NCCI and SC Consumer Advocate Tangle Over Disclosure

NCCI and SC Consumer Advocate Tangle Over Disclosure

by Michael Whiteley, WorkCompCentral

July 5, 2006

South Carolina’s consumer advocate and an attorney for the National Council on Compensation Insurance clashed sharply late last week over what NCCI should have told the state about a nationwide computer glitch that triggered refunds to employers in at least six other states.

The state consumer advocate says NCCI withheld the information during a court hearing that challenges NCCI’s proposed 32.9% hike in South Carolina’s workers’ compensation rates.

But in a letter sent Thursday to Marvin F. Kittrell, the state’s chief administrative law judge, NCCI insisted the computer problem had been in the news for more than a year and was repaired prior to the organization supplying data to support a proposed rate increase.

M. Craig Garner Jr., an attorney for NCCI, said the consumer advocate never requested information on the computer glitch during the discovery period that led up to hearings in April over the controversial rate hike.

In a response sent to Kittrell the following day, Hana Pokorna-Williamson, a staff attorney for the state’s Department of Consumer Affairs, said the agency did ask for audit documents that should have applied to the data problem.

And she quoted a June 9 press release NCCI issued when it disclosed that employers in Missouri would receive refunds dating back to the 2003 policy year.

“Payroll amounts are one factor to determine loss costs for any given year. Loss costs are then used to determine workers’ compensation rates for employers who carry this type of coverage,” she quotes NCCI as saying. “If understated payroll amounts are used when calculating loss costs, higher costs will result.”

Pokorna-Williamson challenged NCCI’s assertion that it has satisfied discovery requests in supplying all reports relative to audit programs. She insisted NCCI’s discovery that it had problems with job classifications in all of its states must have triggered an audit or review.

“Clearly if NCCI felt it necessary to notify departments of insurance in all of its states about this problem, it does have an impact on loss cost figures,” Pokorna-Williamson wrote in the letter.

Kittrell is expected to act sometime this month on the rate increase NCCI requested in a July 2005 filing. The South Carolina Small Business Chamber of Commerce has actively opposed the increase. The state consumer advocate has recommended a rate hike of 12.7%.

NCCI was alerted to the computer-glitch problem by New Hampshire regulators in 2004, when they discovered the organization was misreporting loss costs for the logging industry. The company informed all 36 of the states for which it calculates loss costs that its computers had failed to interpret payroll data for some job codes.

When the 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 has told the states the glitch covered some codes for the 2003, 2004 and 2005 policy years.

New Hampshire Insurance Commissioner Roger Sevigny ordered refunds for the three years that had provided a total of $666,086 to 13,424 policyholders by March.

Virginia regulators estimated last week that potential refunds could reach $1.2 million and ordered the issue be resolved by Nov. 1. Maine, Missouri and Vermont also have issued public statements and ordered NCCI to recalculate payments for the period.

And an Illinois official confirmed in an interview with WorkCompCentral late last week that the state insurers have been required to mail refund checks or apply credits to insurer or agency-billed accounts. Insurers are required to notify policyholders of the actions. The affected job codes will be placed on the Web site of the Illinois Department of Financial and Professional Regulation.

South Carolina insurance officials initially said they would allow NCCI to correct the problem on a going-forward basis. But they added they are awaiting Judge Kittrell’s decision in the rate case and haven’t ruled out ordering refunds.

The Small Business Chamber has asked Kittrell to delay a decision until the state supplies a list of the affected job codes and outlines the impact of the NCCI glitch.

Frank Knapp, president of the Small Business Chamber, said Kittrell can choose between the proposed rate increases or order the state to hand over the data. Knapp said his group will review the material and then decide whether to request that the hearings be reopened.

“The NCCI has said we’re stalling, and the insurance department has said we’re stalling,” Knapp said. “They’re saying if we didn’t bring it up at the hearing, it’s our tough luck.

“But this is a new wrinkle,” he said. “This is information that should have been released at the hearing, and it wasn’t.”

With the letter, NCCI attorneys supplied affidavits from Peter Burton, NCCI’s senior division executive for state relations.

Burton said NCCI began alerting states of to problem in the spring of 2005 and had repaired South Carolina’s loss costs by the time NCCI made the loss cost filing that July.

“The financial data underlying NCCI’s request for a 32.9% overall increase in the July 1, 2005 loss cost filing in South Carolina was not impacted by this issue,” he said in the affidavit.

NCCI’s law firm, the McNair Law Firm of Columbia, S.C., also supplied details of a June 23 conversation Burton had with a Charleston newspaper reporter and press releases issued by regulators in Maine, New Hampshire and Vermont beginning in April 2005.

The Vermont Department of Banking, Insurance Securities & Health Care Administration said on April 25, 2005 it had ordered refunds for 18 classification codes involving hundreds of employers. The agency reported NCCI had fixed the problem for the 2005 policy year.

A month later, the Maine Bureau of Insurance reported that it had ordered rate reductions covering the 2003, 2004 and 2005 policy years for 29 classifications involving hundreds of employers. And New Hampshire reported refunds ranging from $10 to more than $5,000.

NCCI’s attorneys challenged the state’s assertions that news of the glitch involved an audit and said news reports credited it to a discovery by NCCI and New Hampshire regulators. And they challenged assertions by the consumer advocate and the Small Business Chamber that they were unaware of the problem until the Charleston newspaper story.

“If that is the case, their lack of knowledge results from an absence of any effort by the consumer advocate and the small chamber,” Garner said.

Burton said in an interview Monday that NCCI has supplied the data to the South Carolina Department of Insurance, which in turn is awaiting a ruling from Kittrell.

“We’re in a holding pattern at this point until we get a final determination,” Burton said. “They’re in a holding pattern as well. We all are.”

–Michael Whiteley, Southeast Bureau Chief

mike@workcompcentral.com

WCC Senior Editor Jim Sams contributed to this report.