Don’t punish all small businesses to help just a few

Don’t punish all small businesses to help just a few

SC House LCI Insurance Subcommittee on H.3396

Comments by Frank Knapp, South Carolina Small Business Chamber of Commerce

March 3, 2015

The South Carolina Small Business Chamber of Commerce (SCSBCC) has a long, successful track record of court and legislative accomplishments in the area of Workers’ Compensation Insurance.   We are recognized as the primary organization working on behalf of the state’s small businesses on this issue.

A little historical perspective is important.

In 2005 we recommended that the Legislature approve funding for upgrading the Workers’ Comp Commission computer system and adding essential employees to that Agency to produce more efficient and faster handling of workers’ compensation claims.  We also recommended that the Legislature approve funding for an Insurance Fraud Unit at the state Attorney General’s Office.  Both recommendations were implemented in the state budget that year.

Also in 2005 a several year battle with the insurance industry began when it asked the state to approve a 32.9% increase in Workers’ Comp loss cost levels and a 23.9% increase two years later.  The SCSBCC was the only business organization that went to court to fight these increases and in conjunction with the State Consumer Advocate’s Office obtained a ruling from the judge on the first case that cut the 32.9% increase by 44% and we reached a settlement on the second case cutting the hike by over 41% and saving small businesses $130 million in annual Worker’s Comp premiums.

Also in 2007 the SCSBCC pointed out to the Legislature that the insurance companies were abusing one of the important, unregulated components in Workers’ Comp rates.  In response the General Assembly gave the Dept. of Insurance the power to oversee and regulate the Loss Cost Multiplier that determined how much profit companies could make from the premiums they received.

As a result of all these and other efforts that I don’t have time to address, Workers’ Compensation Insurance rates in general have stabilized for South Carolina small businesses.  As proof of this, the industry’s request for loss cost adjustments have been a reduction of 0.3% (2008), a reduction of 9.8% (2010), a reduction of 3.7% (2011), an increase of just 3.0% (2012) and a reduction of 7.4% (2014).

Having worked on Workers’ Comp issues for over 10 years, we have a good handle on how the system works and what are good and not so good ideas for improving the system and protecting what has to be the most effective legislative statute that this General Assembly has ever put in place to reduce lawsuits against businesses.

Unfortunately, H.3396 in its present form is not a good idea.  Passing it as is will guarantee that either a judge or the Workers’ Comp Commission will have to rule on what it means.  And either way the ruling goes, bad things will happen.

The confusion is this.  Does the wording mean that the businesses that are required to carry Workers’ Compensation insurance under the Longshore Act do not have to also have a policy under the State’s Workers’ Compensation Act?

Many feel that the answer to this question is that businesses covered under the Longshore Act do not have to have another policy for the state system.  This apparently is the position of the Workers’ Compensation Commission staff and is why they said that there would be zero impact on the Workers’ Comp system under this bill.

If a judge or the full Workers’ Compensation Commission agrees with this interpretation, it will be the start of unraveling of our effective Workers’ Comp law.  It is very clear that employees of these businesses will end up being injured from job related duties when they are off the maritime site and thus not covered by the Longshore Act.  These injured employees will file lawsuits against their employers over their injuries, something we had all but eradicated many, many years ago.

But if a judge or the full Workers’ Compensation Commission finds that employees with these businesses, when they are not covered by the Longshore Act, can file for compensation through the state’s Workers’ Comp system, we have another serious problem if these businesses were not also carrying a policy for the state system.  In this case, these injured workers would file their claims under the state’s Uninsured Employers Fund.  This fund is paid for by every business that has a Workers’ Comp policy.

Essentially these few maritime businesses would be shifting what should be their Workers’ Compensation expenses onto every other small business with a Workers’ Comp policy in the state  and possibly causing the Uninsured Employers Fund fee to increase if the state’s attorneys cannot recover the losses from the employer, which they will try to do.

Gentlemen, H.3396 should not be passed in its present form.  It poses a threat to the integrity of our very good state Workers’ Comp system that we have successfully made more effective and efficient.  It also poses a threat to the premiums of every other small business in the state with a policy and it is simply wrong to punish all small businesses to benefit a very few.