Lehman Brothers Crisis May Meltdown State Workers’ Compensation Programs
Workers' Compensation
HISTORICAL INTRODUCTORY NOTE
The Lehman Brothers financial meltdown, which occurred in September 2008, was a major event that had far-reaching consequences for the global economy. One area significantly impacted by the Lehman Brothers collapse was the workers' compensation insurance market.
The Lehman Brothers financial meltdown was triggered by the subprime mortgage crisis, which saw a significant increase in mortgage defaults made by borrowers with poor credit. This led to a decline in the value of mortgage-backed securities, which were held by Lehman Brothers and other financial institutions. As the value of these securities plummeted, Lehman Brothers faced a severe liquidity crisis and were ultimately forced to file for bankruptcy.
The collapse of Lehman Brothers had a domino effect on the financial markets, leading to a global credit crunch and a significant decline in the value of stocks and other assets. This had a major impact on the workers' compensation insurance market, as many insurance companies saw their investments decline in value and faced increased financial pressure.
One of the main challenges faced by the workers' compensation insurance market during this time was the increased cost of claims. As the economy weakened, more workers were laid off or reduced their hours, increasing workers' compensation claims. This put pressure on insurance companies to pay more in claims, even as their financial resources were stretched.
In addition to the increased cost of claims, the workers' compensation insurance market also faced challenges related to credit availability. As the credit crunch worsened, it became more difficult for insurance companies to secure the financing they needed to cover their claims and pay their expenses. This led to further financial strain on the industry and made it more difficult for insurance companies to meet the needs of their clients.
The Lehman Brothers' financial meltdown significantly impacted the workers' compensation insurance market, leading to increased costs and financial challenges for insurance companies. While the industry has since recovered and is now in a stronger position, the lessons learned from the Lehman Brothers collapse continue to shape how insurance companies operate and manage risk.
The escalating financial crisis of Lehman Brothers [stock down 94% Jan-Sept 2008] may have a major impact on workers’ compensation throughout the US.
THE LEHMAN BROTHERS MELTDOWN
Over this weekend, the financial gurus scheduled meetings to avoid a complete crash of Lehman Brothers. In the meantime, the waves of this potential economic meltdown send hurricane-type surges throughout the US workers’ compensation system.
Workers’ Compensation is an employer-funded benefit program. Even self-insured companies purchase reinsurance for financial protection. The reliance upon insurance companies to operate workers’ compensation programs in the US is vital.
IMPACT ON THE INSURANCE MARKET
Major insurance companies such as AIG [stock down 79% Jan-Sept 2008], the nation's largest insurer, are intricately involved in operating and funding the nation’s workers’ compensation program. AIG’s shares fell 30% on Friday as the Lehman Brothers fiscal crisis escalated. Congress Waxman has expressed concern over AIG’s premium charges. AIG’s decline was based on their questionable credit default swaps, covering losses on securities based on mortgages.
As this economic crisis continues to domino, the question will be whether the State of the insolvency mechanisms in place will be sufficient to react to keep the system afloat and provide an adequate benefit flow to the workers’ compensation system. It is doubtful that the beneficiaries of the compensation system, and its administrators, will think kindly of becoming creditors in a bankruptcy reorganization scheme paying ten cents on the dollar.
FEDERALIZATION
This unfortunate economic scenario brings new life to a call for reevaluating the failing US workers’ compensation program and the need to look at a Federal approach to the coordination and delivery of benefits.
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The author, Jon L. Gelman, practices law in Wayne, NJ. He is the author of NJ Workers’ Compensation Law (Thomson-Reuters) and co-author of the national treatise Modern Workers’ Compensation Law (Thomson-Reuters). For over five decades, the Law Offices of Jon L Gelman 1.973.696.7900 jon@gelmans.com have represented injured workers and their families who have suffered occupational accidents and illnesses.
© 2008-2023 Jon L Gelman. All rights reserved.
Recommended Citation: Gelman, Jon L., United States Lehman Brothers Crisis May Meltdown State Workers’ Compensation Programs, www.gelmans.com (2008),
https://www.gelmans.com/ReadingRoom/tabid/65/ArtMID/1482/ArticleID/533/preview/true/Default.aspx
© 2001-2023 Jon L Gelman. All rights reserved.
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