by Mark Davidson

In many states the cost of worker's compensation is increasing at an alarming rate, becoming one of the biggest expenses a brewery or brewpub will now face. You may be asking yourself: What is going on in the insurance market place and is there anything I can do about it?

First, a bit of history

Worker's compensation laws were adopted by all states between 1911 and 1940, designed to provide medical care to an injured employee and death benefits to families of those who died, as well as to protect employers from lawsuits from employees. Currently, worker's compensation is mandatory in all states, except Texas and New Jersey.

By the mid 1980's, worker's compensation insurance carriers in many states found themselves in big trouble. Medical expenses were increasing more than 10% per year, and the premiums they took in were insufficient. As a whole, the workers compensation line of insurance lost money every year from 1984 to 1992. The states' legislatures stepped in and over half of all the states passed reform laws, ranging from reducing or restricting payments to an injured employee to opening the state to a competitive bid process.

For some states this has been exactly what the doctor ordered. That is until recently. In many states, rates are continually increasing. States like Hawaii, Florida and California are seeing base rate increases of 15, 20% and higher every year.

All of today's worker's compensation insurance carriers are struggling. According to the National Council on Compensation Insurance Inc., insurers paid out an estimated $1.27 in claims in 2001 for every dollar they collected from employers. Some states have such a competitive marketplace that many insurance companies are pulling out of a state or folding altogether. In California, Superior National, the state's largest private workers compensation insurer was found to be insolvent and was liquidated, and earlier this month State Fund, insuring close to 50% of all business, has been ordered by the Department of Insurance to follow a strict guideline and effectively try to shed billions of dollars of premium in order to stay afloat.

Exacerbating the problems in the industry are the effects of 9/11. According to the National Council on Compensation Insurance, workers compensation insurers can expect to pay up to $2 billion for September 11 claims. President Bush signed into law the Terrorism Risk Insurance Act of 2002 hoping to protect insurance companies from further catastrophic losses. However, the carriers will still look to recoup some of the losses.

Great History lesson, but what can you do to control YOUR costs?

• The most important thing a brewery or brewpub can do now is to get into a good working relationship with a quality Insurance broker. A broker that knows the marketplace and has enough insurance carriers in their stable will be essential to get you the best price for your operation.
• Talk to your broker about first aid claims. In many states you can pay the bill for small accidents and not have it count in your experience rating. Another item to talk to your broker about is sending injured workers to an occupational injury clinic instead of directly to the emergency room. Occupational clinics typically dispense excellent medical services for a fraction of the cost of using a hospital emergency room. Controlling your claim costs are the only effective thing you as an employer can do right now to offset the rising worker's compensation prices.
• Make sure you are using accurate payrolls to estimate your worker's ompensation premium. If you overstate your payrolls initially, the insurance company will have use of your money until your final audit - after your policy expires. If you under report, when your audit is performed, they will look for the additional premium, with no chance of financing any of it -they want it immediatly!
• The last thing is to talk to your legislator. Many of the states programs need major reform. In 2002, California's governor Gray Davis signed a new law to effectively pay injured workers more, claiming that it would save business owners $1.5 billion. Unfortunately, the California Chamber of Commerce said the new law would actually increase costs $3.5 billion - largely in worker's compensation increases! Davis is now working on new laws to try to reduce costs. New laws can help. In the mid 1980's, Oregon's worker's compensation system ranked among the highest in the country. They implemented new laws in 1990- targeting over use of chiropractic claims resulting in savings of over $26 million annually. As a result, they have now had 12 consecutive years of worker's compensation reduction! Reform can work.

Only a few people understand that when they sit down to a Lagunitas IPA or a Kona Longboard Lager or even a Tampa Bay's Iron Rat Stout, there is more in your glass than barley hops and water!!

Mark Davidson is co-founder of the Golden Brew Insurance Program, a program for Microbreweries and Brewpubs. www.firkininsurance.com. 415-680-2125