Workers’ compensation rates in New York State should be determined by more competition among insurance carriers, instead of through the current rating board that now proposes these rates, New York State Insurance Superintendent Eric Dinallo has recommended.
While Dinallo recommended that the current rate-making body, the private carriers’ Compensation Insurance Rating Board (CIRB), no longer file rates, he said it should continue to collect and analyze the data necessary for the rate-making process. Individual insurers’ rates would still need state approval under his plan.
Currently, CIRB proposes rates on behalf of all insurance carriers after adding industry overhead and other factors into the rate-making process.
Under the proposed new system, aggregate industry-wide costs and expenses would be published. Taking those factors into account, each insurance carrier would then file rates based on its individual risk, underwriting experience and expenses. Rates would be subject to the prior approval of the department.
“This will result in greater transparency in the rate-making process, increased price competition and lower premiums for employers because it will drive carriers to achieve greater efficiency. Fostering competition will also make the state more attractive to new insurers,” Dinallo said.
In addition to stripping CIRB of its rate-making authority, Dinallo’s plan calls for a restructuring of CIRB. He wants to add representatives of labor, employers and the insurance department to CIRB’s governing committee. This will result in the added directors and the State Insurance Fund constituting a majority of the Governing Committee.
Dinallo said this would ensure “a truly independent CIRB that acts transparently from a public interest perspective.”
Under his proposal, CIRB would be able to continue, at least in the short term, collecting and analyzing the industry-wide data that is required in the rate-making process. CIRB will not be authorized to perform its current functions as of Feb. 1, 2008, under the reform law passed in March.
“The absence of accurate industry-wide claims data would lead to a disastrous situation for the workers’ compensation insurance market because the health and stability of the system depends on the ability of insurers to accurately evaluate the cost of workers’ compensation risks,” Dinallo said.
Dinallo proposed that the department be allowed to continue to examine CIRB’s performance to evaluate whether, in the long term, CIRB’s data gathering duties should be transferred to another entity. CIRB has functioned as the system’s rate-making and data-gathering entity for 90 years.
Dinallo said the department’s evaluation of CIRB and recommendations for overhauling the rate-making process were developed after consulting with representatives from business, labor, private and state insurance carriers, regulators and rating boards in several states.
His recommendations are contained in a report sent to Governor Eliot Spitzer and the Legislature as part of the 2007 Workers’ Compensation Reform Act passed in March.
Dinall said that the workers’ compensation reforms implemented by department already have saved more than $1 billion this fiscal year. “Establishing a rate-making system that ensures openness and competition will allow us to achieve even greater savings,” claimed Dinallo.
The recommendations for changing the rate-making process are part of the agreement reached in March between Spitzer and the Legislature to overhaul the state’s workers’ compensation system. The package included raising maximum weekly benefits paid to injured workers, imposing a 500-week cap on permanent partial disability benefits, an expedited claims hearing process and other reforms.
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