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Linda Smith
Carrier
By: Jack Duffy
Linda Smith

Title: President and CEO, Preferred Employers Insurance Company
Resume: Smith has been active in the California workers’ comp industry for almost 30 years. She began her career at the Workers’ Compensation Rating Bureau of California. She then joined Industrial Indemnity Insurance Company, where she progressed to director of workers’ compensation sales and senior director, workers’ compensation underwriting. Smith joined Zenith Insurance Company in 1986 and was senior vice president/underwriting officer. Then in 1994, Smith was asked to become president of Employers First Insurance Company. In November 1997, Smith joined the W. R. Berkley Corporation. She founded Preferred Employers Insurance Company, which became a licensed California workers’ comp carrier on May 8, 1998.
Schools: Smith holds a bachelor of arts from the University of West Florida.
Awards: Preferred Employers Insurance Company holds an A.M. Best rating of A+.

Smith has headed W.R. Berkley's primary California workers' comp insurance company since its inception in 1998. She joined W.R. Berkley Corp. the prior year after serving as president of Employers First Insurance Company. During her 25-year career, Smith has also held senior management positions with Zenith Insurance Company and Industrial Indemnity Insurance Company.

What are the top three issues in California workers’ comp today?  
I think the first is increasing industry-combined ratios with rates lagging behind those ratios. Basically, industry results are deteriorating. The second issue is medical cost inflation and the third is an uncertain legislative, regulatory and case law environment. They’re broader, but I think those are the three main highlights.

Are we headed for a hard market, and if so, when will it come? How long should we expect it to last? What are the repercussions?  
Yes, I wish I had a crystal ball. With the deteriorating results, the hard market is on the short-term horizon. We’ll leave it at that. It’s hard to say it’ll be three weeks from Thursday. It’s difficult to project how long it will last. But given the current [deteriorating] industry results, it will take a while to dig out. As for repercussions, we will go back to situation with fewer markets available to policyholders.

It’s no longer a question of if but when we enter a hard market, so what is in the future of State Compensation Insurance Fund? Will its market share climb back to historic levels? Do you think that further reforms are needed for the governance of State Fund? For example, does it make sense to have Senate confirmation for board members?  
I think the future is that it will continue to grow its market share and it will be the carrier of last resort but will become a significant player if the market significantly hardens. Will its market share return to historic levels? I don’t think so. It could reach a third of the market. I would be surprised if it got to the size of 2000-2004, which was 52%.

Are medical provider networks a help or a hindrance? How should they be improved?  
They are an extreme help. Our particular company has [its] own medical provider network. We are the only carrier that has a directly contracted MPN. The doctors in the network have a contract with Preferred Employers and not someone else. We are allowed to choose doctors familiar with workers’ comp who can provide a better result for the injured worker. I think that’s the big thing. The doctors have a direct contract with Preferred Employers’ that helps us to talk directly with them, as opposed to belonging to Blue Cross and having to work through Blue Cross. I think that more insurance companies should have their own networks. [Improvement will come from] continuing to educate the physicians in the network with regards to workers’ comp and getting clients back to work.

How should utilization review be improved?  
Utilization review can be improved if you have a good provider network. Then you don’t have to use UR for everything. How can that be improved? Educating doctors within the network. What are the criteria, what are the regulations, what is the purpose? They are trying to do this procedure [with the aim of] getting workers back to work.

What needs to be done to improve return-to-work?  
We do all small business. [Return-to-work] is a little harder in small businesses. They have less of a capability to create modified work. The way that return-to-work can be improved is good doctor education, knowing their restrictions, and employer education on knowing what can be done to create modified work.

What do you see, other than medical, as the next big cost driver?  
Permanent disability. The argument is how much is it? 100% disabled? 20% disabled? Currently there’s a lack of predictability about permanent disability. I can’t predict it anymore. The Almaraz/Guzman case and the Ogilvie case, which have said they’re in limbo. Doctors are sort of fighting and the Workers’ Compensation Appeals Board is interpreting [the cases]. That’s the problem: Everyone’s interpreting this to be different. Lack of predictability makes it difficult to determine what is the right thing. Same injury ought to be the same permanent disability, but that’s not currently what is happening.

Is it realistic to deal for more cost-cutting reforms in exchange for increasing PD benefits?  
A qualified no: I don’t think there’s a need for additional reforms. We need to take reforms we have and better apply them. We should better define the reforms and get cost saving from those, instead of doing new ones. There’s currently some double-dipping. For example, surgery equipment can get billed twice. If we have redundant costs in there and we can cut those out, permanent disability can be adjusted according to those savings.

Where do you see applicant attorneys focusing litigation in the future?  
I see two places: One is in the cost of future medical because that raises the cost of PD. If I’m an attorney, I’d make sure I built up future cost as much as possible to get fees higher. The other place is loss of earnings capacity. That ties into the Ogilvie case.

Now that the federal health care bill has become law, what impact, if any, do you see that having on workers’ comp and do you have any concerns?  
I think it’s too soon to figure out the impact. Too soon because the law is too broad to see how it will be implemented. We are concerned, but it’s way too soon to figure out the impacts.

What is the effect of more than $1 billion in payroll being absorbed by the self-insured groups?  
I don’t think the effect is huge. It certainly is payroll that normally would have been in the insured arena. Self-insured groups are having a great deal of difficulty right now. Although there’s payroll going into the self-insureds, there is payroll coming back out of them into the insurance world. Overall, [the amount of payroll in self-insured groups] is not a huge amount compared to the total.

Are loss adjustment expenses leveling out or are they still climbing? What is the cause?  
Still climbing. I think that there are two or three reasons. I don’t believe that anyone quite understood that when the reforms came through, the regulations surrounding them [would] require more work on the part of the [claims] adjuster. We have to do certain things to meet regulations. Second, due to the bad economy right now, we have to do more investigation. Folks without jobs suddenly have their back hurt. They need an avenue to get money, and that’s leading to more questionable claims. Third, is the cost of Medicare set-asides. That costs more and delays the basic resolution of the claim. I think [loss adjustments] will continue to climb.

Is medical severity going to continue to climb or is it just a blip?  
I think it’s going to continue to climb. There are too many drivers: cost of medical care, Medicare set-asides, and prescription drugs. The increasing costs of all of these items plus the ancillary costs such as managing drug dependency, should it occur, will continue to drive medical severity.

Are there any changes to claims frequency?  
I do think there is. What we’ve seen is that it’s mainly in the indemnity area. I think the economy is driving some questionable claims. The cost of investigation becomes expensive; we get more claims coming in now. In good times, you’re happy to work. In bad times, you have less work coming in. You need money for your family. That’s mainly where claims are going up. Because of indemnity, you get medical cost and loss of wages. On top of a doctor visit, you get temporary disability as well.