Coyote Blog

Good News via Robert Samuelson and Marginal Revolution.

While the number of people living under the poverty line have crept up, there is actually good news under the surface that has gone unreported (good news - unreported - your kidding me!)

Compared with 1990, there were actually 700,000 fewer non-Hispanic whites in poverty last year. Among blacks, the drop since 1990 is between 700,000 and 1 million, and the poverty rate -- though still appallingly high -- has declined from 32 percent to 24 percent. (The poverty rate measures the percentage of a group that is in poverty.) Meanwhile, the number of poor Hispanics is up by 3 million since 1990. The health insurance story is similar. Last year 13 million Hispanics lacked insurance. They're 60 percent of the rise since 1990.

To state the obvious: Not all Hispanics are immigrants, and not all immigrants are Hispanic. Still, there's no mystery here. If more poor and unskilled people enter the country -- and have children -- there will be more poverty. (The Census figures cover both legal and illegal immigrants; estimates of illegal immigrants range upward from 7 million.) About 33 percent of all immigrants (not just Hispanics) lack a high school education. The rate among native-born Americans is about 13 percent.

So, much of the increase in the people under the poverty line can be traced to immigration of low-skilled Hispanics trying to make a better life for themselves in this country. Of course, when these people first arrive, with no English, often lacking a high school education, and initially, no permanent job, they are going to be below the poverty line. Over time, many will find the American dream and move up (easy proof: if that were not so, why are so many trying so hard to immigrate here?) If we had been collecting the statistics carefully in the early 20th century, we would have seen a similar effect with the immigration of low-skilled Irish, Italian, German, etc. workers to this country. Surely, during this burst of immigration, it would have appeared that the poverty rates were going up, but not one would in retrospect argue anything but that everyone was getting steadily wealthier through this period.

The workers compensation program in Florida is broken. In a previous post, I discussed why, almost no matter how broken it is, workers comp is still better than an alternate world without it. Sometimes, though, Florida tests me on this.

If you don't know, Florida is one of a couple of states (California and New York are others) that national carriers of workers comp insurance avoid because it is such a mess. Fraud is high, costs are high, benefits are low.

I found a new reason to dislike Florida workers comp today. Apparently, there are lawyers out there in Florida advertising that a worker will never get their fair shake out of the insurer unless they hire a lawyer. We have an ex-employee who was injured in a vehicle accident while at work. A claim was filed, and the workers comp system is processing the claim (though a bit delayed due to 4, count them 4 hurricanes to hit Florida in one month). So, for some reason, the employee has hired a lawyer. I do not know what he will get with the lawyer, but this is an awful trend, because the only redeeming feature of the workers comp system is that it keeps lawyers and their costs out of it. I have no idea how the lawyer gets compensated, but I am sure at some point, I will be paying his fees one way or the other. If the employee is paying for him directly, I really feel bad for the employee, because I don't know what value he is getting for his money.

So, the lawyer, putting in a good 15 seconds of work (which he probably bills an hour or two for) pulls a xeroxed set of discovery questions and sends them to me. There are thirty four questions, all with things I have to look up or xerox and send to him. None of them are tailored to this case, so most will end up being irrelevent and all my info gathering a waste of time. So, not only is there the cost of the attorney's fees adding to the process, but the externalities of the cost of my and my employees' time to feed him with data. All to probably get the same recovery for the patient the system would have given him without intervention.

This is what I really dislike about the law profession nowadays. They are the only people except for the government who can arbitrarily demand a ton of my time calling up data that no one will ever look at. Other people try this - for example, some vendors have sent me huge credit applications that would take weeks to complete - but in their case I can say "no" and tell them if they insist, they don't get my business. Lawyers and the government, though, can demand arbitrarily intrusive and time-consuming document collection and there is not a thing I can do about it.

Insurance was a very scary topic for us this year. As many of you know, the cost of business insurance has skyrocketed since 2001. Our workers comp, auto, and liability insurance costs have ballooned to 10% of sales, which seems incredible to me, particularly since we have nothing really bad on our claims history.

However, this year, at renewal time, the problem went way beyond cost. As background, much of our business is in running campgrounds. Campgrounds have the same liability problems as any public contact business, in that there are more and more people out there who, if they slip and fall on your property, will try to get a financial windfall out of it by suing you. This is multiplied in campgrounds, as the possibilities for a customer hurting themselves accidentally are multiplied over a more controlled environment, like a store.

