Chamber Says Insurers Overcharging Small Businesses

Chamber Says Insurers Overcharging Small Businesses

By Jim Sams, WorkCompCentral

Published June 8, 2006

More than half of South Carolina small businesses that qualify for reduced premiums because claims were paid by the state’s Second Injury Fund are not getting the credits they deserve, the South Carolina Small Business Chamber of Commerce charged Wednesday.

The Small Business Chamber said a study that it commissioned with Advanced Management Insurance showed 51% of small businesses that qualify for a savings relative to their experience modifications because of Second Injury Fund payments did not receive any adjustments.

Small Business Chamber President Frank Knapp said in a press release that he has brought the study to the attention of state Attorney General Henry McMaster.

“I have asked the attorney general to take actions toward an investigation if he determines that it is appropriate,” Knapp said. “We believe that the investigation should also determine if insurance companies are reducing their loss reserves as they have sworn to the SIF that they have.”

South Carolina’s Second Injury Fund was established to encourage businesses to hire workers partially disabled by industrial accidents. AN employer with an experience modification, or X-Mod, that is increased because of a claim is entitled to a reduction if the injury is later accepted for payment by the Second Injury Fund.

Knapp said the Chamber’s study found that 51% of the time the X-Mod was not reduced as it should have been.

“The study can’t tell us if the problem lies with the insurance carriers not filing the required reports to make sure small businesses are getting the proper credit for Second Injury Fund claims or if the National Council on Compensation Insurance (NCCI) has fail to do the adjustments,” Knapp said. “We also don’t know if these failed actions are intentional in order to unjustly increase insurance company revenue or unintentional errors with the same results. But we do know that, according to this study, possibly up to 16,000 small businesses have been overpaying for workers’ comp insurance.”

NCCI South Carolina state affairs director Amy Quinn did not return a call placed by WorkCompCentral late Wednesday.

Knapp said he believes an investigation by the state attorney general’s office should determine if insurance companies are reducing their loss reserves when they receive subrogation payments from the SIF, as they are supposed to.

“Not reducing loss reserves, while being reimbursed by the Second Injury Fund, would result in inflated report of losses and thus be the basis for higher workers’ comp rate increases,” Knapp said.

NCCI has proposed a 32.9% rate increase in South Carolina, which the Small Business Chamber bitterly opposes. An administrative law judge has taken testimony from supporters and opponents and is expected to issue a ruling on the rate increase late this month or early next month.

An actuary for the office of public counsel previously testified in the rate case that the South Carolina Insurance Department has no methodology in place that verify that insurers are reducing loss reserves to account for subrogation’s by the Second Injury Fund. The actuary, Martin Simons, said failing to count subrogation payments as revenue would inflate insurance industry losses and lead to a larger rate increase than is justified.

The Small Business Chamber said its consultant obtained data from the Second Injury Fund from fiscal year 1998 to 2003. It found there were 51,365 new and reopened Second Injury Fund claims. Payouts from the Second Injury Fund during those years were $483.3 million. The average claim paid by the SIF rose from $20,869 in 1998 to $29,105 in 2003.

Knapp said the study showed that about 39% of small businesses with Second Injury Fund claims did not qualify for an X-Mod adjustments because they did not pay sufficient premium. But the 61% of businesses that did qualify, only 51% actually got an adjustment. Knapp said that means nearly 16,000 business were negatively affected during the six-year period.

Knapp said the study does not state how much more in premiums the businesses paid because of the failure to adjust X-Mods.

“We know it’s a lot of money,” Knapp said in a telephone interview. “We can’t tell if it’s intentional or not intentional.”