Workers’ Compensation Rate Hearing Update #2

Workers’ Compensation Rate Hearing Update #2

The hearing on the National Council of Compensation Insurance’s (NCCI) proposed 32.9% increase in workers’ comp loss cost in South Carolina continued yesterday. The second day of the hearing began at 9 a.m. in the court of Chief Administrative Law Judge Marvin F. Kittrell and ended shortly before 6 p.m. The parties supporting the increase are NCCI, Companion Property & Casualty, the S.C. Department of Insurance and the S.C. Chamber of Commerce. Opposing the increase is the S.C Consumer Advocate and The SC Small Business Chamber of Commerce.

Below are the highlights of Tuesday’s testimony:

–Mr. Barry Llewellyn, senior actuary for NCCI, testified that NCCI’s 2003 test audits of South Carolina businesses to determine workers’ comp classification and premium accuracy found error rates of up to 54%. Of these errors, 50% were premium errors that almost always involved inadequate premiums being collected.

–Mr. Llewellyn stated that NCCI alerts carriers to errors found in the test audits but it does not verify that the carriers follow-up with corrective action.

–Mr. Llewellyn also testified that NCCI had no mechanism to verify that insurance carriers are properly reporting recoveries from the Second Injury Fund or from subrogation. Opponents of NCCI’s increase request maintain that carrier losses might be inflated due to some non-reporting of these recoveries.

–Mr. Llewellyn admitted that NCCI could ask for data to verify that carriers are properly reporting Second Injury Fund and subrogation recoveries.

–Mr. Robert Conger, an independent actuary retained by NCCI to help prepare its filing, testified that the length of time it takes to close a case has minimal impact on claim costs. This opinion seems to contradict a major point of the NCCI filing that cases taking longer to close in South Carolina is one of the three main contributing factors to increased costs.
–Mr. Conger also stated that unless data can be quantified, it shouldn’t be used in calculating the loss cost filing. This opinion is important as it pertains to two of the three main contributing factors to increased costs according to NCCI: a trend toward claims remaining open longer and the high percentage of cases with attorney involvement. In his deposition, NCCI’s Jay Rosen, the lead actuary for the filing, said that the trend of cases remaining open longer “was a piece of information that was considered prior to making the filing.” Yet in response to interrogatories, NCCI stated that “the cost impact of the observed claim closure patterns has not been separately quantified during preparation of the Loss Cost Filing.” In these same interrogatory responses, NCCI also admitted that “the cost impact of attorney involvement has not been separately quantified.” NCCI’s major claims that increased costs were due to cases remaining open longer and the high percentage of attorney involvement were never quantified but somehow still were considered in the filing.

–Mr. Conger discussed North Carolina’s loss cost experience. He noted that North Carolina’s approved loss costs from 2001 to 2005 ranged from –1.4% to +4.6% compared to South Carolina’s double digit approved increases in the last two years. Having worked on North Carolina’s loss cost filings; Mr. Conger testified that that state has been experiencing the same upward pressures on loss costs as has South Carolina. He noted that North Carolina uses its own rating organization and only receives data from NCCI.

–In spite of being responsible for the oversight of the final filing’s content, Mr. Conger expressed a lack of knowledge about the state’s workers’ comp medical fee schedules and procedures as they relate to the filing’s specific statement that “There are no limits on the amount of medical care an injured worker receives” and the filing’s conclusion that rising medical costs are a significant contributor to increasing loss costs.

–Mr. Conger did acknowledge that from 2002 to 2003 in South Carolina the rate in medical severity growth dropped by 50%, indemnity costs per case in excess of wage growth dropped, percentage of attorney involvement in cases dropped and percentage of claims closed within 24 months increased—all positive trends.

–Mr. Conger refused to agree that the following recent improvements in the state’s Workers’ Comp system would translate into a positive outcome on loss costs: more workers’ comp commissioners to hear cases, a return to full staffing at the Workers’ Compensation Commission and a new computer system for the Commission to manage cases.

–Mr. Conger did admit that any data not being reported successfully to NCCI would result in a significant problem for the accuracy of the loss cost filing. He agree that the formula for determining the extent of the inaccuracy would be that every dollar in over reported losses would equate to approximately three dollars in overstated loss cost increase needed.

The hearing continued today at 9:00 A.M.