Good Things Going on in West Virginia

When talk turns to insurance in West Virginia, inevitably workers’ compensation comes up. No one knows that better than Insurance Commissioner Jane Cline. In a recent interview with Insurance Journal‘s Andrew Simpson, Cline talked about workers’ compensation and other issues in her state.

Let’s first take a fresh look at Brickstreet Mutual. How is this conversion going? What’s your assessment?

Cline: Well actually, they have accomplished a lot in a very short period of time. As you’re probably aware, but maybe viewers are not aware when Gov. Manchin took office in 2005, he moved to privatize our worker’s compensation system, which was very deeply in debt and a drain on our economic development and our employer community. Over years, it had been mismanaged and had a lot of debt. So he moved to privatize and, from the old workers’ comp commission, we spun off and formed Brickstreet Mutual. So, employees at the old workers’ comp commission, some went to Brickstreet to form the mutual and the other, regulatory aspect of workers’ comp transferred to my offices to do the regulation. But they have worked very hard to get their customer service in place. We’ve moved to the NCCI [National Council on Compensation Insurance] classification system, so you might imagine that’s taken a lot of education for the employer community and the producer community.

As we move forward … their [Brickstreet’s] financials that they have filed with us thus far have proven to be successful. They’ve been profitable, but then we also have to remember that they don’t start paying federal income taxes until 2009 and that they’ve had some other advantages. But they also have a 200 — they had a $200 million surplus note from the state to have their initial capitalization. And they have been able to begin to pay us back on the surplus note.

Has this transition meant higher rates for employers?

Cline: No, no it — the positive thing is — we have, overall, decreased the rates 27 percent. There was an initial decrease in January of 2006, an overall decrease of 15 percent and then subsequent to that, another 10 percent and, more recently the net effect in July of this year was a 2.1 percent decrease.

You’ve made some attempts to bring additional workers’ comp carriers into the state of West Virginia. How is that process going?

Cline: It’s going well in our minds. We have spent a significant amount of time with the AIA [American Insurance Association] trade association as well as PCI [Property Casualty Insurers Association of America]. They continue to have conversations with our general counsel and meet with her on the legal issues and the claims management processes. We also attended the NCCI regulatory forum in May. My deputy commissioner and I individually met with nine separate companies there as well as held a reception and encouraged companies to stop by and visit with us and our staff. We provided them contact information. We, more recently, on Sept. 5, held a carrier conference joint with NCCI in Charleston, W.Va., our capital, and had over 40 different insurance entities in attendance there and over 200 people. So, that was very positive.

That was pretty good interest, wasn’t it?

Cline: It was pretty good interest. The Governor spoke and I think people were impressed that he took the time to come and visit with them as well.

What appear to be some of the obstacles to carriers coming into West Virginia?

Cline: Well, one of the big concerns is always what is going to happen with the unfunded liability. Because obviously they have concern that they might, somehow, in the future, be tapped for the unfunded liability.

So we do provide them the information that provides for the run-off of the old fund and the old fund claims are actually the responsibility of my office as well. So we identify the revenue stream. The Legislature originally identified a $230 million revenue stream. It’s about $295 million now. The other positive thing we do tell them is that we anticipate this year actually taking in more funds to the old fund than we are paying out.

Some states have different approaches to consumer complaints. What goes on in West Virginia? How do you use consumer complaints?

Cline: We have a formal complaint process where consumers can file a complaint with us or contact our consumer services division for information or to address concerns and work with the consumer to resolve issues between carriers. We also use the data that comes through that consumer services division to identify any trends that may be going on in the industry. They will provide information to our legal division or they will provide that information to our market conduct group.

So we do use that as a tool and sometimes as a result of a series of complaints, we may end up doing a targeted market conduct exam or work with a company on a particular adjuster issue, things of that nature.

What’s the budget of your department?

Cline: The insurance regulatory piece, what you would normally see in the insurance department, is about $7.5 million. And that would have been for the approximately 90 individuals we had that were doing insurance specific regulation.

Has that been the same for a number of years or has that gone up?

Cline: No, no, it increased. When I started in 2001, it was about $3.5 million. … While we were working to get accreditation back, being more proactive on consumer issues, addressing the medical malpractice liability crisis that West Virginia had and also working to establish a fraud unit within the offices of the commissioner, the Legislature worked with us to increase our budget. They recognized that we needed to be able to do more public outreach, invest in new technology and initiatives that would improve our regulatory environment for both the companies operating there and making it easier and more transparent for them to do business in West Virginia but also, making sure that we were taking the best approach possible to protect consumers. In addition to that, since 2005, when the legislation passed to transition workers’ compensation to a private system, the fraud unit piece of the old workers’ comp commission transferred to us in July of ’05 and that was about 50 additional employees.

Then we had subsequent to that time in January of ’06, increased our full time employees s by another approximate 250. So it was a little over 300 full time employees transitioned to us as a result of the workers’ compensation changes and that has upped our budget to around $36 million.

You mentioned the medical liability marketplace — has that calmed down?

Cline: In West Virginia, it has calmed down significantly. In 2001, we were one of the first states to face that challenge. When St. Paul left the marketplace, they had over 40 percent of our physicians that were insured in the private marketplace. And so, we, in January of ’02, had to do a state-run program to provide coverage for physicians and in 2004, we took that program and spun it off to form a physicians mutual, which is a West Virginia based company with a board of directors comprised partially of physicians from West Virginia. The capital provided for that entity was a surcharge on all licensed carriers of $2,500. But there was also a $24 million surplus note that was provided by the state from the tobacco settlement funds and an assessment on the physician community. They have been able to pay a third of their surplus note back to us. At the same time, rates have reduced by about 15 percent.

So it has stabilized?

Cline: It has stabilized … actually physician practices and hospitals are being able to recruit physicians into West Virginia as opposed to having them leave.

Is there an issue, either in West Virginia or nationally, that doesn’t get the attention it should?

Cline: I think a major initiative that we’re still working on in West Virginia and nationally that just continues to challenge all of us is access to health care. It’s getting a significant amount of attention, but it’s the challenge of finding the solutions to address the issue.

Is it harder for a smaller state like West Virginia to be heard? Does it become sort of a whipping post for an industry when they want to make a point?

Cline: Well, it was easy to pick on West Virginia for a while because we had so many different requirements that other states didn’t or it was laws or requirements that were in West Virginia and maybe only three other states or five other states or six other states, but we were the one state where they all came together. And when you are a small market, that does, in itself, provide additional challenges.

It makes you even smaller in their eyes?

Cline: It can make you even smaller. But now, I can say positively, we have companies looking to write business in West Virginia again and so, we’re most pleased that our consumer services division is not dealing with as many people that cannot find coverage or getting non-renewed or cancelled, something of that nature. So, that’s been a good thing for us.