Tag Archives: department of insurance

How Bureaucracy Drives WC Costs

Workers’ compensation is one of the most highly regulated lines of insurance. Every form filed and every payment transaction is an opportunity for a penalty. Claims can stay open for 30 years or longer, leading to thousands of transactions on a single claim. Each state presents different sets of compliance rules for payers to follow. This bureaucracy is adding significant cost to the workers’ compensation system, but is it improving the delivery of benefits to injured workers?

Lack of Uniformity

Workers’ compensation is regulated at the state level, which means every state has its own set of laws and rules governing the delivery of indemnity and medical benefits to injured workers. This state-by-state variation also exists in the behind-the-scenes reporting of data. Most states now require some level of electronic data interchange (EDI) from the payers (carriers or self-insured employers). There is no common template between the states; therefore carriers must set up separate data feeds for each state. This is made even more complex when you factor in the multiple sources from which payers must gather this data for their EDI reporting. Data sources include employers, bill review and utilization review vendors. The data from all these vendors must be combined into a single data feed to the states. If states change the data reporting fields, each of the vendors in the chain must also make changes to their feeds.

Variation also exists in the forms that must be filed and notices that must be posted in the workplaces. This means that payers must constantly monitor and update the various state requirements to ensure they stay in full compliance with the regulations.

Unnecessary Burden

Much of the workers’ compensation compliance efforts focus on the collection of data, which is ultimately transmitted to the states. The states want this information to monitor the system and ensure it is operating correctly, but is all this data necessary? Some states provide significant analytical reports on their workers’ compensation systems, but many do little with the data that they collect. In a world concerned about cyber risk, collecting and transmitting claims data creates a significant risk of a breach. If the data is not being used by the states, the risk associated with collecting and transmitting it seems unnecessary.

Another complication is that there are multiple regulators involved in the system for oversight in each jurisdiction. Too often, this means payers have to provide the same information to multiple parties because information sent to the state Department of Insurance is not shared with the state Division of Workers’ Compensation and vice versa.

Some regulation is also outdated based on current technology. Certain states require the physical claims files to be handled within that state. However, with many payers now going paperless, there are no physical claims files to provide. Other states require checks to be issued from a bank within those states. Electronic banking makes this requirement obsolete.

How Is This Driving Costs?

All payers have a significant amount of staffing and other resources devoted to compliance efforts. From designing systems to gathering and entering data, this is a very labor-intensive process. There have not been any studies on the actual costs to the system from these compliance efforts, but they easily equate to millions of dollars each year.

States also impose penalties for a variety of things, including late filing of forms and late and improper payment of benefits. The EDI process makes it possible for these penalties to be automated, but that issue raises the question of the purpose of the penalties altogether. These penalties are issued on a strict liability basis. In other words, either the form was filed in a timely manner or it was not. A payer could be 99% compliant on one million records, but they would be automatically penalized for the 1% of records that were incorrect. In this scenario, are the penalties encouraging compliance, or are they simply a source of revenue for the state? A fairer system would acknowledge where compliance efforts are being made. Rather than penalize every payer for every error, use the penalties for those that fall below certain compliance thresholds (say, 80% or 90% compliance).

The laws themselves can be vague and open to interpretation, which leads to unnecessary litigation expenses. Terms such as “reasonable” and “usual and customary” are intentionally vague, and often states will not provide further definition of these terms.

How Can We Improve?

One of the goals of workers’ compensation regulations is to ensure that injured workers are paid benefits in a timely manner at the correct rate and that they have access to appropriate medical treatment. There was a time when payers had offices located in most states, with adjusters handling only that state. Now, with most payers utilizing multi-state adjusters, payers must be constantly training and educating their adjusters to ensure that they understand all of the nuisances of the different states that they handle.

