A national trade group says Rhode Island workers’ compensation rates should be cut dramatically, by an average of 18.3 percent, based on more than three years’ worth of claims data for all the insurers in the state.
The National Council on Compensation Insurance, whose members include the top workers’ comp carriers in Rhode Island, routinely reviews claims data in each state and recommends adjustments to the “loss cost” part of premiums, the amount needed to pay claims.
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Once the loss cost recommendation has been approved by state regulators, carriers can set new rates based on the loss cost and their own provision for administrative expenses, taxes, contingencies, profit margin, etc. Individual bills then adjust those rates further to reflect each customer’s loss history, applicable credits and other factors.
The bulk of any premium, however, is loss costs, which account for about 85 percent of an adequate rate, according to Laura Backus Hall, state relations executive for the NCCI. Right now, she said, only about 70 percent of Rhode Islanders’ premiums is used to pay claims.
That means the state’s employers should be paying less, Backus Hall said. And the 18.3-percent average masks much bigger potential rate cuts for some lines of business: Rates for nursing home professionals could be 35.5 percent lower, and trash haulers, whose premiums are now about $20 per $100 of payroll, would pay 41.3 percent less under the NCCI proposal.
At the other end of the spectrum, the group is recommending a 7.9-percent loss cost increase for excavators, and a 7.7-percent hike for electrical wiring workers. The majority of employers, however, would see rate decreases.
“It would be a tremendous benefit to the Rhode Island business community,” said Stephen Lichatin III, the NCCI’s local lawyer.
To get its recommendations applied to policies effective Jan. 1, the NCCI filed them with the state Department of Business Regulation in September, allowing for plenty of processing time at the DBR and then for individual carriers to adopt them, Backus Hall said.
But getting the DBR to accept the filing took six weeks. At first, DBR officials weren’t sure whether the NCCI filing was “relevant” to 2005 workers’ comp rates, as required by a state law, so they sent it to outside actuaries. Beacon Mutual, which controls 76 percent of the Rhode Island market, argued they weren’t relevant.
It wasn’t until Oct. 28 that the DBR officially accepted the filing, beginning the review process. Assistant Attorney General Genevieve M. Martin, who acts as a consumer advocate on insurance matters, was then asked for her input. Hearings are finally being held this Wednesday and Friday.
The long delay has caused “great concern” at NCCI, Backus Hall said, because now employers are unlikely to see the benefits of the loss cost decreases for a while, even if they’re approved soon. The bills will likely already have been paid, so it will be up to the carriers to decide whether to mail out refunds, or wait until customers go through their year-end audits.
There’s also a chance, Backus Hall said, that the NCCI proposal could be modified by the DBR, reducing, for example, the difference between the biggest rate cut and the biggest rate hike – the recommendations now “swing” 25 percent above and below the average.
If the DBR approves the plan, modified or not, Backus Hall said she’s confident that carriers will adopt it. “Most carriers want to know what the real loss cost is,” she said. “Some carriers are still using 1998 rates – they’ve never changed them.”
And once a few of them adopt the new chart, Backus Hall predicted, the others will feel pressured to drop their rates accordingly, too. “That’s the whole point about competition.”
