Life Line for New York SIGs Falling Short While National Attention on Funds Sharpens

It appears my recent story “A New Life Line for Group Workers’ Comp Funds in New York” was overly optimistic and the obituary for SIGs in that state may indeed be published in the not too distant future.

According to knowledgeable sources, preliminary discussions about finding a reasonable compromise to allow well run New York SIGs to continue to operate have not panned out. At issue has been the posting of security to satisfy regulator concerns about solvency going forward.

The state’s workers’ compensation board pushed back against formulas proposed by industry that would allow funds sufficient access to cash to pay claims and other operating expenses. As a result, a new law has been passed requiring funds to post security equal to 160% of expected claims. With such a high bar, it is likely that the baby will be thrown out with the bath water.

There is some uncertainty, however, as the regulations to implement the new law has yet to be written and industry continues to press its case to the Governor and the Legislature that this law will have significant negative ramifications for the state’s workers’ compensation system. So stay tuned as there may additional twists to this story in months ahead.

But while New York has been the epicenter of actual legislative/regulatory activity affecting SIGs, it’s worth noting that the New York experience has spurred discussions in national forums.

Just last month at the National Council of Self-Insurers (NCSI) Annual Meeting, representatives from the California Self-Insurers Security Fund presented a session on SIGs. Although some good objective data was provided, there was an obvious bias evidenced by the fact that they were quick to point out the isolated problems within the SIG industry without acknowledging that the overwhelming number of SIGs are well run and provide smaller employers an important risk financing option.

It should not be surprising that the presentation concluded with comments suggesting that national standards for SIG regulation should be considered.

This discussion promises to pick up again next month Southeastern Association of Workers’ Compensation Administrators (SAWCA) Annual Meeting as one of the featured sessions will discuss “warning signs for a SIG default.” This meeting typically attracts a large number of regulators so the meeting room is likely to be filled with those who may be inclined to make it more difficult for SIGs to operate.

While a serious regulatory push with national reach may not be right around the corner, those who have an interest in maintaining sensible SIG regulation should nonetheless pay attention to the discussions that are going on because developments can accelerate with little warning.

Not only do you have regulators encouraging each other to conform to group think about how to deal with SIGs, but the traditional insurance industry never misses an opportunity to stir the pot by trying to make funds look bad. The confluence of these dynamics should keep SIG industry stakeholders on their toes.

So we’ll watch to see how things continue to play out in New York while keeping an eye on other states who may not be able to resist on messing with a good thing.