As New York forges ahead to implement this year's landmark changes in its new workers' compensation reform law, the state's two major independent agent groups are expressing some serious but conflicting concerns over issues of enforcement, trust-fund assessments and the sustainability of recent rate cuts.

The organizations at odds over what to worry about going forward when it comes to workers' comp are the Independent Insurance Agents and Brokers of New York and the Professional Insurance Agents of New York.

Signed into law in March by Democratic Gov. Eliot Spitzer, the measure called for a host of reforms, including:

o Increased penalties for workers' comp fraud.

o Higher weekly benefits, both minimum and maximum.

o Objective medical guidelines, to be developed to better determine disability.

Jamie Deapo, member advocate and assistant vice president of member programs for IIABNY, questioned a section of the law that involves the Aggregate Trust Fund.

According to the legislation, carriers that sell workers' comp in New York must pay the "present value" of permanent partial disability benefits into the ATF.

Mr. Deapo noted that insurers paying into the ATF are not eligible for a refund in the event of an overestimate but must pay more in the event of an underestimate.

"Imagine you have a younger person that gets a [permanent partial disability award] and you throw up $200,000 for this gentleman or lady, and a couple of years later they're killed in a car accident. You don't get any of that money back," Mr. Deapo explained.

He also questioned the fairness of exempting self-insured trusts and the New York State Insurance Fund from making these payments while requiring private carriers to pay into the fund.

However, while Mr. Deapo cited the ATF as one of his biggest issues with the reforms, David Dickson, past president of the PIANY, does not see it as a major concern in the long run.

"I would say, with regards to the application of the funds and their availability, that there is going to be an 'ironing out' period," he said. "I'm not worried about it. I wouldn't put [the ATF] as one, two or three in my list of concerns."

However, Mr. Dickson has more of an issue with what he characterized as the state's failure to enforce laws against misclassification of employee jobs at less risky levels by businesses, as well as the failure by some employers to provide proper workers' comp coverage.

Citing a Fiscal Policy Institute report released last summer, Mr. Dickson said, "There is $90 billion in unreported payroll...and that amounts to roughly 20 percent of the reported payroll in New York State."

He explained that the reform law granted the state broad powers--including making intentional misrepresentation a felony, increasing fines and allowing the Workers' Compensation Board to issue stop-work orders if it discovers misclassifications or employer noncompliance--to pursue employers that are taking advantage of the system and not paying their fair share for coverage.

But Mr. Dickson said there have been only a few instances of enforcement in this area, citing that as his top concern with the reform law.

Mr. Deapo, on the other hand, does not see misclassifications and employer noncompliance as a major issue. He said the idea of finding people not covered under workers' comp is well-intentioned, but that the state's appetite for pursuing this issue may be too heavily based on one source of data--the FPI report.

"I think some of the people that [the state thinks] are not being properly picked up, are being properly picked up," he added.

He said that while the state is trying to make a big push to go after such businesses to justify rate decreases, the state may "not get all the bang back for its buck."

On another front, Mr. Deapo expressed concern in general about the state's decision earlier this year to lower workers' comp rates by 20 percent.

He wondered if the state will be able to "hold the line with the rates and not have them shoot back up," and he doubted whether the reforms are going to generate as much savings as the state believes.

He noted that health care costs are going up, while industry analysts are generally saying workers' comp rates overall will rise.

"Here we are in this state saying we're going to give more benefits, higher benefits, and reduce the premium and keep reducing the premium. How are we going to do that?" Mr. Deapo said. "It must be that they have a magician in Albany, because I just don't know how that's going to happen."

Mr. Dickson, however, believes the rate decrease is justifiable, and that the state may be able to lower rates even further in the near future--without employing the use of magic, noting that the reforms have resulted in "significant cost reductions for employers."

He cited "a couple of reasons" why he believes the rate decrease is sustainable:

o "First, there is nearly $1 billion in uncollected premium that's out there right now," he said.

o "Number two, if rates had gone down too much, you'd think there would have been some kind of hiccup or change, or influence in the marketplace, and there hasn't been," he added. To the contrary, Mr. Dickson noted, the market is operating with lower rates now than it was at the beginning of the year.

Mr. Dickson and Mr. Deapo agreed on one point about the reforms--the impact on out-of-state employers.

On July 12, the Workers' Compensation Board, in interpreting a provision in the law, posted the following notice on its Web site: "...[E]ffective Sept. 9, 2007, all out-of-state employers with employees working in New York State will be required to carry a full, statutory New York State workers' compensation insurance policy."

Agents pointed to potential unintended consequences, noting that this interpretation means any worker passing through the state for any reason would have to have a full statutory workers' comp policy, rather than the previously accepted "all states endorsement," in order to comply with the law.

Mr. Deapo has called for a change in this interpretation, writing in an article in the Insurance Advocate (an affiliated publication of NU): "Certainly, the intention was not to require employees of an out-of-state employer attending a conference in New York, or driving through the state, to be provided full statutory coverage."

The WCB has acknowledged the agents' concerns and has promised to review the guidelines. But Mr. Dickson noted that until there is an actual change in the law, employers are still liable.

"If an employee from an out-of-state employer presents a workers' comp claim, and that employer does not have a New York policy, by statute you are talking about an uninsured employer," he warned.

Mr. Dickson said he has advised employers to either find a way to get full New York coverage, or avoid traveling through the state altogether.

Special Reports /

Agent Groups At Odds Over Biggest Problems With N.Y. Comp Reform Law

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