The ability to give input to regulators is also invaluable, and payers should seek opportunities to engage with organizations to create positive change. Groups such as the International Association of Industrial Accident Boards and Commissions (IAIABC) and the Southern Association of Workers’ Compensation Administrators (SAWCA) provide the opportunity for workers’ compensation stakeholders to interact with regulators on important issues and also provides the opportunity to seek uniformity where it makes sense (EDI, for example).

There needs to be better transparency and communication between all parties in the rule-making process so that regulators have a better understanding of the impact these rules have on payers and the effort required to achieve compliance.

Developing standards in technology would be helpful for both the payers and the states. If your systems cannot effectively communicate with the other systems, you cannot be efficient. Upgrading technology across the industry, particularly on the regulatory side, has to become a priority.

Finally, we need to give any statutory reforms time to make an impact before changing them again because the constant change adds to confusion and drives costs. In the last 10 years, there have been more than 9,000 bills introduced in various jurisdictions related to workers’ compensation. Of those, about 1,000 have actually been turned into law. People expect that these reforms will produce the desired results immediately, when in reality these things often take time to reach their full impact.

These issues were discussed in depth during an “Out Front Ideas With Kimberly and Mark” webinar on Feb. 9, 2016. View the archived webinar at http://www.outfrontideas.com/archives/.

Zenefits: Disrupting Lives, Not Just the Insurance Industry

I’m sure you are as tired of reading about Zenefits as I am of writing about it, but, as much as I may want to, it’s hard to turn away from a train wreck in progress.

Wendy Keneipp and I have spent more time reading, writing and talking about Zenefits than we care to admit. We have spent time analyzing its model, discussing how to compete against the company and breaking down its impact on the industry. But this past week has had us shaking our heads at its arrogance and recklessness. I would like to promise this will be my last article about Zenefits, but, well….

No doubt you have recently read about Zenefits’ allegedly selling insurance without proper licenses, and we have now learned the company “may have” (according to new CEO David Sacks) taken shortcuts on at least some of the licenses it did have. May have?! At least take real ownership of the failures, Mr. Sacks!

According to several online articles, the shortcut Zenefits “may have” taken involved writing a program called Macro, which made it appear as if individuals were completing the 52 hours of online training required by the state of California to obtain a license when, in fact, they weren’t. According to a BuzzFeed.com article, those wannabe brokers were then required to sign their name, under risk of perjury, certifying they had completed the required training when, in fact, they hadn’t.

The lack of conscience, level of arrogance and number of culpable “leaders” required to execute on something like this is absolutely mind-blowing. It was bad enough when we thought this was simply a misguided company, confused as to whether it was a tech company or an insurance broker, but that possibility pales in comparison with the malicious company it is proving to be.

Zenefits garnered untold positive press for disrupting an industry and for becoming the fastest-growing SaaS (software as a service) company in Silicon Valley history, but now we are learning just how ugly the reality was behind that thin veil of success.

More than disrupting an industry, Zenefits has built an organization that is disrupting people’s lives—and not in a positive way.

Here are the victims:

INVESTORS

I don’t have a lot of sympathy for this group because they provided the currency that fueled Zenefits’ reckless behavior; they are clearly part of the problem. It was investors who perpetuated a RIDICULOUS valuation and, in doing so, put untold pressure on the company to grow at a rate that would somehow validate the investors’ irrational exuberance over the Zenefits machine.

But, in addition to fueling the behavior, the investors are also victims; they invested in an illusion. They had every reason to believe their investment would be protected by legitimate (albeit misguided) business practices. It should have been reasonable for investors to assume the growth they were witnessing—and using to substantiate their investment—was being driven in a legal manner. It wasn’t.

We have already seen Fidelity cut the valuation of its investment in half. What will be the final financial toll on other investors once the dust settles? How much of investors’ collective $500,000,000 will be lost?

CLIENTS

Zenefits’ clients are potentially victimized in two ways. The first potential problem they could run into is having policies canceled as a result of having been written by non-licensed brokers. While I’m certain this is a possibility, I think it is unlikely the carriers would want to take that black eye. What is a more certain, yet difficult to measure, victimization is the fact that Zenefits’ clients did not have access to adequate advice and guidance in making policy decisions in the first place.

