Major firms lose bid to change insurance bureau

Travelers Insurance and Liberty Mutual sought to impose pay-per-use plan
Edward Mason - Journal Staff

Liberty Mutual Insurance Co. and Travelers Property Casualty Corp. have failed in their attempt to change the way a voluntary insurance association is funded.

Those companies wanted members of the Workers Compensation Rating and Inspection Bureau of Massachusetts, which represents insurers before state agencies, to pay for each transaction, a move which would have replaced the current system of charging companies based on their share of the market.

Critics contended the plan would have disproportionately benefited Liberty and Travelers--two of the state's largest workers' compensation insurers--while hurting smaller insurers. But a 13-member committee working on ways to fund the bureau overwhelmingly voted down the plan, 11- 2, according to committee member Linda Sallop, president of Atlantic Charter Insurance Co. in Boston. The only two votes in favor were Liberty and Travelers, Sallop said. Officials with those companies could not be reached for comment.

Sallop and other industry sources said that Liberty and Travelers proposed changing to a transactional assessment, whereby firms would be charged only for using the bureau's services. The question now is how the Workers Compensation Rating and Inspection Bureau, which represents some 300 companies that write workers' compensation policies in the commonwealth, will pay for its estimated $12 million budget.

Staff cuts under consideration

Paul Meagher, president of the bureau, said the organization is looking at staff cuts and outsourcing services. This year alone, the bureau has trimmed its 100-member staff 28 percent, Meagher said.

"We're doing what a lot of (what the) insurance companies are doing," Meagher said.

Other industry officials familiar with the situation said that the bureau needs to concentrate on cutting costs now that the new funding mechanism hasn't been approved.

Sallop, who sits on the committee, agreed. "It's time to go back to what we should be doing, which is making (the bureau) more efficient."

Although a seemingly narrow issue within the insurance industry--the funding of a voluntary association--experts said that if successful, the move by Liberty and Travelers could have had a profound effect on small Bay State insurers.

A chart prepared for the association showed that the companies that would have been most affected are those that write the fewest premiums, while companies such as Liberty and Travelers that write a lot of workers' compensation policies would have barely seen an increase in their contributions to the bureau.

As a result, Sallop and other industry experts said, small businesses could have been squeezed in their choices of workers' compensation insurance because the smaller insurers that cater to them would opt to stop writing the policies rather than carry the majority of the bureau's costs.

"It would have made a small premium harder to write, and that hurts everybody," said Sallop.

Sallop said going to a transactional assessment discourages companies from writing small workers' compensation policies, typically those worth $5,000 or less. If companies aren't covered, many small businesses would be forced into a pool for the uninsured, Sallop said.

The Workers Compensation Rating and Inspection Bureau represents insurers in rate setting cases and verifies for the state Division of Industrial Accidents whether a business has covered an employee.

The bureau also provides the state Division of Insurance with statistics on workers' compensation.

Eastern Casualty opts out

The bureau recently began to reconsider the way it is funded. Sources say the reevaluation followed the decision by Eastern Casualty Insurance Co. of Marlborough to quit the voluntary association this summer. Eastern, the state's third-largest writer of workers' compensation policies, has a nearly 9 percent market share.

Since companies currently pay into the bureau based on their share of the Massachusetts market, Eastern's decision to leave removed a sizable chunk of the bureau's estimated $12 million annual budget.

Eastern officials could not be reached for this story.

Reprinted with permission from the Boston Business Journal,
Volume 20. Number 38; October 27-November 2, 2000.
Copyright 2000, Boston Business Journal, Boston, MA.
All rights reserved.