AIA Backs Privatization of W.V. Work Comp Market

The workers’ compensation market in West Virginia officially opened up to private carriers today, according to the American Insurance Association (AIA), which applauded the efforts of Gov. Manchin and the West Virginia Legislature for delivering on their promise of "getting the state out of the workers’ compensation business" by enacting the provisions found in S.B. 1004 which was signed into law in February 2005.

"Today, after years of planning and preparation, the West Virginia’s workers’ compensation system will be taking the final step in its transition from a state-run monopoly to a free-market system. Already, twenty-five private carriers have filed paperwork to provide workers’ compensation insurance in the Mountain State. Other states that have privatized their workers' compensation markets have increased competition and enhanced their insurance environment, with many carriers competing for business and thereby offering employers many choices of where to direct their business," stated Tammy Velasquez, AIA vice president and director of state affairs.

Following adoption of S.B. 1004, West Virginia took the first step by converting its monopolistic state fund into a "private mutual company" entitled BrickStreet in 2006. With over two years of essentially having a monopoly, BrickStreet will now have to compete with private insurance carriers. This privatization process is based on a model used by Nevada, in which old fund liabilities are walled off and secured while the successor company writes new business. This approach has been successful in Nevada which has seen a number of carriers entering the market.

"West Virginia’s shift to private competition leaves only four states that continue to provide workers’ compensation insurance through monopolistic state funds," stated Velasquez. "Insurance Commissioner Cline has noted that West Virginia’s rates have already declined by 30.3 percent during this transition period. We are hopeful that West Virginia’s actions will increase interest in privatization in the remaining states -- North Dakota, Ohio, Washington, and Wyoming," Velasquez added. "In fact, North Dakota already has a study committee looking at this possibility," concluded Velasquez.

The American Insurance Association has provided technical assistance to the Department of Insurance since the beginning of West Virginia’s conversion, starting with enactment of legislation in early 2005. AIA will continue to work with the department in order to facilitate a smooth transition that will benefit employers across West Virginia and to encourage further steps to improve the benefit delivery system.