It would be one thing if Zenefits was simply in the online gaming business (as an example). If it was, the model would be to allow customers to download a free game and then make money by selling additional services/features. Essentially, if the game sucks, oh well. Unfortunately, Zenefits chose to play a much more serious game in a highly regulated industry.

Zenefits’ model infringes on two of the most critical aspects of client’s lives: their financial and medical well-being.

When Zenefits takes this responsibility as carelessly and recklessly as it has, it puts people’s financial lives at risk. Even worse, Zenefits could put people’s (literal) lives at risk. That may sound overly dramatic, but protecting the financial lives of its clients (employers and employees alike) and ensuring clients have coverage in place that provides for the right medical attention at time of need, is at the core of what this industry does, has always done and must continue to do for its clients.

For Zenefits, insurance is merely an afterthought, a means to an end, a way to finance the technology it touts as “free.” The company really should be ashamed for hijacking something so critical to people’s well-being and using it so carelessly.

ADVISERS

This may surprise you, but I also see the young advisers of Zenefits as victims. While I have been more than willing to share my criticism of their inexperience in the past, I believe these are mostly well-intentioned young professionals.

The Zenefits leadership team sold these young men and women on a vision that is simply proving to be an illusion. They were sold on the idea of disrupting an industry, being a part of a “unicorn” organization doing something that hasn’t been done before. Who wouldn’t buy into something like that?

Now, don’t get me wrong; while inexperienced in the business world, these young folks still had a personal responsibility to know right from wrong. They had to know they were cheating when they skirted the 52-hour requirement. And, they had to know the personal risk they were taking when they signed their name claiming to have completed training they hadn’t.

Bad on them for not taking a stand. But, even worse on the leadership team for putting them in that position.

I can hear the arguments against me on this point, and I don’t necessarily disagree. However, anytime someone in a position of authority uses their power to coerce and take advantage of a subordinate, there is a level of victimization.

NOW WHAT?

Of course, I don’t know how the rest of this story is going to play out, but I have my suspicions.

I don’t see how David Sacks can be allowed to remain as CEO. He has received great praise for the email he sent to the Zenefits employees, and he is being hailed as the leader who will correct all of what ails Zenefits. Maybe he will be, but I have serious doubts.

The positive media response to his succession scares me. Not that I think Parker Conrad should have remained CEO, but because the change seems to be providing Zenefits a free pass—if not in the eyes of regulators, at least in the public eye.

Outside our industry and Silicon Valley, most people have no idea about how this company has been operating. I guarantee you that Zenefits is about to take its marketing and sales machine to a much higher gear. And there are countless business owners oblivious to the potential danger of a purchase through Zenefits who are awaiting promises of easier HR, shiny user interface and no cost. These business owners need, and deserve, to be protected by the regulators put in place to provide such protection.

In my opinion, Sacks, as the chief operating officer, was as culpable for Zenefits’ failures as anyone. As the executive in charge of all things operational, how could he not have known about the lack of licenses or the fraudulent acts taking place under his nose? And, if he somehow didn’t know, that is simply another kind of failure on his part. How can he be allowed to remain?

I also don’t see how state insurance departments can allow Zenefits to earn another dollar off another insurance policy. The company has left too many victims in its wake, and I believe it is about to go on an even more aggressive hunt for even more “victims.” How can Zenefits be allowed to remain in the insurance business?

It’s time for Zenefits to transform its business model, get out of the insurance business and operate as the technology company it has always been; it’s time for the company to start putting people ahead of growth. After all, done properly, taking care of people first ensures growth will take care of itself. And, if you can’t take care of people and turn a profit, you don’t deserve to be in business.

