Washington, D.C. – The American Insurance Association (AIA) calls the so-called “privatization” of the Injured Workers Insurance Fund (IWIF), Maryland’s state-run workers’ compensation insurer, a mischaracterization because IWIF maintains distinct advantages over the private market. During the final hours of the Maryland General Assembly’s 2012 session, it passed SB 745 which proponents inaccurately claim will “privatize” IWIF by subsequently renaming it Chesapeake Employers’ Insurance in 2013. However, legislators were unable to approve SB 152, the Budget Reconciliation and Financing Act of 2012 (BRFA), which contained a measure to raid $50 million of surplus policyholder funds from IWIF in exchange for its so-called “privatization.”
“SB 745, the IWIF restructuring bill, may represent a restructuring but it does represent a true privatization of the state-run insurer,” said Eric M. Goldberg, AIA Mid-Atlantic region vice president. “Whether it’s called IWIF or Chesapeake Employers’ Insurance, the state’s leading workers’ compensation insurer will still be afforded competitive advantages over private market insurers. AIA would endorse a bona fide privatization, under specified conditions, one that ensures a level playing field.”
While opposed to SB 745 due to the corresponding measure under BRFA seeking $50 million from IWIF, AIA did work to improve the legislation by supporting amendments to the bill. One successful amendment will allow IWIF to defer its annual installment payments to the state during years when its risk-based capital ratio is less than 700 percent and/or when the insurance commissioner determines IWIF’s financial obligations would be imperiled by making the payment. Another AIA-supported amendment that would have required IWIF’s membership in the National Council on Compensation Insurance (NCCI) and subjected it to applicable rating laws was not included in the final bill. However, the Maryland Insurance Administration is required to study whether Chesapeake should become an NCCI member.
“Under the bill, IWIF will remain exempt from the rate filing process and will not be subject to applicable rating laws which are requirements for private insurers,” said Goldberg. “Moreover, the governor will continue to appoint IWIF’s nine-member board rather than enabling it to become a truly independent body, and it will retain a statutorily dedicated market by remaining the market of last resort for workers’ compensation. These are indicia of government control and retention of statutory preferences that are incompatible with a private entity,” said Goldberg. “Furthermore, exemptions from the rating law and being awarded a guaranteed market give IWIF distinct advantages over the private market and therefore this is by no means an actual privatization of the state-run insurer,” concluded Goldberg.
SB 745 provides for a study to be completed, by October 1, 2012, by an outside consultant in order to determine the value of items including IWIF’s past exemptions from premium and property taxes during its 98-year existence. According to AIA, the study reinforces the point that IWIF will maintain some distinct advantages over the private market.
It is expected that Gov. O’Malley will call the General Assembly into special session to address the budget prior to the start of Maryland’s new fiscal year which begins July 1. It is also currently expected that the measure to allocate $50 million of IWIF’s policyholder surplus will be included in a final budget deal.