N.D. Workers’ Comp Committee Studying Benefits of Privatization

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Complaints about North Dakota’s Workforce Safety and Insurance (WSI) agency may not translate into support for making WSI a private business and allowing competition from other insurers, state lawmakers say.

The Legislature’s interim Industry, Business and Labor Committee, which is studying the system, quizzed Nevada and West Virginia officials about those states’ recent switch from public to private control of workers’ compensation insurance.

Douglas Dirks, president of Employers Holdings Inc., of Reno, Nev., and Bill Kenny, the deputy West Virginia insurance commissioner, said serious financial problems in their states prompted lawmakers to support the changes.

Nevada’s system had a projected unfunded liability of $3 billion in the early 1990s, when momentum for privatization gained steam, Dirks said.

Kenny said West Virginia’s liability was $3.1 billion three years ago, when the West Virginia Legislature approved converting the state’s workers’ compensation fund into a private mutual insurance company.

North Dakota’s compensation fund was in the red more than a decade ago. It is now healthy, with a surplus of almost $500 million. Its board of directors recently approved payment of $77 million in dividends to employers over the next year.

“Our situation is kind of unique,” said Sen. Arthur Behm, D-Niagara. “We have money, but we have a lot of unsatisfied workers.”

Barry Llewellyn, an executive for a workers’ compensation data collection business, said he knew of no state that approved converting its system into a private business when it was financially sound.

North Dakota is one of four states that maintains a state-run fund as its only provider of workers’ compensation insurance. The others are Ohio, Washington and Wyoming, said Llewellyn, who is an executive with the National Council on Compensation Insurance Inc.

North Dakota does not allow businesses to finance their own workers’ compensation coverage or buy coverage from private companies.

Management problems at North Dakota’s WSI resulted in the dismissal of its chief executive officer last December. Critics are circulating a proposal they hope to put on the November ballot to give the governor power to hire WSI’s director, a job now left to an appointed board of directors.

Rep. Rick Berg, R-Fargo, the Industry, Business and Labor Committee’s chairman, said putting North Dakota’s workers’ compensation insurance business in private hands could result in lower costs, better service and more coverage choices for businesses.

North Dakota’s WSI must serve any business, regardless of size, while private companies sometimes specialize in coverage for small businesses, Berg said.

However, Berg said he was unsure whether there would be a groundswell of support for privatizing WSI. Some of the existing agency’s most vocal critics also are skeptical of privatization, he said.

“Unfortunately, in government, typically change doesn’t happen until there’s a crisis,” Berg said. “In order for us to move to a more competitive market, we may not have the crisis we need to typically move in that direction.”

The workers’ compensation system is meant to provide insurance for employees who are injured on the job, with medical, wage and other benefits provided regardless of whether the worker was at fault. Businesses are required to buy coverage and get protection from injury-related lawsuits.

In both Nevada and West Virginia, the state workers’ compensation fund gradually was converted into a private mutual insurance company, owned by the businesses that paid into the fund, officials said.

In West Virginia, the fund became BrickStreet Mutual Insurance Co., which was established in January 2006. Legislators gave the company a monopoly on workers’ compensation coverage for 21/2 years. This month, private companies were allowed to begin selling coverage, and more than 160 have signed up to do so, Kenny said.

Dirks said Nevada’s state fund also was converted into a mutual insurer. Last year, Employers Holdings Inc. became a stockholder-owned company, and distributed $850 million in stock and cash to the 6,600 Nevada businesses that had been its owners, Dirks said.

Kenny and Dirks said private companies are generally more flexible than state-run businesses. It is often in the interest of private insurers to offer more specialized medical care to injured workers because doing so can save money in the long run, they said.

“They know that if they get an injured claimant healed and back to work, that is going to reduce the overall cost of that claim,” Kenny said. “It is bottom-line driven, but it is not contrary to providing good care.”

Llewellyn said insurance companies are not likely to seek money savings by denying claims or skimping on medical care.

“They’re likely to find themselves involved in much more litigation, and insurers don’t like to get into litigation,” Llewellyn said. “They also don’t like to have their insured employers calling in and saying, ‘Why haven’t you taken care of my injured worker?”‘