Defense Base Act Compensation Blog

The Modern Day DBA Casualty

Workers’ Comp in Iraq

Posted by defensebaseactcomp on November 18, 2009

Workers’  Comp Insider

Workers’ Comp in Iraq

June 13, 2005

A mere four and a half years and two congressional hearings ago Workers Comp Insider wanted to know:

Where’s OSHA ?

A fascinating article by staff writer T. Christian Miller in today’s Los Angeles Times (registration required) focuses on the cost of providing workers comp insurance to non-military employees in Iraq. Under a WW II era program called the Defense Base Act, private insurers charge the government for comp premiums. These private carriers are at risk only for the non-combat related injuries, illnesses and deaths. The government reimburses the carriers for all combat-related incidents, plus a 15% admin fee. Overall, costs for comp in Iraq are somewhere around $ 1 billion, but no one seems to know for sure.

Currently, two carriers dominate the market: AIG and ACE. The Pentagon is talking about awarding all the business to a single carrier, in order to contain the escalating costs. The counter argument seeks a continuation of the “free market approach.” I’m not sure how “free” the current market is and as for the rates, they appear to be headed in the wrong direction.

Comp in Iraq
There are about 30,000 Americans and third-country nationals and more than 40,000 Iraqis working on U.S. contracts in Iraq. To date, about 300 contractors have been killed and 2,700 injured. When the program began, insurance rates ran between $4 and $8 per hundred dollars of payroll. Now they are up to $20 per hundred — a pretty hefty rate by most measures.

Salaries in Iraq, as you would expect, are much higher than those in the states. It’s not unusual for workers to pull down $100,000. (The pay is good, but you would have to characterize the working conditions as marginal.) Comp premiums at the $20 rate would average about $20,000 per employee — a very high rate indeed. Because of the high salaries, death claims are averaging between $1.2 and $1.8 million — significantly higher than death claims for workers in the states.

How do rates for insurance in Iraq compare to other locations in the world? Here’s one striking example cited by Christian: In Colombia, a contractor flying helicopters in support of State Department drug interdiction programs is charged at $3.87 per $100 of payroll — less than a truck driver in the states. In Iraq, however, a contractor flying helicopters runs $90 per $100, with comp payments almost the equal of payroll (only iron workers above the 6th floor reach anywhere near comparable rates in the states). Keep in mind that if the helicopter pilot dies in a combat-related incident, the carrier is not on for the loss. The carriers respond by saying they have to establish these high rates, because even if they are eventually reimbursed for a combat-related incident, it could take several years to actually get the money and there is no guarantee that the government will accept the liability.

Conventional Cost Control, Unconventional Conditions
Employers in the states have learned the hard way that the best way to control comp costs is to contain losses. Cost containment means committing to good safety programs and setting up a system for immediately responding to injuries. You need to establish a relationship with an occupational medical provider and set up a comprehensive return-to-work program that uses temporary modified duty to speed recovery. That’s all well and good stateside, but I have to wonder how well that kind of a system will work in Iraq. Is anyone motivated to implement modified duty? Do employees really want to go back to work, or would they prefer to collect 2/3 of their (inflated) average weekly wage at a safe distance from the turmoil? If you were an Iraqi national, would you risk your life going back to work on temporary modified duty? With U.S. taxpayers ultimately footing the bill, does anyone over there really care if an injured employee goes back to work? When you think about it this way, you wonder why carriers would want any of the risk.

Where’s OSHA?
I wonder what OSHA would say about the working conditions in Iraq. (Given the reduced number of inspectors, they probably haven’t gotten there yet.) Under the General Duty Clause, employers must provide a workplace free from the risk of injury and illness. How does Iraq stack up? As a spokesman for one of the carriers stated, in response to questions about the high rates, “it’s 130 degrees. There is a lot of dust. There is a lack of hospitals.” Not to mention the fact that strangers are constantly trying to kidnap or kill you. Stress claim, anyone?

Ubiquitous AIG
It is indeed interesting to find AIG in the middle of this high-risk mess. Just as they were challenged by New York Attorney General Elliot Spitzer for “risk transfer” transactions that apparently involved no risk at all, it appears that here in Iraq they are collecting possibly inflated premiums where, once again, a substantial portion of the risk lies with others (you and me, to be exact).

Ultimately, my sympathies here are with the workers. I can hardly imagine a more difficult place to work. Here in America it’s rare to dress for work with a prayer that you will survive another day (rare but certainly not unheard of). In Iraq, every breath in that hot, dusty place is accompanied by just such a prayer. Here’s wishing a safe return to our civilians and a lasting peace for the Iraqi people themselves

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