I’m not holding my breath, however. As a self-described “hyper-growth addict,” Sacks has to manage his addiction with the demands and responsibilities of his new role—a role in which he will have to balance the demands of leading a company in a highly regulated industry (requiring attention to detail and ethical behavior above all else) against the demands of delivering an acceptable return for investors who have entrusted him with $500 million of their money. Early results are not very promising.

Stay tuned. I’m certain there’s more to come.

A version of this article was originally published on Crushing Mediocrity. The article appeared here at Q4intel.com.

The Sad State of Continuing Education

About 25 years ago, I attended an education committee meeting at the Southern Agents Conference in Atlanta. Continuing education (CE) had really just gotten started in some states. At this meeting, legendary insurance educator Bob Ross, of the Florida Big I, literally stood on his chair at the conference table and declared that mandatory CE would be the death of quality education. Has his prediction come true?

Four years ago, I posted the following on a LinkedIn discussion:

“A colleague related a recent experience to me last week. He went to one of the best known online insurance CE web sites and signed up for a course titled “Consumer Insurance.” He registered as a new user in the system, perused the course catalog, signed up for the course, skipped the course material, took the test, and earned 3 hours of CE credits. All in 16 minutes.

“He was also able to save the exam and email it to me (and, of course, anyone else taking the course). The test was loaded with vaguely worded questions and misspelled words and insurance terms (like “vessals” and “ordinance IN law” coverage). For some test questions, no right answer was listed or more than one answer was correct.

“In the spirit of one-upmanship, I told him about my experience 11 years ago when online CE was just getting started. I registered at a vendor’s web site and, like him, went straight to the test. I forget the exact total time required to register and take the 50-question test, but it was around a half hour I think and definitely less than an hour. The CE credit for this personal auto course? 25 HOURS. To quote the late Jack Paar, ‘I kid you not.’

“Afterward, I browsed the material, and it was full of general consumer-type information taken directly from the Insurance Information Institute. The hours of CE credit granted by the state DOI were based on a word count with complete disregard to the difficulty level.

“One thing I remember about this vendor was that it used what it called “Split Screen Technology.” What that meant was, while you were taking the test on one side of the screen, you could view the course content that went with that test question topic on the right side and browse for the answer to the question. Browsing for the answer was easy, given that the relevant information was highlighted.

“So where are we 11 years later? Apparently in the same boat, except that online insurance education is much more pervasive than it was then. You can get two years of CE credit for as little as $39.95. A great bargain if your interest is in regulatory compliance and not actually learning something that will benefit you, your agency and the consumers and businesses you serve….”

“Is there no accountability? Is there no desire to truly educate ourselves? Does anyone care? Is anyone listening?”

Flash forward to 2015….

An agent and friend I know – good agent, CE course instructor, upstanding guy – waited until the last minute to complete his biannual CE requirement last year. So he went online, found the course he wanted, signed up, went straight to the exam, and in 23 minutes had completed three hours of CE credits. As they say, the more things change, the more they stay the same. And, did I mention that the course was to comply with his state’s three-hour ETHICS requirement?

There is an online insurance forum with a discussion called, “Any Suggestions on Best Online CE Site?” It has comments such as:

“I use XXXXX.com. About $35 for 21 hours of credit. Takes a few hours (maybe two) to finish and is open book.”

My tongue-in-cheek response (recalling my agent friend’s experience a few months earlier) was, “I hope it wasn’t an ethics course!” The poster’s response:

“Huh? I guess you think each hour of CE should take an hour? Unless it’s a LIVE CE class… CE courses don’t take that long. I get unlimited CE from [provider’s name] for $39.95 per year… including a 16-hour Ethics CE course… that takes me about 15 minutes to complete. And, yes, they are open-book courses, too.”

