Workers comp headed up?

Douglas Dirks worries that workers' compensation insurance rates could soon rise in Nevada.

Not as high as they are next door in California, but rates could jump as much as 15 to 20 percent, said Dirks, if all the state legislation concerning workers' comp is passed this session.

Dirks is expecting rates to increase by 8.5 percent based on what he thinks are the most likely bills to pass.

That includes legislation that would index benefits for permanent disability, which Dirks calculates would force rates to increase 5 percent, and a plan to subject workers' comp insurers to the insurance premium tax, which he thinks will push up rates 3.5 percent.

If anyone knows, it's probably Dirks, chief executive officer of Employers Insurance Co.

of Nevada, the state's largest workers' comp insurance carrier that also writes policies in California and other western states.

Dirks understands both the insurance industry and government.

In the early 1990s, workers' comp costs in the state were out of control and legislation was passed to reform the state's workers' comp fund, which was the only insurer at the time.

On the same day legislation passed, Gov.

Bob Miller appointed Dirks, a contract insurance examiner and former investment banker, to audit the fund.

Eventually, Dirks found a $2.2 billion deficit.

"The fund was within 18 months of total liquidation," said Dirks.

He became the fund's chief financial officer, then its CEO for three years.

Then, in 1999, legislation was passed to allow other insurers to enter the state and compete with the state-run fund.

About 175 companies flooded the market.

So Dirks was asked to draft legislation that would get the state out of the workers' comp insurance business.

After that, EICON was formed as a mutual insurance company.

"We argued successfully that it belonged to the policyholders," said Dirks.

"It was the first and only state comp fund to do it."

Since then, EICON has maintained a third of the market in the state and ventured into other states through the acquisition of what is now Fremont Employers Insurance Co.

EICON bought the struggling California firm for $1, and transferred $91 million into the company.

"Fremont avoided severance and other costs and we got something of great value for $1," said Dirks.

"Fremont was a victim of market circumstances."

Those circumstances included cutthroat pricing in California that led to a lot of losses at carriers and, eventually, a lot of firms' financial failures.

During the same time, Nevada, due to what Dirks calls aggressive workers' comp reform, has enjoyed a very stable environment.

The result, said Dirks, has been a 33 percent reduction in workers' comp insurance rates in the state in the 10 years since legislation was passed.

Now Dirks is worried that some impending legislation will reverse that trend and make it difficult for employers as well as insurers to do business.

Workers comp insurance companies are already subject to a tax - the Division of Industrial Relations assessment.

If the insurers are required to pay the state premium tax as well, said Dirks, that and other legislation will in essence impose a large gross receipts tax on carriers.

"We'd be paying an 8 percent gross receipts tax," said Dirks.

"And they're talking about, what, a quarter percent tax on all businesses."

That's in addition to other bills that will impact rates.

"The legislature has the right to adopt whatever rates they want," he said.

"I'm just worried that increases the cost of doing business in Nevada."