For N.Y. State Workers’ Compensation Fund, ‘No’ Is Rarely an Option

NYSIF Helps Economy, Employers and Markets Weather the Ups and Downs

Since its founding in 1914, the New York State Insurance Fund (NYSIF) has been focused on providing a workers’ compensation market for small to medium sized accounts. NYSIF has not been involved with big corporate accounts very often because private market capacity has rarely been a problem for large accounts.

But, as Kenneth Ross, NYSIF chief operating officer and executive director, recalls, right after Sept. 11, 2001, his organization was hit with coverage requests on behalf of some of the state’s largest high-rise, high-profile risks.

“After 9/11 some of the biggest problems were with employers with high concentration of personnel in one location,” Ross notes, adding that this can be a big issue in New York City. “We had some large financial and media companies without a private market so they came to us for the first time. They were no longer desirable risks for the private market even though they were mostly office-type risks. But they had no place to go. We were confronted for the first time trying to provide an adequate quote for these risks.”

So NYSIF underwriters became immersed in New York City real estate, weighed the underwriting variables, and came up with quotes for these large employers in downtown locations.

Setting the bar
After NYSIF established the price, private carriers swooped in at the eleventh hour to undercut NYSIF’s quote so they could grab the accounts and their brokers could get a commission, something NYSIF does not pay.

That was just fine with Ross, who is satisfied with the role NYSIF played in helping to stabilize the economy and avoid a major insurance market disruption. The high-rise employers were not the usual risk profile for NYSIF anyway.

“We set the bar where it should be. Private carriers came in and undercut us slightly. However, we were setting the tone,” he says.

Ross has been part of the team setting the tone at NYSIF since April 1995. Before that, he was a practicing attorney specializing in real estate and insurance litigation. In June 2001, he was appointed chief operating officer as well as chief executive officer.

Prior to 9/11, Ross remembers the workers’ comp market starting to harden a bit. “Carriers didn’t necessarily flee, they were just getting strict and conservative in their underwriting,” he says, adding that this is when NYSIF business rises.

Now, he believes, there are plenty of companies and although underwriters are still being cautious, he sees price competition increasing, especially on larger premium accounts.

NYSIF is a competitive state fund that competes with the private sector and operates like a private carrier in some ways, while adhering to public sector rules in others.

The largest writer of workers’ comp in New York State, NYSIF is obligated to be the carrier of last resort and provide a quote to almost any business that applies. It cannot say no except where a risk has been with the fund previously and owes premium.

At the same time, the NYSIF is self-sufficient and must set prices commensurate with the risk much like private carriers. It does not pay dividends to shareholders or commissions to brokers but does pay state taxes, some $35 million a year. It also differs from the private market in that it must comply with civil service regulations for its 2,600 employees in 11 offices across the state.

NYSIF also sees itself as more than a provider of coverage. “Because of our sheer size and because we compete … we can have a major impact on the cost of workers’ comp and we are somewhat of a market regulator because of that,” Ross adds.

Its 2003 combined loss ratio came in at 118 percent and its pure loss ratio at 79 percent for the residual market. “There’s an advantage to being a monoline carrier and knowing the state requirements,” he concedes.

In 2003, NYSIF reported $1.4 billion in net earned premium, up from $1.3 billion the year before. That amounted to about 37 percent of the market. Ross is projecting workers’ comp earned premiums of $1.5 billion for this year. NYSIF also handles $20 million in statutory disability insurance.

Business trends
Looking into current claims trends, Ross sees his state adhering to the national trends where frequency has been down but severity has increased. He cites medical inflation including the cost of prescription drugs as a contributor to rising costs.

Not too long ago, NYSIF was by Ross’ own admission an “aging dinosaur” in its systems and procedures but Ross says he is proud now of the re-engineered NYSIF with its state-of-the-art automation systems, transactional Web site and ongoing training.

He’s also proud of its efforts to combat fraud. In 2003 alone, NYSIF’s fraud detection efforts led to 109 arrests and more than $17.67 million in restitution.

After more than 90 years in business, NYSIF is accustomed to being the state’s biggest workers’ comp writer. But Ross says that size is just a byproduct of focusing on its real objective.

“We don’t have to be the biggest, but we have to be the best. We want to continue to find better ways to service our customers— everything else falls into place when you do that. We intend to continue to be a market leader,” Ross says.