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INSURANCE COMPANIES AND THE ACT. As originally drafted, the Massachusetts act contemplated the establishment of a mutual company, composed wholly of employers, and authorized to have a monopoly of workmen's compensation insurance in the State. Amendments were added in the Legislature allowing all insurance companies authorized to do business in Massachusetts to write workmen's compensation insurance on the same basis as this mutual company. Instead, therefore, of dealing with one insurance unit, organized especially to administer insurance for industrial accidents on a workmen's compensation basis, at cost, the Industrial Accident Board had to deal with twenty-one different private and three mutual companies, all but one of which had been passing on claims for years for industrial injuries, on the basis of employers' liability.
The Industrial Accident Board laid down the rule that an ideal administration of the law meant that in death cases, where the injury was without doubt the cause of the employee's death, the insurance companies should begin to pay the widow the compensation due her at the end of the seventh day following the fatal termination of the injury; and in all non-fatal cases, where the injury lasted more than fourteen days, compensation should be paid the injured employee at the end of the third week, or twenty-one days after the date of the injury, and that medical services should be furnished promptly by the employer, and paid for without delay when the services were rendered by the employee's own doctor, if the bill submitted was reasonable.
It was immediately found necessary in the interests of speedy administration, to notify injured employees and dependents of fatally injured employees of their rights under the statute. Occasionally insurance companies refused compensation because of a strict technical interpretation of the law, but in these cases it is the policy of the Board immediately to send the matter to a hearing before a committee of arbitration, and to have a formal decision rendered at the earliest possible moment, with the slightest possible inconvenience to all parties concerned.
The Board desires to express its satisfaction with the spirit of co-operation shown by almost all the insurance companies in furtherance of the effective administration of the act. Only a few of the companies have given any evidence of a tendency to revert to the methods which prevailed under the former liability law.
The broad interpretation given the act by the Industrial Accident Board, in accordance with what it understood the intent of the Legislature to be, has been approved by the Supreme Judicial Court, as shown in the several decisions thus far handed down, in one of which it said: “ the act should be interpreted broadly and in harmony with its main aim of providing support for those dependent upon the injured employee.” In another, the court refers to the “ broad scope of the act and its comprehensive dealing with the whole subject,” making it plain that the highest judicial tribunal in Massachusetts favors a liberal interpretation of the statute, and thus setting forth the ideal which the insurance companies and all concerned must follow.
In the beginning of the Board's administration of the act, statements were made by representatives of the insurance interests that a liberal interpretation of the law must ultimately be followed by an increase in the premium rates, which were at that time from three to ten times more than the former rates for employers' liability insurance. Interest on the part of the general public was keen as to the workings of the law, and especially on the part of employers of labor and the wage earners as to the cost of insurance.
The first statistical bulletin issued by the Board indicated that the rates as charged were more than necessarily ample to provide for the payments of losses incurred as a result of injuries under the law, but the estimate of the cost then made, which a summarization of our first year's statistics has proved to be absolutely correct, was considered too premature to be regarded as acceptable from an insurance standpoint. The Board then made a special study and inquiry, not contemplated by the law, into the actual cost of the workings of the act for the first four months. As a result of this investigation of 25,000 employees in selected degrees of hazard, it was found that the statement that premiums were not sufficient to pay for the cost of the act was entirely without foundation. This study of the actual cost of insurance was necessarily incomplete; the time was too short and the number of employees concerned not sufficient to make a reliable index of rates; but such as it was this study was an accurate one, being verified by the employers and insurance companies concerned. Speaking generally, this special study, begun in November, 1912, showed that with one exception less than 15 per cent. of the premiums charged went to pay claims under the act.
The fact that this investigation was being made was known to all the insurers; the companies covering the employers in the particular occupations under investigation were aware that the inquiry would show that rates were excessive, and about the time the result of the investigation was sent to the Governor in the form of a special letter, — early in January, 1913, -- a horizontal reduction of 25 per cent. was made in the rates effective July 1, 1912. In some cases the experience of the Industrial Accident Board shows that this horizontal reduction was entirely unjustified, and meant a loss to the companies, while in other cases the reduction made was wholly inadequate. Other reductions have since been made, until it is estimated that the approximate reductions since July 1, 1912, are 35 per cent. of the rates originally charged.
INSURANCE AS A PUBLIC UTILITY.
Under the employers' liability system, for every dollar of premium paid by the employer the injured employee received not more than 40 cents, - 60 cents and upwards being used for agents, commissions, administration expenses and profit. Because this percentage of cost to losses paid has been deemed too great a burden to put upon industry, Ohio and Washington have refused private insurance companies the right to do business within these Commonwealths, and have established a system whereby the various employments in these States are rated in classes according to the risk of hazard. Each class is assessed the cost of workmen's compensation insurance, every cent of which is paid out to workers injured in industry. The State pays the cost of administration of the act on the ground that this is a legitimate charge against it, which is more than offset by the reduction in the cost of state charity which would otherwise be required to maintain those injured in industry if insurance were not provided.
The late chief justice of the Province of Ontario, Sir William Ralph Meredith, who was charged with the duty of investigating this matter, has for similar reasons recommended the establishment of the Washington system for the Province of Ontario.
California and New York, particularly, have attempted to get the cost of insurance upon a reasonable basis by allowing employers to form mutual companies, to carry their own insurance under certain restrictions, to insure in private companies, and by forming a State insurance fund, administered by the Industrial Accident Board, to which employers may contribute.
The commission which drafted the Massachusetts law believed that the single, mutual company, which would be operated by employers at cost, would obviate some of the dangers of any State insurance fund; but the amendment which permitted all private companies to do business on the same basis has complicated the situation in Massachusetts, and involves the continuance of the struggle between the methods of the employers' liability insurance and of straight mutual insurance under the workmen's compensation law, or a State fund which is practically the same idea differently worked out.
The Industrial Accident Board is of the opinion that the idea of dividing the various kinds of industry into classes, for the administration of insurance at cost, is the logical end of all workmen's compensation laws; but before this can even be considered in Massachusetts, the act of the Legislature in forming a mutual company to transact all workmen's compensation insurance, and then allowing competition to work out the survival of the fittest, should not be interfered with. The test cost of service and efficiency between these two forms of insurance has only begun.
In the meanwhile, however, the waste of insurance which is shown in the excessive cost of doing business should be eliminated so far as possible. Insurance is a modern necessity, and the widespread adoption of and satisfaction with the Workmen's Compensation Act makes it imperative that the workmen should receive the greatest possible benefit from every dollar that his employer expends for protection. The ideal of insurance administration should be the lowest possible cost consistent with safety, the prompt payment of all benefits due the injured employee under the act, and speedy adjustment and payment of every just claim filed by dependents of injured employees. All companies should make special efforts to reduce the expenses of transacting workmen's compensation business to the minimum.
In the judgment of the Industrial Accident Board it seems that in an age when railroads and other public utilities are under strict governmental regulation, both as to rates and method of administration, the most important, although not the largest, public utility of human kind -- insurance in its various phases — should not be left a generation behind our times; and the Legislature should, in its wisdom, put insurance on the same basis and under the same regulation, both as to rates and methods of administration, as other public utilities.