Workers’ compensation carriers in Rhode Island have a new guide to how much they should be charging subscribers, and it calls for an average 20.2-percent rate cut – but as much as a 50.3-percent cut for some employers, and hikes of up to 11.9 percent for a few.
Most workers’ comp insurers base their rates on guidelines supplied by an independent trade group, the National Council on Compensation Insurance, which analyzes the loss history and trends in each market and suggests how much carriers should charge each type of employer to ensure they’ll be able to cover the loss costs.
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In September, the NCCI had filed proposed loss costs for Rhode Island that would reduce rates by an average of 18.3 percent. After some legal wrangling, actuarial reviews, and lengthy hearings, the state Department of Business Regulation approved the filing, but with small changes that boosted the size of the average rate cut.
“We are very pleased with the result,” said Stephen Lichatin, a lawyer for the NCCI in Providence. “It is a victory for the policyholders.”
Assistant Attorney General Genevieve M. Martin, who serves as a consumer advocate in insurance matters, called the ruling “good news for Rhode Island employers,” and estimated the annual savings due to the DBR’s changes to the original proposal at more than $4 million.
The new guidelines are effective Jan. 1. Individual carriers now have to decide whether or not to adopt them, and if they do, they must file accompanying proposals to the DBR showing how they would adjust those rates to reflect their own needs.
Carriers can charge extra to cover administrative expenses, taxes, etc., or they can provide an across-the-board credit – as many have been doing in recent years – because they can make a profit with even lower rates. They can also provide so-called “schedule credits,” which are given for specific reasons, such as a good loss history, or having signed up for a workplace safety program.
The state’s biggest workers’ comp carrier, The Beacon Mutual Insurance Company, which as of June 2003 had 76 percent of the market, initially opposed the NCCI filing. Asked what The Beacon will do now, spokesman Jeffrey C. Johnson said the insurer couldn’t comment “until we can take the time to study” the DBR ruling.
Rhode Island’s loss cost guidelines haven’t been updated since 1998, when the workers’ comp market was just starting to rebound from a collapse in the early 1990s. Carriers had left the state after massive losses, and The Beacon, the new insurer of last resort, ended up with the majority of policies.
Many people familiar with the Rhode Island workers’ comp market have said for a while that the 1998 loss cost guidelines were too high for today’s conditions. Insurers have adjusted by boosting the credits they offer; an agent who serves members of the Rhode Island Manufacturers Association, among others, recently told the PBN that his clients get 15 percent to 50 percent off the base rates – and that’s down from as much as 70 percent in 1999.
But when the loss cost guidelines are so far off the mark, it’s much harder for a new carrier to come in and, with no loss experience of its own, set adequate rates. Thus the NCCI argues that regularly updating the loss cost guidelines, both overall and in terms of the relative riskiness of each employer type, promotes competition.
In 2001, the NCCI had filed a proposal to cut rates by 8.7 percent, but a law passed with The Beacon’s support prevented the DBR from considering the plan. The law required any future rate change proposals to include “relevant data” through July 7, 2003; this year’s NCCI filing was based primarily on data from policies that became effective in 2000, 2001 and 2002, but also on losses on 2003 policies as of Dec. 31.
The Beacon tried to block the new proposal from consideration, saying it was premature and could not reflect a 1999 change in the law requiring even very small employers to carry workers’ comp, or the impact of a crackdown after The Station fire in February 2003. But after an actuarial review, the DBR agreed to consider the NCCI plan.
The NCCI proposed an 18.3-percent overall reduction in loss costs, with cuts of as much as 48.4 percent and increases up to 13.7 percent.
The NCCI will have to file a new breakdown of recommended loss costs for each employer class. The impact on individual employers’ premiums will then depend on their carriers’ administrative cost provisions and the revised credit schedules they come up with.
