Workers’ Compensation Rate Hearing Update #3

Workers’ Compensation Rate Hearing Update #3

Wednesday was the third day of the hearing on the National Council of Compensation Insurance’s (NCCI) proposed 32.9% increase in workers’ comp loss cost rates in South Carolina. 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 Wednesday’s testimony:

–Mr. Mike Harris, deputy director of the S.C. Second Injury Fund (SIF), testified that about four years ago he traveled to NCCI’s home office to obtain records on two particular carriers that the SIF felt might not be properly reporting SIF recoveries to NCCI. However, NCCI would not provide him with the information he needed and the SIF decided not to pursue the matter further.

–Mr. Harris also said that the SIF notifies the carrier and employer when a workers’ comp claim has been accepted as a SIF claim. The insurance agent is not notified. However, a considerable amount of time may elapse before a reimbursement to a carrier is actually made. Then the SIF does not notify the employer, NCCI or the insurance agent.

–Mr. Harris testified that SIF claims that are over four years old from the date of the accident are not used to recalculate the experience modifier rate for the business since the mod rate is based only on the last three policy years of experience. Therefore, carriers receive the reimbursement from the SIF for these 4-year or older cases but the business never gets the credit for the SIF claim and thus paid higher premiums to the carrier as a result of the SIF accident.

–Mr. Harris stated that from 2000 to 2005 the percent of SIF paid claims 4-years old or older ranged from 7% to 14%. That number has jumped to 26% of the SIF claims accepted so far this fiscal year.

–Mr. Matthew Merlino, the S.C. Dept. of Insurances (DOI) actuary consultant, testified that he disagreed with NCCI’s methodology of using biasedly high loss projections (paid + case reserves), assumptions on which data to use in the filing (both voluntary and assigned risk) and number of policy years used in the calculations (two years of data). Mr. Merlinos pre-filed testimony rejected NCCI’s proposed 32.9% increase in loss cost rates and instead suggested that the increase should be 22.4%.

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–Upon receiving more information involving the SIF, Mr. Merlino subsequently changed his opinion on the increase in loss cost to a range of 32% to 44%. Then, after this week’s hearings started, Mr. Merlino again changed his opinion saying that he now believes that the range of increase should be between 37% and 42%. This third opinion again resulted from SIF information that he had failed to consider.

–Mr. Merlino also disagreed with an earlier opinion by an NCCI actuary that raising the loss cost rates would encourage carriers to write more businesses in the voluntary market instead of sending them to the assigned risk market.

–Mr. John Gardner, an agent with Johnson Insurance Associates, testified that he has had many clients with SIF and subrogation-related claims. He gave several examples in which he had to vigorously pursue having his clients receive the proper adjustments in their mod rates so that they would not pay higher premiums and even be prevented from securing contractual work.

–Mr. Gardner did not believe that most insurance agents are as diligent as he in pursuing the SIF and subrogation claims. If this is the case, NCCI’s statement that agents act as a watchdog on carriers properly reporting SIF and subrogation recoveries to NCCI would be inaccurate.

–Mr. Martin Simons, actuary consultant to the S.C. Consumer Advocate, testified to a number a problems with NCCI’s filing methodology. He believes that NCCI inappropriately predicted that all of certain SIF cases would automatically become loss cost cases, paid + case reserve data used overestimates future losses, and trends should have been developed separately for voluntary and assigned risk data to account for migration of businesses between the two groups.

–Mr. Simons also had strong concerns about the quality of the data used by NCCI citing the 54% error rate found in the 2003 test audits (2002 and 2003 are the target data years for the filing) and AIG data not used (over 12% of all workers comp business in South Carolina).

–Mr. Simons indicated that in spite of NCCI’s own rules for carriers to properly account for SIF and subrogation recoveries, NCCI relies on others to verify that carriers are abiding by these rules. He pointed out that NCCI says that carriers accounting is checked when state regulators look at their annual statements. However, the assumption that these statements are always accurate is challenged by the recent consent order between the state of Florida and AIG that calls on AIG to correct its annual report.

–Mr. Simons pointed to a number of positive trends that he took into consideration in his calculations for a proposed loss cost rate increase of only 12.7%

This hearing is expected to conclude today. A separate hearing will then start on the assigned risk market.