Insurance Carriers Overcharging Small Businesses

June 7, 2006

Columbia, SC– A study of Workers’ Compensation Second Injury Fund claims shows that 51% of small businesses qualifying for premium reductions did not receive them. The study was conducted by Advanced Management Insurance for the SC Small Business Chamber of Commerce.

The Second Injury Fund was established to encourage businesses to hire workers with prior physical injuries. It does so by protecting the employer from workers compensation claim losses that are due to the employee’s pre-existing physical problem. Employers with an “experience modification factor” that is increased after a worker’s comp claim, thus causing premiums to rise, are to have “experience modification factor” reduced if the claim is accepted by the Second Injury Fund. The study found that 51% of the time the “experience modification factor” 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 failed to do the adjustments,” said Frank Knapp, Jr., president of the Small Business Chamber. “We also don’t know if these failed action 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 16,00 small businesses have been overpaying for workers’ comp insurance.”

“I have met with the Attorney General Henry McMaster and his staff attorneys to discuss this issue,” said Knapp. “I have asked the Attorney General to take actions toward an investigation if he determines that it is appropriate. 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.” Not reducing loss reserves, while being reimbursed by the SIF, would result in an inflated report of losses and thus be the basis for higher workers’ comp rate increases.

According to data obtained from the S.C. Second Injury Fund, from FY 1998 through FY 2003 there were 51,365 new and re-opened Second Injury Fund claims. Payouts from the SIF during those years were $483,334,924. The average claim paid by the SIF rose from $20,689 in FY 1998 to $29,105 in FY 2003.

According to the Small Business Chamber study, about 39% of small businesses with SIF claims do not qualify for an “experience modification factor.” Consequently, of all Second Injury Fund claims about 31% involve small businesses not receiving the benefits of the SIF claim that they deserve. That would be the equivalent of nearly 16,000 businesses negatively affected during this six-year period.

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