Workers’ comp error revealed

By Peter Hull, The Post and Courier

June 22, 2006

Employers in South Carolina were overcharged for several years on their workers’ compensation insurance premiums because calculations used to set premium rates were in error.

But unlike their counterparts in some other parts of the country, employers here won’t be receiving a refund of their overpayments because the South Carolina Department of Insurance decided instead to let insurers make up the overcharges by providing future discounts.

A year ago, New Hampshire Department of Insurance officials issued a press release that said many of the state’s employers had overpaid for workers’ compensation insurance between 2003 and 2005.

The National Council on Compensation Insurance, the company that recommends workers’ comp premiums in 36 states, including South Carolina, had based the rates on faulty data, the department said.

New Hampshire’s insurance commissioner ordered that all affected policy holders receive a refund. Employers in New Hampshire, a state with a population less than one-third that of South Carolina, received total rebates of more than $660,000.

Insurance departments in Vermont and Missouri have issued similar statements. In each case, employers’ payroll information used to calculate workers’ comp rates was understated by NCCI. The higher the payroll, the lower workers’ comp rates should be.

South Carolina Department of Insurance officials said Wednesday that the department was made aware last year of problems in other states, and through its own investigation determined that similar problems had occurred in South Carolina.

Those problems were corrected on a “going-forward basis,” said department spokeswoman Ann Roberson. In other words, adjustments are to be made to future premium rates to compensate for prior overpayments.

Unlike other states, however, the department did not go public with its findings. Not only did it not issue a press release, it also didn’t inform the state consumer advocate’s office, officials there said.

A month after New Hampshire made its announcement, NCCI filed a recommendation to increase workers’ comp rates in South Carolina by 32.9 percent.

The insurance industry-backed group said the increase was needed because of a shortfall in the amount insurers received in premiums versus the amount they paid out in claims.

When attorneys at the consumer advocate’s office, preparing for hearings on the NCCI rate recommendation, asked the Department of Insurance if there were any concerns with the reliability of NCCI’s data, the department did not disclose any information about overpaid premiums.

“Nobody mentioned there was a national data issue,” said Hana Williamson, staff attorney with the consumer advocate’s office.

NCCI’s Peter Burton, a senior division executive for state relations based in Wayne, Pa., said the data accuracy problems in South Carolina were not as acute as in other states.

Only a small number of job classifications were affected, he said, and South Carolina took the same approach as about half the affected states.

The discrepancies did not influence NCCI’s proposed rate increase, Burton said. “The number was not affected by the issue,” he said.

But in April, when NCCI, the Department of Insurance and other interest groups argued before an administrative law judge during a week of hearings for and against an increase, the data accuracy problems likely would have proved useful, Williamson said.

“We regret that the information was not provided,” she said. “Had we known, we would have used it – it certainly would have bolstered our case.”

The issue was not raised during the hearings, and the Insurance Department did not consider the matter relevant, Roberson said.

When a decision is made by the court, the department will determine any additional changes that need to be made to correct prior errors by NCCI, Roberson said.

The judge could rule by next month on whether rates should increase and by how much.

The South Carolina Small Business Chamber of Commerce, a staunch opponent of NCCI’s proposed increase, said Wednesday that the Insurance Department had crossed a line.

“The department and the insurance industry played the court by hiding this important information during the recent rate hearing because they didn’t think it was relevant,” said Frank Knapp, the chamber’s president. “That’s for the judge to decide, not them.”

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

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