State workers compensation chief wants his agency privatized

Kiley Russell

Monday, April 12, 1999 | 5:03 a.m.

CARSON CITY -- The state's Employers Insurance Company of Nevada must be privatized so it can better compete when its monopoly on policies for on-the-job injuries is gone in July, lawmakers were told Monday.

The Legislature should adopt Gov. Kenny Guinn's plan to cut state ties to the 86-year-old agency to make it more efficient and to insulate Nevada from worker compensation liabilities, EICON chief Doug Dirks said.

"Under the governor's proposal, the state would be completely removed from the liability because we will be rolled out as a private company. The liability will go to that private company," Dirks said.

"The state is completely off the hook," he told the Assembly Ways and Means Committee.

Privatization "allows us to eventually offer different types of insurance and to run the agency more like a private company and less like a government agenc," Dirks said.

"If we're moving into a competitive marketplace, we believe we should be structured more like our competitors," he added.

Dirks also said that the state industrial insurance program is still struggling with $600 million in unfunded liabilities - but that's down from more than $2 billion in the early 1990s.

"If this Legislature adopts the governor's proposal, the unfunded liability will go to zero," Dirks added.

Unfunded liability is an accounting yardstick used to calculate financial health of such insurance programs. It's determined by comparing premium income with the amount the system eventually must pay out in benefits to injured workers.

Since 1913, most Nevada companies have only been able to buy workers' compensation insurance from EICON or its predecessor, the State Industrial Insurance System. But as of July 1, the state will open up the market to competition from private companies.

Once the market is open, all the players will compete for $440 million a year in premium income. The state's share has amounted to $385 million in premiums from 46,000 employers. The rest goes to self-insured programs.

Until now, only self-insured employers were able to operate outside the state system. Self-insurance rules allow companies to either pool their resources or individually develop their own industrial insurance coverage.

Critics of the privatization plan have said up to 600 state employees could lose their jobs under Guinn's plan.

State benefits for EICON workers would be phased out and those who are being laid off would get priority in other state hiring and could take advantage of proposed retraining programs. All employees who remain with the company would lose their civil service protections.

Organized labor is fighting the plan. Danny Thompson, lobbyist for the Nevada State AFL-CIO, has called the effort "union-busting" by taking away many of the rights of state employees.

But Dirks says the real culprit was the decision in 1995 to allow private companies into Nevada's workers compensation market.

"Over the first year we will lose about one-third of the market share," he said, adding that EICON could eventually lose 50 percent of its customers to incoming private companies.