Opposing workers’ comp and SCE&G rate hikes

The workers’ compensation insurance industry and SCE&G both have hearings in the coming months regarding their requests for more revenue.  The South Carolina Small Business Chamber of Commerce (SCSBCC) and its president and CEO, Frank Knapp Jr., will intervene to oppose both rate hikes.

The SCSBCC is joining the S.C. Consumer Advocate’s Office in pushing back on a 7.3% average increase filed by the National Council on Compensation Insurance.  The Administrative Law Court is scheduled to hear the case starting October 8, 2012.  Representing SCSBCC from the Injured Workers Advocates will be Bill Smith of Chappell, Smith & Arden and Kevin Holmes of the Steinberg Law Firm.

“Since 2005 Bill Smith and Kevin Holmes have formed an effective team with Elliott Elam, the state Consumer Advocate, to successfully fight against proposed increases in workers’ compensation insurance costs to businesses,” said Mr. Knapp.  “Because of our efforts, Administrative Law Judges have ordered up to 44% decreases from the insurance industry’s requests.”

On November 27 the S.C. Public Service Commission will begin hearing a 6.61% overall electricity rate hike being sought by SCE&G, which serves 668,000 residential and commercial customers in South Carolina.

Mr. Knapp will officially intervene in the hearing to oppose the hike as he has done effectively since 2004.  He has worked closely with the S.C. Office of Regulatory Staff in these rate cases resulting in proposed hikes being reduced by up to 50%.  Mr. Knapp does not need legal representation in these hearings because he is intervening personally as a residential and commercial customer of SCE&G. 

“SCE&G’s parent company, SCANA, saw its earnings increase by 29% in the second quarter of this year,” said Mr. Knapp.  “In addition the company is justifying its request by saying it needs a return on equity almost 0.5% higher than the current rate for Duke Energy.  Small businesses simply want to tell SCE&G “NO”.  Fortunately I will have that opportunity.”

Crocodile tears of insurance industry

The crocodile tears were flowing at yesterday’s South Carolina Senate Banking and Insurance Subcommittee that was hearing two bills supported by the South Carolina Small Business Chamber of Commerce (SCSBCC). 

One bill, S.31, would simply require all proposed workers’ compensation loss cost rate adjustments (increases and decreases) to be subject to a hearing before a judge if the States’ Consumer Advocate and organizations like the SCSBCC want to challenge the proposals.  The current law appears to deny such transparency if an aggregate rate decrease is requested.  But a recent Court of Appeals ruling shot that SC Department of Insurance (DOI) interpretation down.  S.31 would codify the Court of Appeals ruling.

The other bill, H.3111, would simply require all workers’ compensation insurance companies selling policies in the state to put the latest loss cost and loss cost multiplier rates approved by the state into effect within 120 days.  Presently there is no requirement to do so.

As logical as these bills are, the lobbyists for the insurance companies were there to tell the Senators and a crowded room how over-regulated workers’ compensation had become.  We were told that it is such a difficult and time consuming process for the companies to defend the rate adjustment proposals compiled by their rating organization, the National Council on Compensation Insurance (NCCI). 

The best regulation for this insurance to guarantee the lowest premiums for businesses, they said, was for competition to run free.  And, they suggested, if we have to have any regulation of the insurance industry, it should be after a rate adjustment has been put in place—a system called file and use.  Only then could the Consumer Advocate challenge the new rates in court.

Oh, and one insurance lobbyist expressed concern for the DOI saying that the department couldn’t possibly respond quickly enough to individual company rate changes and meet the 120 day implementation schedule in H.3111.

This last objection died quickly when the DOI testified that they saw no problem meeting the required deadlines.  DOI was obviously not going to be a part of that insurance industry charade.

When I testified in support of S.31, I addressed the insurance lobbyists’ objections and suggestions.

Here are the facts.  Around 2002 the South Carolina General Assembly deregulated the loss cost multiplier, the part of the premium calculation consisting of profit and all other insurance company expenses except for the actual claim payments (loss cost).  The Legislature was told at that time that this deregulation would keep premiums down because of free market competition.  Sound familiar?

But of course, that didn’t happen.  The loss cost multiplier for all companies grew dramatically after that adding over $200 million in excess premiums to the system according to estimates of one influential state Senator, Glenn McConnell, after the SCSBCC brought the problem to his attention.  In 2007, the law was changed to re-regulate the loss cost multiplier, which then started coming down for all companies along with premiums.  Pretending that competition resulting from deregulation of the workers’ compensation insurance industry, or of any insurance for that matter, doesn’t protect the consumers from winking and nodding greed.  Case closed.

