An Oregon House Interim Committee heard testimony on April 27 with respect to what is perceived by a number of insurance industry analysts and major trade organizations as a state of deterioration in the workers’ compensation marketplace in that state.
Representatives from the National Association of Independent Insurers (NAII), the Alliance of American Insurers and the American Insurance Association asked the committee to consider implementing legislative changes which would serve to improve the competitive quality of Oregon’s workers’ comp marketplace. Failure to do so, they maintained, could lead to a market more similar to that of Washington State, where, by statute, private insurers are not authorized to offer their product.
The statutory scheme in Oregon calls for three ways for employers and their workers to access to workers’ comp coverage: through the state fund, self-insurance, or the purchase of coverage through a private insurer.
Melvin N. Sorensen, NAII assistant vice president and Northwest regional manager, said that while he didn’t want to suggest that Oregon would necessarily change its statutory scheme, he believed “the quality of the marketplace may actually belie that scheme and leave only one or two choices in that marketplace, which is really not a choice at all.”
Sorensen described an independent analysis of the workers’ comp market throughout the country put forward in Best’s Review last fall. “The analysis there showed that Oregon was the second worst state for workers’ comp insurance, and it really wasn’t a horse race relative to where its placement was,” he said.
In his testimony, Sorensen focused on some examples of the rating practices of the SAIF Corporation, Oregon’s state fund.
“There appear to be routine and significant dividends being extended by SAIF to many of their employers,” Sorensen said. “We also pointed to some internal documents indicating that up to 95 percent of premium could be returned to the employer in the context of a dividend.” Sorensen said the examples call into question issues of below-cost pricing.
“Is that routine conduct in the marketplace or are those the exceptional cases?” Sorensen asked. “There’s no way that a private carrier is going to be able to operate in a market where one of the carriers is able to offer 95 percent discounts.”
When asked to comment on the hearing, Tom Towslee, public affairs manager for SAIF Corp., strongly disagreed that the Oregon’s workers’ comp marketplace is in crisis. Instead, he maintained that in a move orchestrated by SAIF’s largest competitor, Liberty Northwest Insurance Corporation (a subsidiary of Liberty Mutual of Boston), the private insurance companies who testified at the hearing were trying to stampede the Oregon legislature into believing that the workers’ comp marketplace is in distress.
“Nothing could be further from the truth,” Towslee said. “Private insurance carriers are making a very good profit in the state. This is not an issue over profits; it’s an issue over how much profit is enough. The private carriers feel that the state insurance fund, SAIF Corp., is somehow impeding their ability to make a profit that they think is reasonable in their eyes.”
Towslee conceded that state funds do have an advantage in the marketplace. However, he said that is used to keep the cost of coverage as low as possible.
“Workers’ comp is just not a profitable line of insurance at the moment,” Towslee continued. “Private insurance carriers would like to make it more profitable by eliminating the competition, which is, in this case, state funds. There are more state funds today than there were 10 years ago. Obviously it’s eating into the private insurance carriers’ ability to make profits that they think are reasonable.”
However, Sorensen said the Oregon legislature should recognize that the workers’ comp market in the state of Oregon is not healthy and is heading in the wrong direction. While no concrete suggestions have been offered to the legislature at the present time, Sorensen predicted that “unless they take some action to remedy the situation, continued decay will be inevitable.”
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