Worker insurance system faces inevitable collapse, lawmakers hear

Saturday, Feb. 22, 1997 | 11:59 a.m.

Armed with that testimony and information it has been gathering since the start of the session, the committee must prepare for what may be the inevitable collapse of the State Industrial Insurance System.

"It's incumbent on us to actually know, in one or two plans, what we will do when the inevitable happens and SIIS is declared insolvent," Commerce and Labor Vice-Chairwoman Ann O'Connell said Friday.

The committee needs to address three critical areas: How to accommodate injured workers and employers, what to do about the $1.35 billion in SIIS's unfunded liability, and should the state do something to keep the system going and for how long.

"When do we fish or cut bait?" O'Connell, R-Las Vegas, asked.

Chuck Knaus, a supervisor with the state Insurance Division, told the committee that SIIS will have no room to make any mistakes when it loses its monopoly status.

"They have to be prevented from entering a position of negative cash flow because they will never recover," Knaus said.

"Once the market opens to private insurers, SIIS may be tempted to sell rates lower than should be to keep in business," he added.

SIIS has been preparing for the statutorily mandated switch to a competitive market that's scheduled for July 1999, Knaus said.

And it has enjoyed a positive cash flow over the last few years which has helped it recover from the pre-1993 bad management policies that resulted in a $2 billion-plus unfunded liability.

SIIS decreased its accumulated deficit 36 percent, to $1.35 billion since it reached a peak in 1993.

But Commerce and Labor member Ray Shaffer, D-Las Vegas, said he is concerned that the state's employers and, ultimately its workers, are paying to fix the mistakes of previous SIIS management when employers could be paying lower, more competitive rates.

"There are some private sector insurers that are submitting proposals and sending in applications with rates that are 20 to 30 percent lower than SIIS," Shaffer said. "We may possibly be chastising our employers with higher rates."

Shaffer said thousands of employers may immediately leave the state insurance system as soon as it becomes competitive.

"The bottom line is, there's a good chance we'll have an economic drop at some point in the near future, and SIIS will likely get into a negative cash flow that renders it not viable," he added. "Are we being negligent by not taking action during this session?"