On another discussion board, someone was touting a “Fast, Easy, and Affordable Continuing Education” website. No mention of the quality or relevance of the course material or whether there is any actual learning involved. The site proudly proclaims a passing ratio of “over 98%.” What would regulators do if the passing ratio of their licensing exams were more than 98%? I suspect they’d insist that the exams be made a little tougher. Is any exam a legitimate test of learning if the passing ratio approaches 100%? Then why do regulators allow online CE programs that take a half-hour to get 20 hours or more of CE credit and include exams with passing ratios near 100%? The web site in question has 91 reviews…NONE of them mention whether the reviewer actually learned anything.

(If you’re actually looking to learn, the best place to start looking is your own agent association, which has a vested interest in providing you with the best education possible.)

So what do you think? Am I just a grumpy old man? Should anything be done about the diploma mills that have proliferated? If so, what? If not, why not?

‘Sharing Economy’ Has Tricky Insurance Issues

Imagine the unimaginable – you accidentally injure a passenger or pedestrian with your car. How much insurance do you carry to protect them or yourself? Like many, you may carry only $15,000 per individual injury (the minimum, unchanged since 1967, required by California). If your income is low enough to qualify, you may carry a Low Cost Auto policy with only a $10,000 limit. Such minimum limits are a compromise. Insurance is expensive, and states try to balance the utility of car use against insurance costs that, if too high, would reduce that utility. You may, of course, carry higher limits. Or, perhaps, you are like approximately one in seven California drivers, and you illegally drive with no insurance.

Now assume that you are among the many auto owners who have joined the “sharing economy.” You use a smartphone app to match yourself and your car with others willing to pay you for a lift. Uber, Lyft, Sidecar and others (“Transportation Network Companies,” or TNCs) offer these apps, share the fees with you and make this popular service available to thousands.

Again, imagine the unimaginable – a collision injuring your passenger or a pedestrian. Keeping in mind that any insurance cost is ultimately passed on to the passenger, how much insurance should be required for a TNC driver?  $10,000? $15,000? $50,000 (the maximum required for private autos in any state and the minimum required in California if you allow others to rent your auto)? Or perhaps $106,841 (the value in 2014 dollars of $15,000 in 1967)? $750,000 (the minimum required of limousine companies)? Some other figure?

Put another way, the question about how much insurance to carry is asking: How much should those who benefit from the sharing economy share the burden when the activity damages them or others?

Unlike most driving for personal reasons, TNC driving generates cash flow. To many, it seems only fair that some of that be used to extend additional protection to those injured by the activity. What should trigger the additional protection – when one turns on the TNC’s app to seek a fare, when a “match” is made or when a passenger enters the vehicle? Also, who should carry the insurance – the TNC, the TNC driver or some combination?

Currently, these questions are debated among legislators, regulators (such as the California Public Utilities Commission, or CPUC), TNC operators and others. Requiring lots of insurance by setting a high limit may chill innovation; setting the limit too low unnecessarily burdens injured parties or others (e.g., taxpayers, who support Medi-Cal or Medicaid and may end up paying for expenses not covered by private insurance) and may unfairly create a disadvantage for competing sources of transportation that may be subject to higher insurance limits.

Raise the price of insurance, and the price of a ride goes up. (This issue is hardly unique to TNCs. Congress is also debating whether to raise the federally mandated $750,000  truckers’ minimum insurance limit.) Not only might an increase in insurance costs for TNCs stifle a popular and convenient form of transportation, but it may lead some less safe drivers back into their vehicles (e.g., teenagers, intoxicated drivers, impaired drivers, poorly insured drivers, uninsured drivers or drivers with unsafe driving records). This, in turn, may lead to the unintended result of even more unnecessary injuries and deaths.

Much of the debate about TNCs is colored by a New Year’s Eve accident in San Francisco that occurred when a TNC driver with his app on (there is some evidence he may have been looking at it) struck and killed a pedestrian and injured several others. This is a tragic accident, but it also gives the debate an emotional overtone that may make it difficult to strike the correct balance. This accident could also have happened while a non-TNC driver was texting or talking, and there may have been minimal or no insurance available in that case.

