Legal Developments

Opt-Out Movement Stalls: For Now

With the future of the Oklahoma Option in question, efforts to pass similar plans in other states are also in a holding pattern.
By: | June 13, 2016 • 6 min read

Are alternative plans to workers’ compensation experiencing failure to launch syndrome?

Jen Jordan, a workers’ compensation law expert and chief legal officer at MEDVAL, thinks they might be.

“The momentum has stopped,” Jordan said.


“All other states are waiting to see what happens in Oklahoma. I think we are at a stalemate.”

Participation in a state workers’ compensation plan was mandatory in every state except Texas until 2013, when Oklahoma passed legislation allowing alternatives to the mandated state system. The Employee Injury Benefit Act allowed private sector employers to create individual — but equal — plans.

Oklahoma has one of the highest average costs of workers’ compensation benefits in the nation. Proponents of the new law, often referred to as the “Oklahoma Option,” said it could be a way to decrease workers’ compensation insurance rates, and serve as an economic stimulus tool to attract new business to the state. Several Oklahoma businesses began offering their alternatives in 2014.

Lawmakers in Tennessee and South Carolina sought similar cost reductions and began drafting alternative plans of their own. Other states watched the movement with interest.

But when a legal challenge arose in Oklahoma, the state’s workers’ compensation commission ruled that parts of the alternative plan were unconstitutional. In particular, some sections were not equal to the state plan, the commission said. The State Supreme Court is expected to issue a final ruling on that question this summer.

The commission ruling in Oklahoma seems to have been enough to give opt-out advocates in Tennessee and South Carolina pause.

A Nice Road Map

“Two years ago, I honestly thought we were going to see this spread around the country,” said Mark Walls, vice president, communications and strategic analysis at Safety National, a workers’ compensation carrier.

“I thought Oklahoma gave us a nice road map. With Oklahoma’s efforts stalling and South Carolina and Tennessee in question, where are we going?”

“The freedom of opt-out also affords the darker possibility of minimal statutory benefits, stringent claims determinations, and a dispute process that seems unfair to the claimants.” — “Understanding the Opt-Out Alternative to Workers’ Compensation,” IAIABC

The challenges facing Oklahoma employers have given pause to legislatures in other states because they viewed what was done in Oklahoma as exportable, Walls said.

“Where Tennessee is today is a fairly large question mark,” said Abbie Hudgens, administrator of the Bureau of Workers’ Compensation at the Tennessee Department of Labor and Workforce Development.

Right around the time Oklahoma issued its decision to take up the issue, the International Association of Industrial Accident Boards and Commissions (IAIABC) released a study comparing workers’ compensation and opt-out alternatives.

The authors found that the diversity of opt-out plans and their administration creates unequal treatment of employees, both across opt-out plans and as compared to the traditional workers’ compensation structure.

“The freedom of opt-out also affords the darker possibility of minimal statutory benefits, stringent claims determinations, and a dispute process that seems unfair to the claimants,” the authors wrote.

“IAIABC is to be commended for tackling this big subject,” said Bill Minick, president of PartnerSource, which helps draft alternatives to workers’ compensation.

“It shows an open mind to innovation and competition,” he said.

“Unfortunately, the time frame to produce their study was very short and it did not give any consideration to the actual performance of the Oklahoma Option over the past two years or the Texas Option over the past quarter century.”

Minick said under workers’ compensation alternatives employees are receiving the needed care more quickly, while employers save money.

However the actual benefit to workers remains a point of contention.

“My biggest surprise was the vigor and apparent conviction of proponents that opt-out benefited the injured workers,” said Gregory Krohm, the study author and director of research at Workcomp Strategies, Inc.

“They minimize what I believe is insurmountable evidence that large classes of injured workers are worse off under opt-out.”


Minick counters that detractors often hamper reforms to traditional workers’ compensation plans and don’t want to see it change.

“Oklahoma trial lawyers and powerful insurance trade associations have joined hands to destroy the competition and innovation of the Option, as well as the entire 2013 workers’ comp system reforms, for their own financial gain,” he said.

“My biggest surprise was the vigor and apparent conviction of proponents that opt-out benefited the injured workers.” — Gregory Krohm, director of research, Workcomp Strategies, Inc.

The criticism runs both ways.

“The proponents of opt-out seem to have impressive statistics on cost saving.  They claim the savings come from prompt claims handling and the provision of superior medical care,” Krohm said, but pointed out that those strategies are in no way exclusive to those who opt out.

“I don’t see how employers in the traditional workers’ compensation system are impeded from prompt claim handling and setting up top-notch occupational medicine services.”

The Grand Bargain Evolving

Workers’ compensation was first introduced more than 100 years ago. It has evolved and grown to incorporate ever more legal and medical obligations and cover vastly different injuries as the economy shifts away from manufacturing to a service industry.

“Over those years, benefits have grown, and grown and grown; and employees have continued to get more and more in the ‘grand bargain,’” said Jordan, the chief legal officer at MEDVAL.

“The playing field is so distorted in favor of injured employees and against employers.”

“What is interesting about Oklahoma is it was so one-sided to the employers, it is the extreme opposite of Texas,” the only state where employers aren’t required to participate in the state workers’ compensation plan, Jordan said.

“If they had reached a middle ground, then we wouldn’t have the issue we are facing now.”

Krohm said his study found Oklahoma Option plans allow the claim administrator to impose settlement terms on the claimant to close out future benefit payments; if the claimant refuses the offer, no further benefits are payable.

“The Oklahoma statute created the illusion that the benefits from qualified employer plans were equal to workers’ compensation,” Krohm said.

“The workers’ compensation commission and prominent legal experts deny that they are equal.

Creating an equivalent plan isn’t complicated but it ends up imitating the workers’ compensation statute and case law interpreting the statute.

“The alternative option really goes against that idea of equity,” said Jennifer Wolf Horejsh, executive director at IAIABC, which published the study.

“So then what’s the purpose of opt-out?” Krohm said.

Solutions Still Needed

All parties agree something needs to be done to help simplify and reduce the cost of worker injury plans.

Oklahoma had the sixth highest workers’ compensation premium rates in the nation in 2014.

“The system is broken,” said Jordan.

“We’ve got to do something to reign in this monster we’ve created.”

Proponents say too many people earn their living off the complicated and expensive state-run workers’ compensation program and aren’t incentivized to simplify it.

“Oklahoma is very unique in its history, constitution and litigation environment,” said Minick.

“I’m not aware of any state in the country that has faced bigger challenges from workers’ compensation claimant lawyers that want to avoid meaningful reforms and maintain the status quo for their own financial gain.”

For now it remains to be seen who will go forward; and where.

“I think it’s possible that we could reform the system,” Jordan said.


“At this stage we’re running neck-and-neck that opt-out could be the solution, but it will have its own complications.”

“Opt-out is promoted as something that increases employer involvement in safety and employee responsibility. Those are good objectives,” said Hudgens.

“But where I lose confidence is none of those are actually in the final plans.”

“There’s some value in the concept, but what we’ve seen of it so far has fallen woefully short of the promise that is inherent in the material of opt-out.” she said.

With enough attention, it may help opt-out plans gain traction, Jordan said.

“I will be interested to see what state’s ideas take off.”

Juliann Walsh is a staff writer at Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.


Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.

R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.


We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?


Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.


Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now and where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.


More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]