Workers’ comp experts say small businesses subsidizing big employers

Monday, April 24, 2000 | 10:32 a.m.

NCI

A group of contractors has launched what it calls Nevada's first-ever captive insurance company.

The 5-year-old Nevada Contractors Network Self-Insured Group, which has 450 members employing some 30,000 people, changed its name last month to Nevada Contractors Insurance Co.

NCNSIG had been limited to offering workers' compensation insurance. As Nevada Contractors Insurance and a captive company, it will expand into other lines of insurance.

NCI said captive insurers insure only the risks of the members of that association and the affiliated companies of those members.

NCI said it's now the seventh largest property & casualty insurer in Nevada with more than $20 million in annual premiums. NCI also declared a $5 million dividend in March.

CARSON CITY -- Small businesses have been subsidizing big employers in Nevada when it comes to paying workers' compensation premiums for years, experts say.

But that would change under a proposal outlined last week by the Nevada Council on Compensation Insurance Inc.

If approved by state Insurance Commissioner Alice Molasky-Arman, rates could rise as much as 30 percent or drop by the same amount, depending on the type of business.

"We feel the small employer should not be subsidizing the big policy holder," said Barry Lipton, actuary for the council, which acts as adviser to Molasky-Arman in setting industrial insurance rates.

Some employers will see only a minor change in their rates while others will experience a large swing.

This is another step as the state moves into a fully competitive market in the sale of policies to cover nearly 44,000 employers for workers who are injured on the job.

At a public hearing, Lipton and Maggie Karpuk, state director for the national council, explained their plan to be effective July 1.

Of the total number of businesses, there are 28,525 that are considered small and 15,355 that are big enough to have their rates set on their injury experience at the job site.

Lipton said because of a strong state economy, rates for all employers could be lowered an average 1.9 percent. But those businesses assigned experience ratings would also be hit with an average increase of 8.3 percent.

"This is a large policy holder versus a small policy holder issue," Lipton told the hearing. While there were about 30 people in attendance at the televised hearing between Las Vegas and Carson City, no member of the public testified.

This inequity in setting rates has been in effect for at least 10 years and probably longer. A source close to the industrial insurance system, who asked not to be identified, said efforts were made in the past to correct the problem but political pressure by the large employers snuffed out any change.

The 1999 Legislature, at the request of Gov. Kenny Guinn, opened the doors to competition in the sale of workers compensation policies, ending the long monopoly held by Employers Insurance Company of Nevada, which also converted to a private company.

The national council set the minimum rates that could be charged for policies initially. Lipton noted that this July 1, insurance companies will be able to offer discounts up to 15 percent from the benchmark rates to lure customers. So that could ease the sting some companies might feel when the council's rates are adopted.

Cliff King of the state Insurance Division said there are more than 200 private insurance companies licensed to compete for workers' compensation business.

Lipton, in explaining the inequity in the rates, said big employers have been getting more credit than they deserved in rating the risks of their business. He said 84 percent of the big employers are getting credits, which entitle them to lower rates. Only 16 percent of the major businesses are being assessed debits, meaning higher rates.

Lipton said the ratio should be closer to 50-50 split of companies that deserve credits or debits for good safety records.

The council broke down the categories on the overall average 1.9 percent rate decrease. Manufacturing will enjoy a 4.8 percent average drop; office and clerical, a 4 percent decline, contracting, an 8.9 percent drop; goods and services up 5.8 percent and miscellaneous groups, a 5 percent increase.

The 8.3 percent average increase for companies with experience ratings is added to those figures.