SIIS liability decreases

Friday, March 14, 1997 | 11:59 a.m.

CARSON CITY -- For the first time since the financial crisis erupted at the State Industrial Insurance System in 1992, its unfunded liability has fallen below $1 billion.

Douglas Dirks, general manager of SIIS, told the Senate Finance Committee Thursday that as of Jan. 31, the unfunded liability was $982 million, down from $2.2 billion, the peak year in 1993.

Dirks predicted the liability would continue to decline, unless there's a major downturn in the economy and on-the-job injuries skyrocket. The unfunded liability is the amount required for future medical and support payments for worker disabled on the job and for which there would be no cash if the system shut down today.

SIIS, which collects premiums from about 44,000 employers in Nevada, will face competition in July 1999 from private companies that want to write workers compensation policies. Dirks said the workers' compensation fund is not recommending any major law changes to this Legislature.

He reported SIIS lost $47 million in premiums last year when employers broke away from SIIS and formed self-insurance groups. But total premiums to SIIS actually rose by $8 million because of a strong economy with more companies opening for business.

Dirks was questioned by committee members about the increases in his administrative -- or operations -- costs of the system. He said the system used to spend 17 percent of its revenue collections on administration. That has gone up to 21 percent last year, which Dirks said was the appropriate level.

But Sen. Bob Coffin, D-Las Vegas, suggested that a 21 percent administrative cost might be too high. Dirks agreed Montana spends only 15 percent on administration in its state system, but expenses in Oregon and California are in the 30 percent range.

AIG, a major private insurer, has a 20.5 percent expense ratio compared to premium and other companies are in the 30s. But he said they must also pay taxes, from which SIIS is exempt.

Committee Chairman William Raggio, R-Reno, said SIIS was authorized $20.5 million on administration but actually spent $28.7 million, or 39 percent over the amount approved. He noted, however, claims expenses fell by $79 million.

Dirks said in past years, the system was not properly managing claims from injured workers and medical and rehabilitation costs were rising at a fast place. The average load for a claims examiner then was 3,000 cases and the system had an antiquated computer.

He said he spent money last year modernizing the computer system and in reorganization to get SIIS ready to meet open competition. "It was a good investment in preventing claims from going out of control," he said.

The money spent in the last two years will pay off in long-term benefits, Dirks said.

SIIS is proposing a $778.6 million budget for next year, up 27.4 percent and then $999.6 million, an increase of 28.3 percent in the following year for staff and payment of medical and rehabilitation costs.

Dirks said the premiums collected from employers are paying the claims and staff while the interest gained on its investments is helping lower the unfunded liability.