History-sm

A
fter experiencing several years of significant growth in
the early 1990s, business owners throughout Kentucky
were reaping the benefits of a strong economy.
Unemployment in the state had dipped below the national
average and businesses continued to expand, particularly in
the construction and manufacturing industries.
But Kentucky’s economy was not entirely well as small
businesses struggled to find a reliable source for their
workers’ compensation insurance coverage. Many of those
businesses had no other choice but to join the Kentucky
Workers’ Compensation Insurance Plan (KWCIP), a program
administered by the National Council on Compensation
Insurance (NCCI). The KWCIP offered workers’ compensation
coverage but required employers to pay substantially higher
rates than those paid for the same classification codes in the
standard market.
Referred to as the “Assigned Risk Plan,” the “Pool,” or the
“market of last resort,” the KWCIP offered nothing more
than a certificate of insurance and a guarantee of coverage
to employers who were paying for workers’ compensation
insurance. Most businesses with coverage through KWCIP
did not know who their workers’ compensation insurance
carrier was and there was no coordinated effort between the
administrators of the program and its participants to address
workplace safety concerns or manage the steady increase of
claims due to the growing economy.
One newsletter from the Kentucky Chamber of Commerce
described the situation as follows: “For decades, many
employers benefited when the rates in the current assigned
risk pool were manipulated to artificially control premium
costs. The result has been that for each of the past five years,
the assigned risk plan lost an average of $100 million each
year.”
“To cover the unfunded liability, insurance companies who
wrote business in Kentucky were required to pay a share of
the assessment. Over time, the added costs of the assessment,
combined with pressure to keep premiums competitive with
the assigned risk rates, led many commercial insurers to the
conclusion that they couldn’t afford to do business in Kentucky.”
“With fewer and fewer insurers willing to write business (and
pay the unfunded assigned risk liability) and more and more
employers voluntarily purchasing insurance in the assigned
risk pool because it was cheaper, we reached a crisis.”
The “Pool” was a dangerous liability. News headlines
portrayed a grim outlook on the situation, and pressure was
building from business and trade groups across the state to
push legislators in Frankfort to make drastic changes to
the failing system. Among those pressing for changes were
the Economic Progress Initiative Council, which held a news
conference to address many of the issues relating to workers’
compensation coverage in Kentucky.
During the press conference, council members highlighted
the high premiums that business owners were facing due to
the mismanagement of the “Pool” and explained how the
workers’ comp market was making Kentucky economically
uncompetitive.
“The council said workers’ comp cost Kentucky employers
$520 per worker in 1993, substantially higher than any
surrounding state,” wrote Bill Estep in a story published by
the Lexington Herald-Leader. Fortunately for Kentucky
businesses, the state legislature acknowledged the problems
facing the workers’ compensation insurance market and took
swift action.
“The General Assembly enacted House Bill 928 on March 30,
1994, after three months of spirited and tumultuous debate.
The legislation was signed by the Governor [Brereton Jones]
and became law on April 4, 1994.
The provisions of HB 928 are far-reaching, complex,
controversial, and they affect almost every entity involved in
the workers’ compensation program or process in Kentucky.”
-- Excerpt from Kentucky Workers’ Compensation Reform,
1994 HB 928, A Citizen’s Handbook
KEMI is Created
Included in the sweeping changes brought by HB 928,
Kentucky Employers’ Mutual Insurance Authority (KEMI)
was created by the Kentucky Legislature as a non-profit,
independent, self-supporting, de jure municipal corporation
chartered as a competitive state fund and as a market of last
resort for employers.
KEMI would provide coverage for workers’ compensation,
employers’ liability insurance and coverage required by the
Federal Coal Mine Health and Safety Act, the Jones Act and
the Longshore and Harbor Workers Act incidental to and in
conjunction with workers’ compensation. The organization
would be entirely self- supporting with the exception of initial
start-up funding (amounting to $7 million to be provided by
and repaid to the Kentucky Workers’ Compensation Funding
Commission) and was denied full faith and credit by the
Commonwealth.
The organization would be governed by an 11-member
board of directors including seven voting members appointed
by the governor and subject to Senate confirmation.
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