Wednesday, November 20, 2013

Vegas, People, Networking

Annual migration to Las Vegas began Monday for Tuesday preparations to open the National Workers' Compensation and Disability Conference today, Wednesday.

There is an impressive line up of speakers, and an interesting content agenda of mostly claims related sessions.

But what impresses me is the total volume of people that show up to network. Sometimes we forget how many people the workers' compensation industry requires to get the job done, and how many people the industry supports through both claims and employment.

I criticize workers' compensation in this blog quite a bit. Criticism is easy! It's not that difficult to pick a topic, tear it apart with some oblique analysis, and point out the deficiencies and defects.

And indeed sometimes the volume of people in work comp come at the price of efficiency and good work. However, systems as massive and complex as workers' compensation require a lot of people to work.

Work comp is a people business. We don't make things, though we do seem to buy a lot of things (marketed as increasing efficiencies and decreasing defects...). Networking is paramount in work comp, and as most of you know one can make, or break, a reputation in remarkably short time.

Sessions in best practices, drugs, obesity, claims management, rate analysis, law changes, medical information, investigation; all of these are important topics that professionals need to stay atop of in order to do their jobs.

And the jobs in this industry have certainly shifted over time.

It was just over 10 years ago that the big dog in the yard was California's State Compensation Insurance Fund.

From 2002 to 2004, State Fund had more than half of the work comp market in California. In 2003 its $7.8 billion in written premium gave it a 53.0324% share of the market. While State Fund had more written premium in 2004 at $8.2 billion, its market share dropped to 51.0166%.

After absorbing the state's shed policies as carriers either went out of business, stopped writing the state, or shifted their risk portfolios, the State Fund engaged in strategies to move that business to private carriers and shrink its footprint in California.

In the process the State Fund has shed about 1,500 workers, or about 25% of State Fund’s workforce, most of those in recent years as market share for the carrier declined to 10.0359% with $903.8 million in premium in 2012.

The State Fund has reduced operating costs dramatically, has shed non-performing assets, and has gone through a huge transformation in its business.

Over time the State Fund's policy surplus has surged to over $6 billion. Though the carrier has made dividend payments recently, with the latest $100 million dividend announced just a few days ago, one has to wonder what is going on with all of that money - surely it's not all needed to pay for claims. These dividend payments are minuscule when viewed against other carriers.

For instance, if compared to The Zenith, one of the larger private work comp carriers in California, the State Fund's surplus is almost obscene. The Zenith $485 million in premiums and a surplus of $620 million, a ratio of 1.42.

The State Fund's ratio, by comparison, is 6.52.

At some point in time the State Fund will need to come to terms with this imbalance because if the comparison to the private market is valid then the small business and high risk employers in California have been paying way too much for coverage.

And maybe this is what the State Fund's board is recognizing and is shaping the carrier to respond to this market pressure.

The State Fund has always been an interesting animal. It is a constant target of criticism - it is either too large and taking up competitive market share, or it is holding on to too much money, or its claims practices are impersonal and inefficient.

And frankly I don't understand it.

But Tom Rowe, until recently CEO and president of the State Fund, and Dan Sevilla, likewise of former executive position as CFO, likely do. Their surprise "resignations" last week means that Rowe and Sevilla could be among those networking in Vegas this week, along with the other 1,500 who have been severed from the company.

Workers' compensation is a cyclical industry. We see the same trends come and go. There's always some "reform" happening every seven to ten years, and there's always some new "cost driver" that gets identified - usually too late before some significant damage has occurred.

Whether or not the changes at the State Fund hold some predictive value for the rest of the industry remains to be seen. One thing is for sure, the State Fund still holds significant sway over the rest of the industry.

I'll be part of the Blogger's Panel session tomorrow (Thursday 11/21) at 3:30, along with Joseph Paduda of, Rebecca Shafer, J.D. of ReduceYourWorkersComp.comblog, Robert Wilson of, Roberto Ciniceros of Risk and Insurance Magazine and Mark Walls, leader of the LinkedIn WorkCompAnalysis group. I hope you'll come listen to us and please be sure to come up and say "hi" - we're there to network too.

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