The coming crisis in workers' compensation.

• Author: McCorkle, Vern C.

Employers need to listen up and take note, according to Linda Hall, I director of the Division of Insurance in the Alaska Department of Community and Economic Development.

"The potential failure of the system is going to fall right back into the laps of employers who, under current regulation, will be required to foot the bill for the claims of their injured workers all by themselves. Crisis is exactly the right word to characterize it," she says. And Hall knows what she is talking about. Before going to work in the Murkowski administration, she was on the other side of the table as an underwriter in the insurance business for more than 20 years.

The present situation is complex and has several facets that must be considered if a solution to the problems with the system is to be found. Primary among them is the probability of insurance companies becoming insolvent and unable to pay the approved claims of injured workers. This is brought about by the fact that for every dollar collected in workers' compensation premiums, the Alaska insurance industry now pays out about $1.54. Carriers are losing more money in Alaska than in any other state, and they are closing their doors and moving out.

Another problem is that the Alaska Insurance Guaranty Association is running short of money. The AIGA, mandated by law, is funded by members of the insurance industry that write property and casualty business in Alaska. The purpose of the association is to minimize financial loss to claimants or policy holders because of the insolvency of an insurer. In Alaska, four companies have been declared insolvent to date. When the fund runs dry, workers get cut back in the amount of settlement they receive, if they get any money at all. And when that happens, by law, employers themselves must pay the full amount of the claims of their injured workers.

MORE BAD NEWS

Since workers' compensation is mandatory, when an employer is unable to obtain coverage in the usual insurance market, coverage is available in an assigned risk pool. When the costs of claims exceed the premiums collected, the difference is charged back to all insurance companies writing business in Alaska. Presently, 17 percent of the workers' compensation coverage is paid for by this pool. Alaska has the highest charge of any state in the country. Losses in Alaska's assigned risk pool over the past several years have averaged between 4 percent and 6 percent. This added penalty must be paid out of...