There is near universal agreement that something about workers compensation in New York needs to change. Across the state, experts, legislators, and others are talking about ways to fix or reform workers compensation, but while much of the discussion is on the high cost, low benefits, and lengthy process, there are other areas that deserve consideration, according to Simon Klarides, CPCU, ARM, an independent consultant working on behalf of the Demetriou Group, and the New York Transportation & Service Safety Group.

Klarides has suggested streamlining workers compensation by altering the manner in which rates are determined. Presently, he said, with very few exceptions, the basis of measuring exposure for workers compensation is remuneration, or a defined payroll. However, he noted that other commercial insurance policies utilize methods in addition to payroll " such as gross sales, area/square footage, and a variety of different units " that more accurately determine a risks exposure. These ways of measuring exposure, when applied, more accurately deal with various industry operations, Klarides said.

These same methods could be applied to workers compensation, Klarides suggested, resulting in a more precise assessment of risks, particularly in industries where defined payroll is not necessarily a simple, pre-determined number. Klarides said, While part of the workers compensation benefit is based on the injured employees pay, there is no real reason to base an employers workers compensation cost solely on remuneration.

As an example of a line of business that would benefit from using alternate methods of determining workers compensation rates, Klarides pointed to livery, limousine, and other commercial vehicle businesses, an area in which he has been involved for the past few years. These types of operations are run as cash businesses, he explained, with minimal recordkeeping, and he added that determining an accurate remuneration is difficult, if not impossible. For taxi and livery businesses, there is no payroll at all, Klarides said. He explained that drivers lease livery vehicles from owners and bases, and he questioned the effectiveness of using payroll as the only factor to establish workers compensation exposure measurement for these businesses.

Maintaining the use of remuneration as the means of setting workers compensation costs leaves room for inherent unfairness, and more, said Klarides. As a result carriers will point to an unfavorable loss experience, when in fact there may have been an inadequate measure of exposure for an account. This will distort pure loss ratios, and further suggest to the carrier, and subsequently to the Workers Compensation Rating Board, that a rate increase is in order, and premiums continue to spiral upward.

Instead of using remuneration/payroll for commercial vehicle businesses, Klarides suggested the use of units " the number of vehicles registered to the corporation, or the number of commercial plates in its fleet.

David Dickson, president of PIANY, who specializes in workers compensation safety groups and is a member of Bailey, Haskell & LaLonde, of Oneida, New York, has worked with Klarides in formulating this idea. Dickson said that using units to determine workers compensation rates for commercial vehicle businesses, rather than payroll, would solve a number of present issues. No one would have to deal with various business records to determine remuneration, a single, applicable rate can be established for industry use, and verification of coverage would be simple " based on registration, which is already used for personal auto insurance, Dickson said.

He added that the Department of Motor Vehicles, through its operating system, is capable of serving as the gatekeeper to ensure accuracy in the number of units reported by business owners.

For the fleet manager or owner, said Dickson, dealing with workers compensation, or at least determining the cost, would be fair and simple.

Art Wilcox, public employee director for the New York State AFL-CIO, agreed with the concept of making workers compensation perform like other lines of insurance with respect to pricing and premiums. Everyone wants to make [workers compensation] unique, he said, adding that the concept of using payroll to determine rates has little to do with success, and more to do with the fact that it has always been done that way.

As for using units as the basis for devising workers compensation rates for commercial vehicle businesses, Wilcox supported the general idea. I think we need to do something [to change the current structure], he said.

Sharon Emek, chairperson of IIABNY, and a partner at CBS Coverage Group, Inc. in New York City, was also supportive of the idea. She said that she insures high-end livery risks, and a client of hers had suggested a similar proposal. Ive spoken to one of my clients and the first thing he said is [workers compensation rates] should be per vehicle, and should be part of the annual vehicle registration, Emek said.

She added an idea of her own based on her conversation with the same client. He also felt that sole proprietor taxi and livery businesses should not be allowed to opt out of comp. Most of them always find a driver for the days they take off.In addition, it is a risky business and comp benefits are better than Medicaid.

One workers compensation expert, who asked to remain anonymous, was less enthusiastic about the idea of using units to formulate rates, and he maintained that the concept of using payroll, while in need of reform, is still the best and most accurate option that can be used for all industries. He pointed out that there are hundreds of job classifications, and moving away from payroll would require devising many new standards, since other industries do not have definable units like registered vehicles to measure. He cited fields such as construction and clerical as examples.

Developing different factors for each type of work, he continued, would provide more opportunities for fraudulent reporting, while payroll must be reported accurately for tax purposes. The reporting of payroll also falls under the oversight of the IRS and the NYS Tax department, he noted.

With respect to commercial vehicle businesses, he questioned how one would determine if all registered vehicles are in service all day, and every day. Fewer hours driven would mean less injury exposure for the driver, he said. He pointed out that payroll is accurate for reflecting hours driven, which directly relates to risk.

Klarides and Dickson agreed that the use of units cannot apply to every industry, but they stated that in cash-related or for hire scenarios, payroll is not an effective means for determining workers compensation rates.

They suggested that ISO or the Workers Compensation Board could govern which exposure methods are to be used in each industry class.

They also agreed that the method of reporting payroll is consistent across all industries, but they maintained that the actual payroll reported is not. They cited problems inherent in reporting payroll, including inconsistencies, inaccuracies, estimates, and an avenue for fraudulent activity, and ultimately the need to audit.

Wilcox also said that misusing payroll is the biggest factor for fraud in workers compensation. New York State, he added, has no effective checks and balances system for what is paid, and he also said that there has not been a concerted effort in the state to combat payroll fraud. He cited the efforts of the New York State Insurance Fund (NYSIF) as an exception.

Regarding vehicle usage, Klarides and Dickson said that while the exact hours of operation for every livery vehicle will never be known, an owner will only register a vehicle if it will be in service. They suggested using the principle, and compliance mechanisms, of private passenger auto insurance as a model. I can drive my private vehicle one hour a day, or 24 hours a day, and it will not affect my premium, Klarides said.

He explained that he knows his proposal is not a single magic bullet solution that will cure all of the states workers compensation problems, and he added that, in many cases, for certain industries, payroll may be the most accurate method to measure exposure. But he noted that any one size fits all solution, payroll included, will work great for some industries, but not for others.