Refunds for S.C. businesses, State order to help companies overcharged for their workers’ compensation policies

Refunds for S.C. businesses, State order to help companies overcharged for their workers’ compensation policies

By Peter Hull, The Post and Courier

August 26, 2006

The state Department of Insurance, reversing course, has ordered refunds for businesses that were overcharged for their workers’ compensation policies.

The agency said the calculations used to set the costs of the affected policies were wrong. The move reverses a June decision in which the department said insurers should make up for the overcharges through future discounts.

Average refunds will be about $250, according to the agency, but some employers could receive a check for more than $5,000. The payments are for certain premiums paid between April 2003 and July 2004 by businesses that fall into 60 job classifications.

The department said Friday it did not know the total amount of overpayments statewide or the number of affected employers. Spokeswoman Ann Roberson said the average refund figure was based on estimates from the National Council on Compensation Insurance.

The Boca Raton, Fla.-based council is an industry-backed nonprofit research organization that recommends workers’ comp premiums in 36 states, including South Carolina.

Kevin Young, owner of Coastal Driver Leasing on Ashley Phosphate Road in North Charleston, said he would welcome a refund. Young, whose staffing business provides drivers for the trucking industry, said he’d rather have a check than the promise of discounted premiums in the future.

With 20 to 40 employees, depending on the time of year, he said workers’ comp premiums are his biggest expense after payroll. Since he started the business four years ago, rates have increased about 30 percent, he said.

“It’s out of control,” Young said.

The insurance department said it is still awaiting a ruling on whether workers’ comp rates should be increased, and by how much, before it can determine the total refund figure. Some of the policies in question could be affected by that ruling, Roberson said.

She also said the department’s refund order, dated Aug. 17, was not a change of heart. Insurance Department Director Eleanor Kitzman “planned to do thisall along,” Roberson said.

But just two months ago, the department said it would correct the problem on a “going-forward basis,” meaning insurers were to discount future premium rates to offset the overpayments.

That announcement came a year after the department discovered that NCCI had based its latest rate recommendation on faulty data.

Policies in all 36 states that use NCCI’s recommendations were affected. For example, employers in New Hampshire, which has a population less than one-third that of South Carolina, received total refunds of more than $660,000.

The insurance department has acknowledged that it knew about it but did not publicly disclose the overpayment problems until two months ago.

NCCI recommended an increase for South Carolina in July 2005. Its proposal, if approved, would boost workers’ comp rates nearly 33 percent. The group said the increase is needed because of a shortfall in the amount insurers received in premiums and what they paid out in claims.

NCCI’s Peter Burton, a senior division executive for state relations based in Wayne, Pa., said in June that the accuracy problems in South Carolina were not as acute as in other states. The data discrepancies did not influence NCCI’s recommendation, he said.

Burton said Friday that the insurance department, after some reflection, decided to take similar action to other states by ordering refunds.

The South Carolina Small Business Chamber of Commerce, a staunch opponent of the NCCI’s proposed increase, has criticized the state’s handling of the premium errors. The group described the refund order as better late than never.

“It’s an acknowledgement that they kept it secret for a year,” said Frank Knapp, the chamber’s president. “They should have done this when they knew about it a year ago.”

Reach Peter Hull at 937-5594 or phull@postandcourier.com.