Newspaper article THE JOURNAL RECORD

Overuse Blamed for Workers Compensation Woes

Newspaper article THE JOURNAL RECORD

Overuse Blamed for Workers Compensation Woes

Article excerpt

Cost issues in insurance seem to erupt on a regular basis, accompanied by rising rates, angry responses from state insurance commissioners and threats by companies to drop out of the business.

While the issues seem to develop as suddenly as a summer thunderstorm, usually they have simmered for many months within the industry or between the industry and insurance commissioners.

The beginning of one such issue could be right now. Workers' compensation insurance seems to be getting out of control. Claims are soaring, and a study of the industry suggests profits have just about disappeared.

``The system is being overused,'' said Robert A. Brian, whose study is now being circulated among property and casualty insurers. ``We either control the benefits,'' he said, ``or I see no reason for insurers to continue writing.''

Brian isn't an insurer, but he knows the industry thoroughly since he is senior vice president of Conning & Co., a Hartford-based securities firm that specializes in insurance companies. He is responsible for all its research.

In 1989, he estimates the entire industry will write $28.4 billion of premiums and pay out $26.8 billion, leaving a balance of $1.6 billion. That is, payouts will amount to about 94 percent of the money taken in.

To the uninitiated that might not seem too bad, but if you look back in Brian's statistical sheets you'll see that in 1982 the percentage was only 73.5. But that, he points out, is only the beginning of the story.

When deductions are made for administrative expenses, inflation and dividends paid to policyholders, said Brian, the industry will end the year having paid out $1.0 for every dollar collected. That's not good business.

Yes, but the companies will have had the use of billions of dollars during the year, and that should provide them with investment income. …

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