Now, leave aside for a minute the justice of whether or not we should be responsible if someone pulls their hamstring climbing a tree in our campground. Even when most of these cases go nowhere, they generate defense costs. So, liability rates have been going up.

One of the things I have learned about the insurance market, though, is that carriers pick and choose what industries they want to be in. And, the industries they don't want to be in are those that are relatively small but have higher liability potential -- too much risk of loss for too little income. Unfortunately, this seems to include campgrounds.

So, just a few weeks away from the expiration of our old policy, my old agent tells me that their underwriter will not write us for the next year. Either in our liability policy (for reasons above) or for our auto policy (because we have a lot of older drivers) or for our workers comp (same issue, older workers).

I was therefore faced not with a huge cost increase, but with the prospect of no insurance, which would mean shutting down my business (beyond the stupidity of operating without insurance, my contracts forbid it). My insurance agent at the time had no other alternatives.

This is when I learned a huge lesson - there is a big difference among business insurance agents. Many have only one or two underwriters they work with, and if those underwriters drop your line of business, you can be out of luck. It is desperately important, especially if you are in a tougher than average business to insure, to have an agent with access to many underwriters and sources of insurance.

In the end, I pieced the workers comp together state by state through many agents, which was a total pain. Finally and at the absolutely last minute, for the liability and auto, I found an agent who really knows what he is doing. He got me quick fix policies for these to keep running, and then has found better policies over time to replace them. We have had great discussions about trade-offs in liability coverage (since every policy is different in the small exceptions that they make in their coverage). By the way, I don't know if they are even looking for more business, but if you are in a crisis, particularly if you are in the southwest, you might try these guys.

Welcome to Carnival of the Capitalist readers. Its great to have you here. If you are looking for the series on buying a business, it starts here. I have started a new series on working with the Department of Labor here. Future series will include posts on managing multi-state businesses, workers comp, liability insurance, sales taxes, and government contracting.

This is the third (and hopefully last) installment of a series of posts on how I went about buying my current business. You should also refer to part 1 and part 2. This installment will focus on options for financing the purchase of a small company and what kinds of legal documents you will need to complete the transaction.

Continue reading ‘Buying a Company, Part 3’ »

Today, we had another $300 workers compensation claim.

First, I will begin by saying "Thank God for the workers comp system in this country". Basically the philosophy of the system is this: Workers give up their right to sue their employer over workplace injuries in return for a guarantee of medical care and a defined benefit compensation system. Yeah, some states (like Florida, in particular) have some real fraud and management problems. In California last year, before reform, I was paying $20 in workers comp premiums for every $100 in wages -- and this despite having no claims the last few years. But, given the state of the lawsuit industry in this country, imagine the effect if workers could sue over every injury, large or small. Shudder.

As an aside, this issue has greatly affected the whole asbestos litigation situation, as detailed here. It can be argued that most workers' asbestos injuries are more likely due to poor protections on the job site, rather than any product problems from the asbestos makers. Asbestos using companies, after all, have known asbestos is dangerous since before WWII. In fact, navy shipyards in WWII were some of the worst offenders in terms of not using masks, poor ventilation, etc. But, since employers generally can't get sued over injuries (and its hard to sue the feds), lawyers concentrate on the "product labeling" argument and sue the asbestos makers into bankruptcy, which explains why litigation attorney's coach their clients like this.

Anyway, in many states, workers comp needs reform. Ahnold, for example, did a nice job of attacking this issue in California, and our company got an immediate 10% discount on our rates once the legislation passed. One thing that is never discussed and frustrates the heck out of me is the issue of deductibles. We get a lot of small claims (e.g. went to emergency room, got checked out, all was OK, went home). As with any kind of insurance policy, filing a lot of small claims this year is death on premiums next year. Workers comp is worse than most, as it has an experience mod system that guarantees that for every dollar in claims that goes out this year you pay an extra $1+ next year in premiums (in the next few days Coyote Blog will be starting a new series called "things they didn't teach me in business school" and the mechanics of workers comp will be one of the first posts).

Unfortunately, many states, such as Arizona, do not allow you to have a deductible on your workers comp policy. This is not an insurance company practice that might change with new competitors, but the law. So, we keep paying out small claims that probably drive up our premiums $2 for every dollar in claims.