Workers’ Compensation Board Recommends New Funding Model to Guarantee Self-insured Claims

ALBANY, NY (12/10/2007)(readMedia)-- New York State Workers’ Compensation Board Chair Zachary S. Weiss issued a report to Governor Spitzer and the Legislature proposing sweeping changes to the way self-insured claims are secured in New York.

If enacted into law, a new funding model would be created, resulting in the release of the nearly $2 billion in letters of credit and surety bonds back to New York’s active individual self-insured employers.

“This is another positive step in Governor Spitzer’s workers’ compensation reform initiative. It will protect injured workers, reduce financial burdens on creditworthy self-insurers, and help to keep self-insurance as a viable option for employers in New York,” Chairman Weiss said. “We look forward to working with the legislature and other affected stakeholders to achieve meaningful reform in this area.”

In the report, the Board recommends adopting a new model for guaranteeing self-insured claims. The Board recommends replacing the current “silo” approach, where employers post a security deposit equivalent to their outstanding workers’ compensation claims with a “guarantee pool,” where payments into the pool are based on credit rating and the actual risk an employer brings to the pool. The proposed pool system would be used to guarantee claims in the event any of New York’s self-insured employers default on their workers’ compensation obligations.

“Self-insurance is a privilege, not a right. When a self-insurer defaults on its obligations, this poses an unacceptable risk that benefits will not be paid in a timely manner to injured workers, and that other employers within the self-insurance program will be subjected to unexpected financial stress,” Chairman Weiss said. “The recommended pooled approach will reduce the risk of insolvencies within the self-insurance program and mitigate the consequences of those insolvencies that do occur. In addition, it will eliminate the security most employers must post to be authorized as an active self-insurer in New York State.”

The 2007 Workers’ Compensation Reform Bill directed the Board to recommend a new bond program for “individual” self-insured employers. The report does not address other types of self-insurance, such as group trusts or municipal programs, although it notes that some of the tools recommended in the report for individual self-insurance also could address issues with group trusts.

New York requires employers to provide workers’ compensation coverage through one of three ways: an insurance carrier, the State Insurance Fund, or through self-insurance. There are 150 parent companies approved as individual self-insurers in New York. They bring 285 subsidiaries into the program for a total of 435. These companies have 525,000 employees in New York alone, with a combined annual payroll of $27 billion.

The Board holds $1.8 billion in security deposits for these active self-insurers and an additional $800 million for inactive self-insurers. It is estimated that these employers collectively pay $33 million annually to meet the Board’s security deposit requirements.

For these recommendations to become law, legislation must be drafted, submitted to and passed by the State Legislature, and approved by Governor Spitzer.

The Workers’ Compensation Board equitably and fairly administers the provisions of the New York State Workers’ Compensation Law on behalf of New York’s injured workers and their employers.

NOTE TO EDITORS: The report can be viewed online here: http://www.wcb.state.ny.us

-30-