In this author’s view, comprehensive legislation or regulation shaping the future of TNCs is premature. These fast-moving innovations are new enough that insurers, legislatures and regulators have been caught on the back foot. At the same time that policy makers are moving forward with regulations, insurers and TNCs are developing new products and strategies to address these issues.

While there is no shortage of those eager to express their opinions (perhaps this author included), there is little credible data on which to base sound policy decisions. Here are some of the many open questions:

–On average, how much would different limits add to the cost of a 10-mile ride? Ten cents? Ten dollars?

–How much will new insurance products cost?

–As the use of TNCs expands, will overall accident rates rise, or will they fall?

–If you drive to a ballgame with your daughter and a fare, will your daughter’s injuries be covered if you have an accident? (Your liability would not be covered under most personal auto policies – surprise!). Put another way, what terms and conditions will appear in any new insurance products or endorsements?

–Does the display of a TNC’s trade dress (essentially, its visual appearance) create ostensible or apparent authority should a passenger suffer injury? Would liability extend to an injured passenger who hailed a car displaying the TNC’s trade dress, even though the driver did not engage the TNC’s app so he could keep the entire fare? If the TNC is liable, could it seek reimbursement by claiming indemnity against the driver?

–If you drive 12,000 miles a year, but 2,000 of those miles are driven as a TNC driver and are insured by some form of TNC policy, should your personal auto insurer base your rate on 12,000 miles or on 10,000 miles? If the latter, how are the different miles to be confirmed?

–If you carry higher limits on your personal auto policy (e.g., $300,000 plus a $1 million umbrella), will the protection for you and anyone you injure drop to a lower TNC policy limit when you act as a TNC driver?

–One current bill in California (AB 2293 — Bonilla) provides that the TNC must assume ALL of the driver’s liability, without limit. By contrast, the CPUC’s proposed rules do not provide for unlimited liability. When is it appropriate to impose liability on the provider of an app as if users of apps were employees or agents of the app provider? Would the operator of an app that matches homes with those who want accommodation (e.g., Airbnb) be liable should a guest trip on an unsafe carpet or step? Would the operator of an app that matches car sellers and buyers be liable for an accident during a test drive? Would an app marketing tickets be liable if the bleachers collapse or the cruise line runs aground?

–Should liability turn on whether the app provider is more than passive? If so, what more is required? A profit motive? This would sweep up many apps. What if the app provider imposes rules on its users (e.g., vetting drivers for their safety record, adopting a zero-tolerance alcohol policy and reviewing ratings by customers)? If so, then forcing app providers to assume unlimited liability may discourage them from taking measures that could enhance safety. For these reasons, this liability provision in AB 2293 could have enormous implications and should be carefully considered.

–If, under AB 2293, the operator of the app is liable without limit, what purpose is served by mandating policy limits? If the operator of the app has sufficient net worth, it would be liable regardless of any policy limits that might be imposed.

–How, if at all, should one weigh the evolving existence of near-universal healthcare under the Affordable Care Act (Obamacare)? Covered parties who suffer injuries will at least have access to healthcare without limit and regardless of fault. Depending on any number of factors, the bulk of these health costs may fall on health insurers, liability insurers, the public or some combination.

Who knows answers to any of these questions? Without answers to these and related questions, it is likely that regulating in a partial vacuum will strike the wrong balance. Like emergency physicians, legislators and regulators should stabilize the patient but “Do No Harm.”

In the meantime, the public deserves protection. There should be no gaps in coverage (whatever trigger or limits are chosen). To keep rates reasonable and predictable, insurers also need clarity with respect to which insurers are responsible.

Prudence, however, suggests that any current legislation or regulation should have a firm sunset date. Otherwise, like barnacles, awkward legislation sticks and impedes progress.

During this initial period, the legislature should require (not just request) that the Public Utilities Commission and the Department of Insurance gather appropriate data and report back to the legislature before the legislation or regulation reaches its sunset. Regulators and legislators may, then, make informed, data-driven decisions that strike the most appropriate balance among all of the legitimate interests.

