Insurers and self-insured now face $9 billion in black lung liability, Milliman says

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The U.S. coal industry may decline rapidly as the country shifts to renewable energy, but the liabilities of insurers and self-insured companies for claims related to black lung occupational diseases have soared – to about $9 billion. dollars and possibly over $14 billion.

That’s according to a recent report from Milliman, the global actuarial and consulting firm. The study authors looked for the first time at the cost of existing and future claims, the payments of which will continue for years.

The report did not name which insurers owe the most. But historically, some of the largest P&C insurers have insured against black lung claims. Most of the claims come from miners in Kentucky, West Virginia and other coal-rich Appalachian states.

“We just wanted to raise awareness and help develop solutions to protect the financial solvency of non-trust entities on payment of federal black lung liabilities,” said Travis Grulkowski, Milliman actuary and one of the report’s authors.

A little history of the black lung program helps explain the complexities. Since 1969, the federal government has paid a share of miners’ claims for black lung disease, or pneumoconiosis, caused by years of breathing coal dust. In the 1970s, the law was changed, making coal companies more responsible for employee benefits, either by purchasing commercial insurance or self-insuring if approved by a federal agency.

If the mine operator goes bankrupt, the federal trust fund will assume responsibility for paying benefits, Milliman reported. The trust is financed by a tax on each ton of coal extracted from the ground. As coal consumption has fallen over the past decade, a number of mining companies have gone bankrupt and tax payments to the trust fund have plummeted, the US Government Accounting Office reported.

But the claims liabilities have only increased.

As miners were laid off, many filed black lung claims, which by law must be paid for a worker’s life, in many cases. Changes approved by Congress over the years have also made more workers eligible for federal benefits.

The GAO said federal trust fund commitments currently stand at about $5 billion and are expected to reach $15 billion by 2050.

Alarmed by the numbers, the Department of Labor changed the game somewhat in 2019, the Milliman report explained. If coal companies cannot meet the new warranty requirements for self-insurance, they must purchase commercial insurance. To complicate matters, some 35 carriers, including Travelers and AIG, have pledged to sever ties with the fossil fuel industry, leaving fewer insurers to cover new claims.

Some black lung claims must cover expensive lung replacement surgery. But for the most part, it was the compensation payments that drove up the costs, according to the Milliman report.

“Unlike traditional workers’ compensation, where the majority of long-term liabilities arise from medical payments (e.g. lifetime care costs), compensation benefits are either settled or capped by limits legal, reservation of black lung requires projecting both the indemnity and the medical benefits for the life of the miner as settlements have not historically been authorized by the DOL,” the Milliman authors wrote.

Federal Black Lung Benefit payments are offset or reduced when state workers’ compensation claims are accepted for the same workers. But some of the same insurers may also be liable for state claims.

To reach its eye-popping numbers in the report, Milliman’s team said it searched the DOL’s extensive database of black lung claims. The study authors then applied the company’s proprietary black lung reservation model and actuarial methodologies to calculate costs for all current and future claimants and their dependents. The projections also include the cost of defending claims in litigation.

Hopper cars loaded with coal in Waddy, Kentucky (Luke Sharrett/Bloomberg.)

To help put the amount into perspective, the $9.3 billion in black lung liabilities can be compared to other expensive sources of claims. The collapse of the World Trade Center in 2001, for example, resulted in insured losses of more than $43 billion, according to the Insurance Information Institute. Asbestos claims costs across the country are expected to top $100 billion, with about $9 billion still unpaid, Milliman’s Grulkowski said.

If more self-insured coal companies and perhaps some insurers are unable to pay growing black lung claims, U.S. taxpayers could ultimately end up with at least part of the bill, the report said.

“An increase in the number of miners leaving the industry and claiming benefits, along with declining coal mining profits, will likely lead self-insured coal miners to struggle to pay benefits. of black lung to their former mining employees,” the report noted. “Even for companies that are currently financially stable, the DOL’s lengthy and selective self-insurance qualification process, coupled with the difficulty of obtaining commercial insurance for federal liabilities from the black lung, makes future funding of liabilities very uncertain.”

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