Workers’ Compensation insurance pricing should be regulated by the free market if legislators want the lowest price, best coverage, and best service for the businesses and workers that depend on workers’ compensation insurance to protect its employees. However, not everyone including those in public office think so. In fact, it appears the Illinois General Assembly by its recent vote decidedly think the free market doesn’t know how to price a product as well as it does.
The Illinois General Assembly recently passed a bill that if implemented, will require Illinois workers’ compensation insurance carriers to receive permission (approval) of changes in their workers’ compensation insurance rates by the Illinois Department of Insurance.
The bill, in desire to have some shallow and relatively meaningless appearance of reasonableness, does allow and permits “sensible corporate restructuring for insurers and reinsurers.” – That’s socialist talk for “It’s your business, albeit you’ll need to get government approval for your planned restructuring to work around the government edicts.”
The government and insurance companies know very well how this game plays out, and we’ve all seen this movie many times. Instead of operating at the most cost efficient strategy possible to maximize efficiency, the Illinois workers’ compensation insurance carriers will restructure their operations to minimize income from workers’ comp insurance to be able to shore up their position for any rate increase they desire. In other words, the various insurance carriers in Illinois will now have to spend more money on regulatory compliance, which of course gets translated into higher rates for employers. Higher rates for employers means lower income for employees.
The Vice President for States Affairs in the Midwest Region for the American Insurance Association, Steve Schneider, sums it up well in his statement:
“We’re quite disappointed that policymakers have chosen to mix poorly conceived government-driven rate controls with reasonable, sensible reforms. Illinois already has the most competitive marketplace for workers’ compensation insurance in the nation – reversing course and putting the state in charge of setting rates for workers’ compensation insurance does nothing to fix the true cost drivers of Illinois’ workers’ compensation system.”
According to the bill’s language, workers’ compensation rate filings must be made at least 30 days before they are implemented. Additionally, if an insurance carrier “intends to deviate from the filing of a licensed rating organization of which it is a member,” the insurer will be required to justify the deviation, according to how the bill is written.
The Illinois director of insurance has the power to approve, and carriers are required to receive the director’s approval workers’ compensation rate changes. Again, instead of figuring out the best pricing based on the current market conditions within a competitive market, the carriers now will have the added burden of “proving and justifying” rate changes that any given insurance carrier believes is within the best interest of the investors. It’s a well-known economic fact that a properly operating and efficient market will drive the best price to value ratio available, and anything other will result in higher pricing and/or lower value.
Illinois already is one of the most expensive states for employers wanting to buy workers’ compensation insurance, and this measure will only mean higher pricing in the long run. I guess I should be glad as an Illinois insurance agent because my commission is based on pricing of workers’ comp, albeit I actually prefer a free market with less unnecessary regulation, and this is clearly a step in the wrong direction for employers already saddled with expensive workers’ compensation along with every other government mandated extra expense that rolls into payroll.