Workers’ Comp: How We Got Here

The workers’ compensation insurance marketplace in California may at times seem like the Wild West. From the employer standpoint, it involves a dazzling array of choices and options. It is driven by a value proposition that can perilously tilt to price rather than long-term service and protection.

For insurers, it all begins at the Department of Insurance, with what is called the pure premium (claims cost benchmark). As can be expected in this complex system, the pure premium rate-setting process can appear to be as chaotic as any other aspect of this system. There is, however, a method to this madness.

Well before federal antitrust laws came into effect, the U.S. Supreme Court determined that insurance was not a part of interstate commerce. Thus, when antitrust laws were enacted, they did not apply to insurance. Insurers were free to share their market data with each other without fear of government prosecution.

That all changed in the 1940s when the Supreme Court changed its position and determined that insurance was now part of interstate commerce. Overnight, much of what the industry was doing in terms of sharing data and making rates was illegal.

Congress stepped in, and by the early 1950s what we now know as the Workers’ Compensation Insurance Rating Bureau (WCIRB) was licensed by the California Department of Insurance and was doing its business under “active state supervision” – which, under the law, allowed insurers to continue to share information.

During most of the history of California workers’ compensation insurance, fully developed rates (losses, loss adjustment expenses, and general expenses) were set by the WCIRB and approved by the commissioner. No insurer could charge a lower rate (with some exceptions), leading to the name “minimum rate law.” No multi-line or interstate combinations of experience were allowed. In other words, workers’ compensation insurance rates had to be standalone adequate.

By 1993, employers were experiencing the pain of high insurance costs and a dysfunctional system. Major reforms were enacted, including the repeal of the minimum rate law. Effective Jan. 1, 1995, a new “competitive” rate law was adopted. The WCIRB was to develop an advisory “pure premium” – losses and loss adjustment expenses only – and insurers did not have to use it. Insurers had to file their own rates and rating plans and load their own expenses. And multi-state, multi-line experience was now allowed when determining whether premiums were adequate.

Within about five years, the wheels had pretty much come off the insurance marketplace in California. There were insolvencies and impairments; capital was leaving the state; and there was an undeniable crisis that affected the system well beyond the borders of the Golden State. The causes were many and varied, and while the legislature made some changes to the rate law, its primary focus in 2003, 2004 and most recently in 2012 was to rein in the costs of the system and try to bring some stability to the marketplace.

But the pure premium rate-setting process has pretty much stayed the same since its enactment more than 20 years ago.

The WCIRB does more, much more, than collect the data necessary to develop pure premiums. It develops and administers the statistical plan for data reporting, the uniform classification system and the uniform experience rating plan, for example. Each of these requires the approval of the commissioner, and each is a regulation of the Department of Insurance. As such, they fall under the procedures of the Administrative Procedures Act (APA).

For many years, this APA notice and hearing process was used for both the regulatory and rate-setting filings of the WCIRB.

Since 2013, however, the two processes have been split up. There’s a good reason for this. The first is that the APA, housed in the Government Code, doesn’t apply to rate-making proceedings. It is the Insurance Code that requires a hearing on pure premiums but also requires that the commissioner issue an order within 30 days of the hearing. The fact is that the department and the WCIRB work very closely together throughout the year, and the intended procedure for the adoption of the pure premium rates acknowledges this. The regulations that fall under the procedural requirements of the Government Code (APA) are not as time-sensitive as the adoption of the pure premium – the latter requiring some sense of certainty not just before Jan. (or July) 1, but with sufficient time to make rate filings and, if necessary, send out notices of nonrenewal depending on the size of the rate increase. The new process developed by the department allows for that.

The WCIRB makes available copious amounts of data regarding the performance of the system. These can be found on the bureau’s website: www.wcirb.org. Everyone who is affected by the system would benefit by spending some time looking at these and understanding why we are where we are today, and the still very long journey to get to where we ought to be.