Insurers, Military at Odds over Workers’ Comp Program for Civilian Contractors

Several media outlets reported this week that the Defense Department is looking to revamp a controversial $5.5 billion workers’ compensation insurance program for its civilian contractors overseas after reportedly learning that it is paying up to 10 times more for the insurance than other government agencies while leaving taxpayers in danger of having to cover large uncovered claims.

Facing questions about the program’s costs from Congress and the Government Accountability Office, the Pentagon will reportedly impose tighter discipline on the large program by centralizing its administration under one prime contractor, which would allow for a fixed-rate coverage under a proposal up for bid in July.

A number of insurers led by American International Group, which has backed 80% of the workers’ comp claims to date in Iraq and 70% of the Pentagon contractors’ claims worldwide, are threatening not to compete for the business.

According to the U.S. Labor Department, AIG subsidiary Insurance Co. of Pennsylvania is the top underwriter of workers’ comp insurance for the Pentagon’s civilian contractors in Iraq, processing 80 percent of the total claims and 68 percent of all death-benefit applications.