By Kimberly Parent, National Underwriter
Published June 19, 2006
A recent study has found that small businesses in South Carolina are not receiving the state’s second injury fund rate reduction benefits they are supposed to.
The analysis was conducted by Advance Insurance Management, an independent consulting firm based in Riverside, Ill., for the South Carolina Small Business Chamber of Commerce.
The report said that of the 201 random employers selected in South Carolina, only 30 percent overall of the SCSIF reimbursements reviewed actually were incorporated into revised experience modification factors for employers.
For employers with an experience modification factor, which tracks the frequency and severity of claims, a workers’ comp claim causes their premium rates to rise.
The SCSIF was established to protect businesses from high workers’ compensation claim losses and higher premium rates because of hiring and retaining workers with prior physical injuries.
Insurance carriers are reimbursed by the fund for claims involving a new injury which combines with a prior disability to result in considerably increased medical or disability costs than the accident single-handedly would have produced.
Of 180 employers who had claims reimbursed by SCSIF, and who were also experience rated, 89 were revised and 91 were not revised to reflect the SCSIF reimbursements. Fifty-one percent of these experience modifiers were not revised to reflect the SCSIF reimbursements to insurance companies, even though they should have been, according to AIM.
Insurance carriers must notify the National Council on Compensation Insurance, the state’s advisory rating organization, if the claim is accepted by the Second Injury Fund so that the experience modification factors can be revised to reflect the lower claims costs.
“The only thing that surprised us about the results was the magnitude,” stated Frank Knapp, president of the S.C. Small Business Chamber of Commerce, which commissioned the study.
Mr. Knapp believes there is a problem with the insurance companies communicating the SCSIF reimbursements, adding that there are two reasons for these results: either “insurance carriers are not filing the required reports,” or “the people at NCCI are not doing their jobs.”
While up to 16,000 small businesses are “due a refund from the carrier,” adds Mr. Knapp, there is unfortunately “no way to assign a value to these cases.” He has asked the State Attorney General’s Office to open an investigation.
Barry Llewellyn, senior divisional executive for regulatory services of NCCI, said that while he had not read the survey, “if it was a fact, we would have already opened an investigation” years ago.
He added about this issue that he cannot “recall it being raised in any other states.” Mr. Llewellyn implied a political bias, stating that in South Carolina, “this became an issue that opponents of the WC rate increase attached to.”
South Carolina Small Business Chamber has challenged NCCI’s proposed 32.9 percent increase in loss cost rates. The results of a public hearing on the issue are still pending.
Mr. Llewellyn concluded: “All of the necessary parties are aware of this issue. If the insurance department wants to pursue an investigation, they are able to.”