By Phil Kabler
The Charleston Gazette
BRICKSTREET, W.Va. — Legislators on Wednesday discussed possible options as hundreds of volunteer fire departments around the state face sharp increases in Workers’ Compensation premiums, effective July 1.
If volunteer fire departments ultimately shut down because of the high workers’ comp costs, residents in those areas would see their homeowners’ premiums nearly triple, Insurance Commission Rates and Forms director Tonya Gillespie told the Joint Committee on Government and Finance.
The budget year beginning July 1 will be the final year that Brickstreet Mutual is mandated by law to offer coverage to volunteer fire departments. The insurer requested the increase to offset losses exceeding $4 million a year on coverage to the VFDs.
Gillespie said the VFD rates have been inadequate for years, leaving Brickstreet with a loss ratio of 700 percent — meaning the insurer pays out $7 in claims for every $1 it takes in in premiums.
In the 2008-09 budget year, Brickstreet collected $607,000 in premiums from VFDs, but had $4.6 million in claims.
Under the rate change, premiums for VFDs will be calculated based on an hourly wage of $14.54 — the average state wage for professional firefighters — instead of at the minimum wage rate of $7.25.
That will provide an additional $400,000 in premiums — imposing an additional burden for already cash-strapped VFDs — but still leaving Brickstreet facing more than $3 million a year in claims losses.
That poses an issue as of July 1, 2011, when Brickstreet is no longer mandated to cover VFDs, because private insurers are not likely to offer coverage in light of those loss ratios.
Sen. Jeff Kessler, D-Marshall, said it could be in the state’s best interest to subsidize those premiums.
If large numbers of VFDs shut down because they cannot afford Workers’ Compensation, he said the overall increase in homeowners’ insurance premiums, “would represent multiple hundreds of millions of dollars, I suspect.”
Homeowners’ premiums are calculated, in part, using a formula based on quality of fire protection available, on a scale from 1 (superior fire coverage) to 10 (no fire service available), Gillespie explained.
The drop from a 6 rating — typical for areas served by VFDs — to a 10 would result in premium hikes averaging 172 percent, she said.
Sen. Mike Hall, R-Putnam, said the state has a vested interest in maintaining functional VFDs around the state.
“It’s a strong public interest in that the better the number of the VFD, the lower the homeowners’ premiums,” he said.
Gillespie said the claims losses for VFDs are driven by the severity of injuries, not by high numbers of claims.
She cited examples from last year, where one fire department had three volunteers seriously injured in a rollover accident responding to a fire, while another VFD had a firefighter severely burned in a fire.
While the premiums are currently calculated based on the minimum wage, benefits are calculated based on the wages of the injured firefighters’ “day” jobs, which generally run much higher than minimum wage.
Insurance Commissioner Jane Cline told the committee it appears that VFD rates have been suppressed for as far back as data is available.
Copyright 2010 Charleston Newspapers