Lure of self-insurance Sharing the risks: By joining cooperatives, employers are slashing costs of workers' compensation coverage and making a few dollars, too.


Robert Willingham resented writing $26,000 worth of checks to a big insurance company for workers' compensation coverage for his small and struggling East Baltimore factory.

"My wife works for an insurance company. They are the richest companies in the world. They didn't get so wealthy by doing us any favors," said the owner of the 80-worker G&G; Uniform Co.

Mr. Willingham cut his annual premium this summer by $10,000 by joining the growing number of Maryland businesses that have traded standard policies for membership in insurance cooperatives that share workers' compensation risks -- and profits.

And now, the 9-month-old Maryland Manufacturers Association Self Insurance Trust is pushing for what many say could be an even more important plum for employers: an exemption for members from the state government's surprise safety inspections.

Not everyone is thrilled with the development. Many employers are balking, fearing responsibility for other companies' losses. Some in the workers' compensation industry warn that the new trusts' discounts might be temporary. And some worker representatives charge that the proposed cooperative inspection plans might end up endangering workers.

The manufacturers' trust has asked the state to exempt members from surprise workplace inspections because the members have their own safety inspector.

But interest in self-insurance and self-inspections is growing here and across the country, and many eyes are on the infant Maryland manufacturers' cooperative because it is the first to propose joining the two ideas.

Large employers have been shifting to self-insurance for many years. But small employers, who need to share risks so that one large claim won't break them, have only recently started forming trusts to take advantage of self-insurance.

Although no one has hard data on how many companies have joined workers' compensation trusts, it's clear that membership is growing.

In North Carolina, for example, there are 32 such trusts. And more than half of all employers are either self-insured or members of a cooperative. More than a third of all Florida employers are either self-insured or covered by a trust.

In Maryland, six trusts -- for groups ranging from restaurants to hospitals -- have been formed since 1993, when the state adopted regulations to allow them. Altogether, more than 15,000 Maryland workers are covered by the trusts. And several other trade associations have trusts under consideration.

Trust membership has been growing in Maryland even though insurance companies have been cutting their rates here recently. (On Oct. 13, the association that represents most insurance companies won state approval to cut premiums 12.8 percent next year. That follows an average 5.6 rate reduction at the beginning of this year. )

One key reason: a taste of discounts has made many employers ravenous for more. The trusts usually offer lower premiums than for-profit insurers, because they return their profits to members.

Also, because every penny of savings is returned to the members, the trusts tend to do much more to make workplaces safer and to reduce claims, said Peter Dahl, administrator of two Maryland-based workers' compensation trusts.

Claims handled faster

One of Maryland's oldest trust of private employers, serving the Maryland Hospital Association, has reduced its claim expenses by about 25 percent, he said.

Besides hiring private safety inspectors, the trusts make sure claims are handled quickly because statistics show that frustrated workers often drive up costs by hiring lawyers to pursue their claims, said Chris Costello, a spokesman for the Maryland Chamber of Commerce.

"Insurance companies don't always get on top of claims as fast as employers would like. The normal response time for most insurance companies is 72 hours. For us, it is, like, four hours," said Mr. Costello, who is on the board of the manufacturers' trust.

Now, the manufacturers' trust has made a dramatic bid to raise its profile and to attract more members with the proposed safety inspection agreement.

"Employers are very taken with that," Mr. Costello said. "We are getting a lot of interest."

Not all the interest is positive, however.

Despite the trusts' promised savings, many employers are sticking with regular insurance because they don't think switching will be worth the hassle.

Tom Saquella, spokesman for the Maryland Retailers Association, said his group hasn't pursued forming a trust because "Workers' compensation is not a raging issue. For most retailers, it is not a big item."

Many Maryland manufacturers, for example, have shied from the local trust, often citing concerns about the way all members must share payment of claims. Only five manufacturers have joined the trust so far.

Insurance companies say that the number of employers jumping to trusts isn't large enough to worry them.

Margaret Sheehan, spokeswoman for Boston-based Liberty Mutual, said the nation's biggest workers compensation insurer has found business in Maryland to be "robust. It has not affected our market share in Maryland."

And some insurance experts have warned that caution may be appropriate.

Marcia Burgdorff, president of a Baltimore-based workers compensation consulting firm the Guilford Group, said she believes the trusts can maintain low premiums only "if they are aggressive managers and are very proactive."

Otherwise, she warned, "they can create a deceptively positive experience in the first year or two" and then push premiums up later to cover unexpected expenses, such as, for example, costs associated with recurring back injuries.

And some union representatives are voicing opposition to the trust's proposed agreement with Maryland Occupational Safety and Health.

Charles O'Leary, president of the AFL-CIO in Maine, which launched a similarly friendly safety inspection program two years ago, said he feels "there are a lot of questions to be answered here before you expand this to a state like Maryland," which may not have the resources to adequately monitor the employers.

"There is some real risk involved for workers," Mr. O'Leary warned.

But the founding members of the manufacturers' trust insist that their idea isn't risky at all. They say it will help everybody: employers would save money, workers would have safer jobs, and all Marylanders would benefit from an improved business climate.

Alex Doyle, president of the Maryland Manufacturers' Association and one of the main movers behind the trust and the MOSH proposal, said he expects membership to grow quickly as more manufacturers realize that because the trust has purchased reinsurance to pay large claims, the members' liability is comparatively small.

'We can save money'

"This is an opportunity for Maryland manufacturers to reduce costs. And it can act as a way to attract other manufacturers to locate here," he said.

"We feel we can save money" while helping workers, Mr. Doyle said. "It is not philosophically impossible for capitalists to do altruistic things," he said.

The trust's members agree.

Already, the trust is making the workers at G&G; Uniform safer and happier, Mr. Willingham said he believes.

His old insurer often took months to settle claims, which hurt the morale of workers, he said. And he's adopted some of the trust's safety inspector's suggestions, such as holding regular fire drills.

The trust might even improve his own health, Mr. Willingham thinks.

Winning an exemption from MOSH surprise inspections might lower his stress level, he said.

"I had an inspection a few years ago. It's like having Dan Rather at the front door. It was bad on the ticker."

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