Yankee’s comments that we (nor the PIA) have advocated enough for agents. On teh contrary, for decades, IIABNY has lobbied the state legislature to allow the NY SIF to pay a commission to agents and be placed under the scrutiny of the Ins. Dept., but those proposals have fallen on deaf ears for the same amount of time. NY does not want to change anything about the SIF – undoubtedly because it is a cash cow. Its reserves consist mainly of IOUs from NY State’s General Fund which periodically raids the State Fund for cash. Years ago, one former state senator even told us to forget asking for any changes in the Fund, saying it’s not going to happen.
As for no longer contributing to either association’s PACs, how do you expect anything to happen if funding isn’t available? Do you think that “punishment” is going to help improve anything?