S.C. Actuary Calls for
3.3% Drop in Loss Costs - Information
released by SC Small Business Chamber and WorkComp
Central, February 19, 2008
The former
chief casualty actuary for South Carolina stepped squarely into the fight over
skyrocketing loss costs in the voluntary workers' compensation market Friday
with a recommendation that pure premiums be cut by 3.3%.
The
recommendation, included in testimony Martin M. Simons filed with the state's
administrative law court, starkly counters the call by the National Council on
Compensation Insurance (NCCI) to boost loss costs by 23.7%.
NCCI wanted
the increase to take effect last Dec. 1.
But a
denial by South Carolina Insurance Director Scott Richardson and court
challenges filed by state Consumer Advocate Elliott Elam Jr. and the South
Carolina Small Business Chamber of Commerce landed the premium change back in
the court of state Chief Administrative Law Judge Marvin Kittrell.
After Elam
and the Small Business Chamber challenged NCCI's call
for a 32.9% increase in loss costs in 2005, Kittrell
ended a protracted court fight by cutting the last increase to 18.4%.
Simons said
NCCI erred in the latest filing by using data drawn from the residual market in
its recommendations. Based on that, NCCI said loss costs for new and renewal
policies in the voluntary market should be boosted by 9.1%, and Simons said
they should be cut by 3.3%.
"The
voluntary loss costs must then be adjusted to offset the effects of the
assigned-risk differential so that the total loss costs are decreased by
3.3%," he said in the filing.
Further, he
said, the court should rule out another 13.4% of the increase NCCI wanted to
cover reimbursements from the state Second Injury Fund.
Simons and
the Small Business Chamber have argued that NCCI's
recommendations are based on claims data for the policy years 2003 and 2004, a
two-year period after lawmakers eliminated "unknown conditions" from
the injuries and illnesses covered by the Second Injury Fund.
South
Carolina lawmakers came back last session and voted to phase-out the fund
altogether.
Simons
served as chief casualty actuary for the South Carolina Insurance Department
for 12 years. He left in 1997 and founded a consulting firm with an
international client base in workers' compensation and hurricane insurance.
Simons is
co-chair of the National Catastrophe Subcommittee of the American Academy of
Actuaries. He said he has worked as an actuarial consultant in British Columbia
and Manitoba and in the states of Arkansas, California, Connecticut, Colorado,
Delaware, Florida, Georgia, Hawaii, Illinois, Louisiana, Massachusetts,
Minnesota, New Mexico, North Dakota, Ohio, Oklahoma, Rhode Island, South
Carolina and Washington.
NCCI could
not be reached for comment late Friday. Kittrell set
Friday as the deadline for testimony in the protracted case and is expected to
convene a trial in April or May.
Frank
Knapp, president of the Small Business Chamber of Commerce, also submitted testimony
Friday and said Simons' challenges of estimates for the Second Injury Fund and
the assigned-risk data mirror those of Knapp's group.
"He's
had all the data to look at," Knapp said. "When they first came out
with this, I said they couldn't justify more than a 6% increase just by
eyeballing what they gave us. Now we've actually seen the data and we can see
what they're doing."
Knapp said
2003 legislation eliminated most of the future claims to the Second Injury Fund
by excluding the unknown conditions.
"That
was a big chunk of the cases. Our argument is that the costs from the unknown
conditions are already in the database. There is no need to prefund them,"
Knapp said.
Simons
highlighted his largest difference with NCCI over loss costs in the categories
for office-and-clerical jobs. NCCI recommended a 27.4% increase, while Simons
said loss costs should be cut by 0.4%.
NCCI
recommended a 24.1% increase for manufacturing jobs, while Simons called for
cutting loss costs by 3%. And NCCI wants to boost loss costs for
construction-related workers by 24.6%, while Simons recommended reducing those
loss costs by 2.6%.
The debate
over costs has indirectly landed in state and federal court, where Gov. Mark
Sanford is at odds with the South Carolina Workers' Compensation Commission
over Sanford's orders that the panel strictly apply American Medical
Association impairment guides or other objective criteria when making
disability awards.
The
commission argues the executive orders violate state law and the South Carolina
Code of Judicial Conduct.
A copy of
Simons' testimony is available at
http://www.workcompcentral.com/pdf/2008/misc/SimonsFiling.pdf.
A copy of
Knapp's testimony is available at
http://www.scsbc.org/view_issue.asp?id=46
--By
Michael Whiteley, WorkCompCentral
Eastern Bureau Chief