But as for the industry’s complaint that defending proposed rate adjustments in court is too hard and time-consuming for them, I have a suggestion—only ask for rate adjustments you can justify with the data and it will be less likely to end up in a court fight.

In 2005, the NNCCI proposed an average 32.9% increase in workers’ compensation insurance loss cost rates. The SCSBCC went to Court with the state’s Consumer Advocate to fight this increase and propose only a 12.7% increase. The SCSBCC was the only business organization to fight the big increase in court. On Oct. 3, 2006, the Court issued an order supporting much of the position of the SCSBCC and Consumer Advocate.  The Court ordered only an 18.4% increase, a 44% reduction from the industry proposed hike.

In December 2007, NCCI once again requested an increase in workers’ compensation loss costs of an average of 23.7%. And once again, the SCSBCC was the only business organization to intervene to oppose the increase. In May 2008, NCCI, the Consumer Advocate and the SCSBCC reached an agreement with NCCI and DOI for a 9.8% increase thus saving at least $130 million in premiums for small businesses.

The workers’ compensation insurance industry has an atrocious track record on rate increase requests. A file and use system the industry also proposes would simply let companies lock in excessive rates and force the Consumer Advocate to claw them back ­– a process that would take months. It is a terrible idea for small businesses.

But surely there is no need for the Consumer Advocate and organizations like the SCSBCC to intervene in a proposed rate reduction.  Oh, yes there is.

After the colossal failure of the 2005 and 2007 giant rate hike requests, NCCI proposed an average rate decrease of 0.3 percent in 2009.  But an average means that some individual classes went own and other went up—in this case almost half of the individual rates went up.  SCSBCC and the Consumer Advocate should have had the right to intervene in this proposed average decrease not only to challenge the individual rate increases within the filing but also the proposed decreases.  Based on our 2005 and 2007 experiences, we fully expect that the decreases should have been greater—we just didn’t have the opportunity to demonstrate this in the court.  S.31 corrects this problem.

The Senators on the subcommittee gave S.31 and H.3111 favorable reports and sent them to the full committee where the fight against the insurance industry and their tears will resume.

Court victory for small businesses

The wheels of justice turn slowly but they do turn.

On Wednesday a ruling by the South Carolina Court of Appeals found in favor of the state’s Consumer Advocate in an extremely important issue affecting workers’ compensation insurance premiums.  Our own Department of Insurance was fighting to keep the Consumer Advocate, the S.C. Small Business Chamber and other parties from having the ability to challenge data used by the National Council on Compensation Insurance (NCCI) to justify its proposals that result in premium increases or decreases.

Here is the background (don't let your eyes glaze over).

Currently the law prescribes that proposed average increases in workers’ compensation insurance loss costs rates must be approved by an Administrative Law Judge in a public hearing if requested by the S.C. Consumer Advocate.  The “loss cost” is a vital part of how insurance companies determine future rates for businesses.  This open process is an opportunity for the Consumer Advocate and business community to challenge in court any proposed rate increase that will effectively raise premiums.  However, if the workers’ compensation insurance industry proposes an average decrease in overall loss costs, no matter how slight, the state’s Consumer Advocate and businesses community cannot challenge the proposal before a Judge even if a much more significant decrease is warranted.  That was how the Department of Insurance interpreted the current law—so much for transparency.

In 2009 NCCI proposed a 0.3 percent overall decrease in loss costs.  Even though many of us felt that the data might justify an even greater decrease, there was no ability to review the data and possibly show that a bigger decrease was justified.  The Small Business Chamber, which has intervened numerous times to fight rate increases, and the Consumer Advocate were blocked out of the process.

That’s why Senate Bill 31 was introduced last year--to allow the Consumer advocate to review all NCCI data and request a public hearing before a Judge for any proposed change (increase or decrease) to workers’ compensation insurance loss costs.

But the Consumer Advocate didn’t wait for legislation to help small businesses.  Elliott Elam challenged the Department of Insurance and NCCI in court arguing that while NCCI did propose a 0.3 percent average decrease in loss costs, there were businesses categories that were recommended for an increase.  This, he argued, meant that he should be able to review all the data and interested parties be allowed to challenge the NCCI filing in Court even if the overall average loss costs is a decrease in rates.

Yesterday the Court of Appeals agreed with the Consumer Advocate—a victory for small business.  (See the WorkCompCentral story below.)

So now the question is whether S.31 is needed.  The jury is out on that and will probably depend on whether our Department of Insurance wants to keep protecting the insurance industry’s ability to hide data from the consumer by appealing this Court ruling.  Stay tuned.

