S.C. Settles Loss-Cost Fight with a 9.8% Increase

By Michael Whiteley, WorkCompCentral

May 13, 2008

The National Council on Compensation Insurance (NCCI), state officials and the Small Business Chamber of Commerce settled their year-old court fight over loss costs Monday by agreeing to a 9.8% increase effective July 1.

The agreement, which was tentatively approved from the bench by Chief Administrative Law Judge Marvin Kittrell was reached just before the opening of what was expected to be a prolonged administrative trial — which would have been the second in a row challenging a loss-cost filing by NCCI in South Carolina.

NCCI had requested an average increase of 23.7% in voluntary-market loss costs. Kittrell, after a 2006 trial, reduced NCCI’s last filing for an increase of 32.9% to 18.4%, effective Dec. 1, 2006.

In both instances, the NCCI filing drew legal challenges from South Carolina Consumer Advocate Elliott Elam Jr. and the South Carolina Small Business Chamber of Commerce. In the latest case, NCCI sued to protest a ruling by South Carolina Insurance Director Scott Richardson that would have held the proposed increase to 11% in 2007 and another 5% this year.

Elam said the 2006 data released during the discovery phase of the trial convinced him NCCI should file for a decrease in loss costs with the next filing, which is scheduled to take effect on July 1, 2009.

“We’re pleased,” Elam said. “It’s like everything else with a settlement, we think we would have gone to trial and won. But we think it’s a fair settlement, and it gets us to a filing next year with more recent valid data. We anticipate we will be looking at a rate decrease, and we think we had a case for a decrease this year.”

Amy Roberson, Richardson’s executive assistant, said Monday the Insurance Department is also happy with the settlement.

“We are pleased an agreement was finally reached, and we thought it would be in the 11% range all along,” Roberson said. “We hope going forward that all parties will work to streamline the process.”

The proposed 23.7% increase would have put South Carolina at the top of the list of states for which NCCI recommended increases in rates or loss costs. NCCI said at its annual issues symposium in Orlando last week it has recommended cuts this year in three-fourths of the states where it makes rates.

Amy Quinn, NCCI state relations executive for South Carolina, said the settlement spared carriers a prolonged wait before increasing loss-costs. During the last case, Kittrell held the trial in April but didn’t rule until the fall, and then delayed any change in loss costs until December.

Given that time frame, any further increase in loss costs would probably have waited until January, she said, when many of the state’s carriers are filing the bulk of their renewals.

Elam and the Small Business Chamber had filed documents suggesting loss costs should be reduced by between 3% and 8%.

“We wouldn’t have agreed to it if we didn’t feel it was a reasonable deal,” Quinn said. “You end up having the wait and the uncertainty of the wait. The judge issued his decision, and we have the actual amount and the best time frame for it,” Quinn said. “You end up getting 10% immediately with certainty added to that.”

After Kittrell tentatively approved the settlement at a hearing in Columbia, S.C., Monday morning, Kittrell told the parties he wants the final proposed order to require NCCI to work with Richardson’s department to resolve issues raised by a South Carolina Department of Insurance market-conduct examination released in January.

The department highlighted flaws in NCCI’s adjustment to experience modifiers in Second Injury Fund cases and errors in the earned premium data submitted by carriers.

The review was ordered after NCCI asked to increase loss costs by 32.9% in 2005.

Linda G. Haralson, chief financial examiner for the Insurance Department, called for the Boca Raton, Fla.-based ratemaker to establish an audit program for the standard earned premium data it receives from carriers.

She said NCCI should also take steps to ensure that recoveries from the Second Injury Fund are subtracted from the losses
figured in experience ratings for employers.

Quinn said NCCI is in the process of scheduling a meeting with state regulators to come up with firm plans for addressing the criticisms.

“The report has some broad recommendations. We need to go through it (with the Insurance Department) and accomplish what needs to be done,” she said.

Skyrocketing workers’ compensation costs triggered a major reform package passed by the South Carolina Legislature last year. Included in the new law is a requirement that carriers file detailed, audited statements to support loss-cost multipliers, which take into account overhead, surcharges and dividends.

Previous insurance deregulation had removed the requirement that carriers routinely provide any backup for the multipliers, which also must be approved by Richardson.

Frank Knapp, president of the Small Business Chamber of Commerce, said he expects carriers to significantly reduce the multipliers they file with the new loss-cost filings, because they will be subject to scrutiny. He said the drop in multipliers may go far enough to offset the impact of the increase in loss costs.

“I think this is a good deal,” Knapp said.

“It saves more than $130 million for the businesses in this state. We’ve done much better than we’ve done in past rate hearings,” he said. “We think all of the losses are dropping, and we are in really good shape next year. We may be getting a reduction, and that means the whole workers’ compensation system has turned around.”

In early negotiations, Knapp said, Elam indicated he would accept no offer in the double digits, and NCCI came back with 9.8%.
Quinn said it is premature to predict a rate reduction in July 2009.

“We’ll file whatever we find in the losses,” Quinn said. “But we’ve filed far more decreases than increases. We’re not afraid to file a decrease.”

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