NCCI Glitch Ricochets in South Carolina Politics: Politics

By Mike Whiteley, WorkCompCentral

July 10, 2006

Nearly a year before news surfaced of a National Council of Compensation Insurance (NCCI) computer glitch that has triggered millions in refunds to employers, South Carolina’s chief casualty actuary Dean Kruger put reports of the trouble in a file for the state’s insurance attorneys.

Known around the state capital as an outspoken critic of NCCI, Kruger was helping Insurance Department lawyers gear up for discovery in a court fight over NCCI’s proposal for a 32.9% rate hike.

Because of a late response by the department, the July 1, 2005, rate filing still is pending before South Carolina’s chief administrative law judge, Marvin Kittrell.

Critics say the department never questioned the glitch during a hearing before Kittrell. They say the public had no knowledge about the problem until a South Carolina newspaper published a story detailing the computer glitch in June.

By then, it was too late for Kruger, a 16-year department veteran who left his post last November. Department critics say he was forced to resign.

Kruger declined comment on the events Friday. But he didn’t deny details of the events that were outlined by Frank Knapp, president of the South Carolina Small Business Chamber of Commerce. Knapp said Kruger took time off for hip surgery after he provided the discovery materials and was summoned to the office of a deputy insurance director when he returned.

There, said Knapp, Kruger was told he was being taken off the NCCI rate case. Later, he was forced to resign.

Ann Roberson, executive assistant to South Carolina Insurance Director Eleanor Kitzman, declined comment Friday, saying the agency can’t discuss personnel matters. Kruger said he’s reluctant to discuss his departure because he now works for an insurer regulated by Kitzman.

But Knapp and Tommy Moore, the Democratic state senator who’s running against Kitzman’s boss, Gov. Mark Sanford, said Kruger was a top workers’ compensation expert known for his integrity and candor.

“As far as I’m concerned, that individual has profound credibility,” Moore said. “He was never afraid to tell the department when he thought they were wrong.

Moore and his staff say turmoil surrounding NCCI and the rate hike hasn’t yet erupted on the campaign trail. But it may.

“There is certainly a lot of change and instability in the department that’s disconcerting at best,” Moore said. “A lot of eyebrows are being raised at the many errors we’ve been seeing.”

Calls to Sanford’s office and Republican Party Chairman Scott Malyerck weren’t returned Friday. In a previous statement, Kitzman’s regulators said they were aware of the computer glitch but considered it irrelevant to the rate case, because NCCI had repaired the problem prior to the 2005 rate filing.

But Knapp, whose group is leading the charge against the rate hike, said questions about regulators’ support for NCCI despite the reporting errors will play a role in election.

Sanford attempted to push a workers’ compensation reform bill through the Legislature this year. Knapp’s group opposed the measure, saying it did not address the real problems with the state’s system.

Knapp and the state’s consumer advocate have asked Kittrell to order the Insurance Department and NCCI to disclose what they know about the computer glitch and its impact on previous rate filings. If Kittrell agrees, Knapp said he and the state Consumer Affairs Department may ask that discovery be reopened.

Knapp said the battle will also be an issue in the state’s November gubernatorial election. For now, he said, the dust is settling from the June primary and a GOP runoff.

“There are a lot of issues that haven’t surfaced yet because the press is taking a breather,” Knapp said. “I think this will be an issue because the governor has taken a stand on workers’ compensation and because this is something that’s going to hurt small business.”

The controversy also is being watched by the Senate Democratic Caucus and Senate Minority Leader John C. Land III, a Manning, S.C., Democrat and workers’ compensation attorney.

Land said he was unaware of the NCCI computer problem until contacted by WorkCompCentral.

“It was all a kind of a fraud,” Land said of the proposed rate hike and rate increases during the two previous years. “It looks like they’re out to balance the books on the backs of the workers. From what I see, NCCI is misleading the public.

“And the insurance department is owned lock, stock and barrel by the insurance industry,” Land said. “It’s not a regulator. It’s a proponent.”

At the heart of the debate is who at the department knew of the NCCI computer problem — and when.

NCCI’s senior division executive for state relations, Peter Burton, said in a June 29 affidavit that NCCI began investigating reports from New Hampshire regulators that NCCI’s computer was improperly interpreting payroll data in 2004.

“In approximately spring 2005, NCCI reported to insurance regulators of states in which it operates (including South Carolina) the facts relating to this situation,” Burton said.

Burton and other NCCI officials said in interviews the problem began with the 2003 policy year, when the computer began dropping portions of payroll data being submitted for some job classification codes.

When the insurer-provided information could not be understood, the NCCI computer threw out the payroll data but reported all of the losses associated with the affected classification codes. That caused an overstatement in the ratio of losses to payroll, resulting in higher rate calculations for the affected codes.

NCCI issued a press release in June 2005 alerting the public to the problem and offered to perform free computer runs for state regulators who requested them.

In New Hampshire, which first spotted the problem in its logging codes, insurers have issued refunds of more than $666,000. Virginia regulators estimated last month that refunds ordered there could reach $1.2 million.

Last Wednesday, Illinois Gov. Rod Blagojevich ordered the state Department of Financial and Professional Regulation to ensure that data collected from employers is recomputed and that refunds or premium adjustments go to any employer owed more than $10.

Insurance Division Director Michael T. McRaith said “several thousands” of policy holders can expect a refund or adjustment.

South Carolina, like several southern states, said it may let NCCI fix the problem on a “going-forward” basis. Roberson said the question of refunds awaits Kittrell’s ruling.

Although the glitch affected some job codes in all 36 states for which NCCI calculates loss costs, the debate appears to be most pronounced in South Carolina because small companies are reeling at the prospect of another rate hike.

Kruger wasn’t the only actuary to weigh in on the problem.

In testimony in January in the pending rate case, Martin M. Simmons said he had “grave concerns” over the data used in the filing and recommended an increase averaging 12.7%.

“I am … acutely aware of the troubled state of the workers’ compensation insurance market in South Carolina today,” Simmons said Jan. 27. Recommending no increase in rates at this point could make things even worse.”

Simmons also questioned South Carolina’s handling of payments from the Second Injury Fund. When the fund reimburses an insurer, he said, the insurer’s incurred claims should be reduced by the amount of the reimbursement. Failure to do so triggers an overstatement of losses and “an unjustified windfall to that insurer at the expense of all South Carolina’s employers,” Simmons said.

Following the testimony, Knapps’ group commissioned an outside study that concluded employers due premium reductions because of Second Injury Fund claims didn’t receive them 51% of the time.

Simmons also cited a Nov. 13, 2003 letter from Kruger to NCCI outlining his review of actuarial standards of practice.

“The issue is the determination that the data used by NCCI in South Carolina is faulty,” Kruger wrote. “It does not meet any minimum standards that I am aware of.”

NCCI has questioned the data in the Small Business Chamber study and defended its methods of analysis.

But political pundits say the issue isn’t likely to go away.

“If the press picks up on this, we will connect the dots and make it an issue,” said one Moore strategist.

“The Department of Insurance is a cabinet-level agency and the director is appointed by the governor,” Knapp said. “It could have opted to go with a 12.7% rate increase.

“Instead, they sat with NCCI during the hearing in cooperation with NCCI’s attorneys to fight for a 32.9% increase and to argue against a 12.7% increase,” Knapp said. “They’ve basically teamed up with the insurance industry against small business.”

–Michael Whiteley, Southeast Bureau Chief.

mike@workcompcentral.com

Original Article: https://ww3.workcompcentral.com/news/story/id/p192g06d1729463tu11h53m/%7B3%7D

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