According to the Baltimore Business Journal, the IWIF is the largest workers’ comp carrier in Maryland, insuring about 21,000 businesses. The IWIF serves as insurer of last resort, writing policies for employers who cannot find policies elsewhere in the private insurance market.
S.B. 745 would require Maryland’s Injured Workers’ Insurance Fund to restructure itself into a private workers comp insurer named Chesapeake Employers’ Insurance Co. The fund has been Maryland’s workers comp insurer of last resort since 1914, according to a draft of the legislation.
The bill asks the Maryland Insurance Administration to conduct an independent study to determine what financial benefits the fund has gained from the state. Based on the study results, the state fund would need to pay at least $50 million to Maryland’s general revenue fund, plus any additional money determined by the insurance administration review.
Similar legislation privatizing IWIF failed in 2010 after strong opposition from the insurance industry. The current proposal has drawn concerns from the insurance industry as well. Private insurers have argued that a privatized IWIF — which still remains under the control of the governor, who would continue to name the members of the new companies’ board — would have a competitive advantage over private insurers and be free of many of the tax burdens other companies face.
Business groups also expressed skepticism about the new workers’ comp insurer. In his Baltimore Business Journal article, Gary Haber spoke with business groups, who were concerned that IWIF’s new independence could lead to workers’ comp rate hikes, which would hit businesses hard.
There are obvious questions about whether or not this proposal constitutes real privatization. A private workers compensation system, while creating more competition in the market, doesn’t mean automatic rate cuts for everyone. The track record of programs which opened up workers’ comp markets generally found that private competition lowers rates and improves service. Privatization has been implemented in several states, including West Virginia and Nevada.
A truly privatized workers’ compensation system would allow employers to shop around for their coverage and a wider range of products. The problem with insurers of last resort like the IWIF is that they inevitably become the primary providers of whatever insurance they cover. State-backed or state-run insurers are always faced with the political pressure to keep rates low, often below what the private market can afford to offer. These low rates may seem like a good deal to employers, but the insurers simply transfer the costs back to taxpayers. Privatization moves this risk back to the private market, where private insurance companies can better finance this risk.