Insurance News
Workers Comp Self-Insurers Concerned by Increasing Number of Bankruptcies
Dec 15,2008
With the continuing deterioration of economic conditions and the increase in bankruptcies, across the United States managers of self-insured workers compensation guaranty funds are expressing their fears that they will have to assume more employers' claims payments.
Should any of those employers default on paying their workers comp claims, although operations of self-insured guaranty funds may vary widely from state to state, they often assess participants to have sufficient money.
In the event that too many large companies were to default within a short time, the possible reduction of the guaranty fund balances is a risk that managers more and more are attempting to mitigate, several managers explain.
Tallahassee based executive director of the Florida Self-Insurers Guaranty Assn. Inc., Brian D. Gee, sees this as being an unprecedented time as regards economic turmoil and default risk. He sees this as not just affecting self-insurers but businesses in general. He sees the industry as being on heightened alert, but points out that the work is similar to that carried out in good times in attempting to identify risk.
Mr. Gee says that up till now with regard to the U.S. recession, he has not seen more companies fail to pay their workers comp obligations. He is joined in this by several other fund managers. The managers all agree that they won't be seeing many defaults until the end of the recession or even after economic conditions improve for many companies that have already struggled for some period.
But the increasing possibility of company failures several managers are saying, is forcing the guaranty fund managers to improve their vigilance with regard to fund participants' fiscal health through monitoring credit reports, indications of financial distress and bankruptcies.
According to Boston-based New Generation Research Inc, nationwide as many as 71 publicly traded companies with nearly a combined $64 billion in assets filed for bankruptcy protection or bankruptcy in 2007. This year, by December 7th, however, filings had been made by 118 companies with more than $1.1 trillion in assets.
Companies nationwide, while reorganizing under a Chapter 11 bankruptcy filing, often meet their workers comp obligations. But a number of fund directors are now saying that a rising bankruptcy rate is a sign that companies may default on claims in the future.
Executive director of the California Self Insurers' Security Fund based in Walnut Creek, Jeff Pettegrew maintains that the last thing they usually do before they shut off the lights is to default on paying their workers comp claims.
In several states it is a requirement for self-insureds to contribute to state security funds. In addition to this, they require companies to set up collateral either with state regulators or the security fund as a necessary condition for self-insuring their workers comp risks.
Before tapping the security fund a company's posted collateral usually is first exhausted.