by Michael Whiteley, WorkCompCentral
Published June 30, 2006
Virginia regulators said Thursday that employers in the state will get refunds amounting to $1 million to $1.2 million because of a National Council on Compensation Insurance (NCCI) computer glitch.
The Bureau of Insurance is still sorting through at least 32 classification codes for which rates were set too high because of the problem.
“It probably won’t be until November before it’s all finalized,” said Ken Schrad, information resources director for the bureau.
Virginia is one of at least six states to order refunds since New Hampshire regulators alerted NCCI to the problem in 2004. Auditors found problems in the way the NCCI computer system interpreted unit statistical reports for certain classification codes. NCCI since has alerted all 36 states for which it calculates loss costs.
Maine, Missouri, New Hampshire and Vermont have issued public statements and ordered NCCI to recalculate premiums paid in the 2003, 2004 and 2005 policy years. Arkansas, Georgia, Mississippi, North Carolina and South Carolina have allowed NCCI to adjust for the problem is subsequent rate filings and go forward.
Virginia’s decision is outlined in a May 16 memo from Mary M. Bannister, Virginia’s deputy commissioner of insurance, to all insurers licensed to write workers’ compensation in the state.
“Based on information and data provided by the National Council on Compensation Insurance and reviewed by the bureau’s actuaries, it has been determined that loss costs and assigned-risk rates for a limited number of classifications were calculated based on incomplete payroll data in the Virginia NCCI applications approved effective April 1, 2003, April 1, 2004 and April 1, 2005,” she said in the memo.
She said NCCI submitted corrected filings for the affected codes on March 10, and the loss costs rates have been approved by the state corporation commission.
“This action will require insurers to immediately endorse all affected policies to reflect the corrected rates,” she said. “With respect to policies for which final audits have already been completed, refund checks must be issued to policyholders.”
She said premium adjustments on policies still being audited can be made at the time of the audit. But she emphasized all of the revisions are reductions in rates and all changes should result in reduced premiums.
NCCI will provide the insurers with a list of policies containing the affected class codes. The companies, in turn, will have to provide NCCI with a list of affected policies, the amount of the premium adjustment for each policy and details of the refunds, audits or anticipated audits.
Bannister gave NCCI and the carriers until Nov. 1 to complete the process.
NCCI identified 32 class codes in Virginia for which revised loss costs and assigned-risk rates took effect April 1, 2003, 29 class codes for April 1, 2004 and 25 codes for April 1, 2005.
In South Carolina, small business advocates have strongly protested the department’s failure to order refunds.
Ann Roberson, executive assistant to the director of the South Carolina Department of Insurance, said there’s been no final decision. An administrative law judge is scheduled to decide in early July whether to approve an NCCI filing that would increase rates by 32.9%.
The South Carolina Small Business Chamber of Commerce is calling for the state to order refunds based on the NCCI computer problem and reopen hearings on the pending rate increase.
Roberson said that although the problem has been corrected on a “going forward” basis, the state hasn’t ruled out refunds.
“The S.C. DOI has determined that similar problems occurred in South Carolina in the past as experienced in Missouri, Vermont and New Hampshire,” the department said in a statement. “Those problems were corrected on a going-forward basis. The DOI did not consider these issues relevant to the April (rate) hearings and overall loss costs. At such time as a decision is made … on the overall loss costs, the DOI will determine any additional class relativity changes that need to be made to correct prior errors by NCCI.”
NCCI representatives could not be reached for comment Thursday. But Peter Burton, state relations executive for the company, said in a previous interview with WorkCompCentral that NCCI has been able to identity every policy affected by the errors. He said NCCI is willing to crunch numbers for any insurance department that requests it and will cover the costs of the computer runs.
In New Hampshire, where regulators flagged the problem in the state’s logging industry, the employers have received $660,000 in rebates.
Georgia analysts say the problem began when carriers fed multiple lines of data for job codes into the NCCI computer, which was programmed to accept only one line of data. The rest of the data, they said was thrown out.
Additional problems occurred when carriers attempted to break down job classification into several subsidiary codes.
While the computer tossed out the payroll data, it reported all of the losses associated with the affected codes. That caused an overstatement in the ratio of losses to payroll and, in most instances, raised rates.
While Virginia regulators have been grappling with the problem for several months, the news hadn’t reached state’s agents and brokers.
“I haven’t heard a word about it. Thanks for making my Fourth of July,” joked Bob Bradshaw, executive director of the Independent Insurance Agents of Virginia, a member of the Independent Insurance Agents & Brokers of America (IIABA). “I had planned to take a couple of days off.”
–Michael Whiteley, Southeast Bureau Chief