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WorkCompCentral
February 23, 2012

Court Upholds Consumer Advocate's Right to Review Rate Filings

The South Carolina Consumer Advocate has a right to inspect loss-cost data from the National Council on Compensation Insurance, even if NCCI is calling for an overall average decrease in rates, the South Carolina Court of Appeals ruled on Wednesday.

The court reversed a decision by the Administrative Law Court that prevented the advocate, who operates under the Department of Consumer Affairs, from reviewing NCCI rate filings when they call for an overall decrease.

The court pointed out that loss costs are just one element of the total rate that is approved by the Department of Insurance. Even when the average rate decreases, loss-cost changes filed by NCCI can result in increases for individual classification codes.

"In this case, the NCCI's filing contains increases in many classifications," the appellate court said in its opinion. "Had the Legislature intended to make publication a requirement only for overall increases, it could have amended Section 38-73-910 to specify it is only concerned with 'overall' increases as it did in other paragraphs of Section 38-73-910."

NCCI has submitted loss-cost filings that call for overall rate decreases in each of the past three years, so Consumer Advocate Elliot F. Elam Jr. has not been able to review the data to form an opinion as to whether the decreases were adequate given insurers' loss experience. For 2010, however, NCCI has called for an average increase of 7.3% to take effect July 1. The Insurance Department has not yet approved the filing.

Goliath goes down

Back in November the South Carolina Small Business Chamber of Commerce sent an Action Alert to our members urging them contact the S.C. Workers’ Compensation Commission to express their opposition to an insurance industry proposal unfair to small businesses. The industry wanted to shorten the time companies had to wait to cancel a workers’ comp policy following the premium due date.

The industry tried to argue that businesses should only be given a 10-day cancellation period instead of the present 30 days. Why? To eliminate a contradiction in the law, the industry lamely argued.

Then came a December public hearing on the matter was held and the Workers’ Comp Commissioners were handed more letters from small businesses than I’m sure they’ve ever had on an issue. The opposition was strong both in writing and in my testimony. Timothy Killen, director of the State Workers’ Compensation Uninsured Employers’ Fund, put the nail in the proposal’s coffin correctly pointing out that the Commission’s 30-day cancellation policy was not at all inconsistent with the law.

At its recent monthly meeting, the Workers’ Compensation Commission unanimously rejected the insurance industry’s proposal.

Actions Alerts don’t always result in the outcome we want but this time David beat the mighty Goliath.

When is a contradiction not a contradiction?

Earlier this week I testified at the S.C. Workers’ Compensation Commission public hearing. The issue was whether the Commission should change its regulations to allow an insurance company to cancel a workers’ compensation policy after only 10 days notice of non-payment of premium or leave it at the present 30 day cancellation period.

Only 3 people testified--a representative of the insurance industry, Tim Killen (director of the state Workers’ Compensation Uninsured employers’ Fund, and me. Mr. Killen and I were opposing the proposed change.

The official reason the insurance industry gives for the request is to eliminate a contradiction between state law and the Commission’s regulation. The insurance industry maintains that a law was passed in 2007 that “required” a 10 day notice for cancellation of a policy for non-payment of premium. Therefore it conflicted with the Commission’s regulation.

Sounds harmless and innocent, doesn’t it.

Well, consistency is hardly the insurance industries motivation. It’s all about the money.

I pointed out that the only losers with this change would be the small business owners who couldn’t make the payment on time due to slow or lost mail, invoices buried under paper on the owner’s desk (most of us don’t have accounting departments to pay our bills) or slow-paying customers delaying when the owners could pay bills. Shortening the cancellation period would mean a percentage of small businesses loosing coverage required by law and then later being re-written at a higher rate because their policy was cancelled. Sounds like the real insurance industry motivation to me.

Then Mr. Killen spoke and brought up another loser—everyone with a workers’ compensation policy. Mr. Killen agreed with me that more small businesses would have their policies cancelled under the proposed change. That would result in the fund that his state agency manages paying workers’ compensation claims for the employees of these newly uninsured companies. That cost to the fund would mean that every employer would pay higher premiums to replenish the fund—payments that would have been the responsibility of the insurance company under the present regulation. (I’m sure the insurance industry never thought of this benefit for them.)

But the real zinger Mr. Killen gave to trash the proposed change was this. The 2007 law in question doesn’t require a 10 day cancellation period. It says that there has to be a minimum 10 day notice of the effective date of cancellation. Mr. Killen stated flatly that there was no contradiction between the law and the current regulation. The Commission can have any cancellation period it wants; it just can’t be less than 10 days.

A contradiction that’s not a contradiction brought to you by the insurance industry.