Regulator Reverses Position, Orders Refunds From Computer Glitch

By Michael Whitely, WorkCompCentral

August 25, 2006

South Carolina Insurance Department Director Eleanor Kitzman reversed a previous decision and ordered refunds covering the 2003, 2004 and 2005 policy years to employers who were overcharged because of a National Council on Compensation Insurance computer glitch.

Kitzman said in a press release that some of the checks to employers could exceed $5,000.

She signed an order Aug. 17 directing NCCI to begin calculating the refunds but delayed the refund schedule until the state’s chief administrative law judge rules on a controversial, 32.9% rate hike that NCCI recommended should take effect on July 1, 2005.

Kitzman reiterated in her order that the glitch, which NCCI disclosed to the 36 states for which it calculates rates in 2005, did not affect the computer runs on which it based the recommended rate.

The order was posted on the department’s Web site on a legal department page under bulletins and orders and was not announced to the press or the public. To download a copy, click here.

The order triggered mixed reactions from the South Carolina Small Business Chamber of Commerce and the state’s consumer advocate, who’ve opposed the rate increase.

Both asked Judge Marvin Kittrell to postpone his decision on the rate hike until he orders the insurance department to disclose details of the glitch.

Kitzman insisted there was no connection between the computer problem and the rate hike since rate-hike opponents made it public in June. But she said initially that NCCI would be allowed to fix the problem on a “going-forward” basis.

“We don’t yet know what it means,” said Frank Knapp Jr., president of the Small Business Chamber. “It could mean refunds of anywhere between $10 and $5,000. Our position all along has been that we shouldn’t have had to pay the extra premiums.”
Hana Williamson, the attorney with South Carolina Department of Consumer Affairs handling the rate case, said the counsel’s office is preparing a list of questions concerning Kitzman’s decision.

Williamson said she wants to know why Kitzman is delaying the refund if it’s not tied to the numbers used for the rate increase.

“We intend to put those questions into a formal inquiry, and we are preparing that as we speak,” Williamson said.

The order came five days before Kitzman was called to testify before a special, five-member workers’ compensation study panel convened for the first time Tuesday by South Carolina Senate President Pro Tem Glenn McConnell.

McConnell, R-Charleston, questioned Kitzman, an NCCI representative, and others about the proposed rate increase, NCCI’s operations in the state and the need for reform during a five-hour hearing.

State Sen. Gerald Malloy, D-Hartsville, an attorney who has been active in workers’ compensation issues, said he expects the committee to prepare a reform bill based in part on Kittrell’s decision in the pending rate case.

The South Carolina House passed what critics called a watered-down reform package last session. It died in a Senate committee.

“We need to ask some fundamental questions about the workers’ compensation system,” Malloy said Thursday. “The first one is: Is it broken?”

Ann Roberson, Kitzman’s executive assistant, said it’s too early to gauge the financial impact of the refund on South Carolina employers. She said the agency does not issue press releases to announce the posting of new orders. And she said Kitzman’s decision doesn’t constitute a reversal.

“She has looked at this (possibility) from the very beginning,” Roberson said.

Roberson said the refund process is being delayed because no one knows what Kittrell will rule on the rate case. His decision is expected soon.

NCCI began alerting states to the problem, after New Hampshire regulators spotted discrepancies in rates for job classifications in the logging industry.

NCCI reported its computer accepted only partial payroll data for some job codes while processing all of the loss data for those codes — triggering loss-cost ratios that were too high.

New Hampshire regulators ordered refunds of $666,000, while refunds in Virginia could reach $1.2 million, based on NCCI estimates.

She said loss costs were overstated for 60 of 600 job classifications for an estimated potential premium impact of 0.5% of total premium.

She said the average refund will be less than $250 per policy, while it could exceed $5,000 for a small number of larger policyholders.

She called for NCCI to file amended costs within 15 days after Kittrell approves the rate request. Thirty days after the department approves NCCI’s amended filing, it must provide insurers with a list of affected policies, Insurers would have another 60 days to research the policies and another 30 days to issue the refunds.

In no case, she said, can insurers bill employers who may have been undercharged.

–By Michael Whiteley, Southeast Bureau Chief

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