South Carolina: Audit suggests improvements for comp data collection, rate calculation

South Carolina's Department of Insurance must make several changes to ensure the workers' compensation market is properly regulated, according to a report.

The audit by the Legislative Audit Council was conducted at the behest of state lawmakers. The council concluded that the DOI generally regulates the insurance industry appropriately. However, it found many areas where improvements are needed.

Although insurance rates have been increasing nationally, rates in South Carolina have shown a higher-than-average jump. A survey by the Oregon Department of Consumer and Business Services suggested that South Carolina had the lowest workers' comp rates in the country in 1998. However, by 2006, the state's rates were the 25th highest in the country. In 2008, South Carolina ranked 12th.

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"In the 11-year period between 1998 and 2008, the workers' compensation rates in South Carolina have gone from the lowest in the country to some of the highest," the council said.

With regard to workers' comp, the audit examined rate filings and overall industry data. In addition, the council looked at how other states regulate workers' comp insurance and recommended possible changes to South Carolina law. Among the highlights of the audit, researchers found that:

Most rate filings lacked proper data. Overall, 73 of 75 (97 percent) of the rate filings reviewed had missing information, the report found. This information included financial data, actuarial review and approvals. Forty-one filings (55 percent) were exempt from prior approval based on the deregulation in South Carolina law between 2003 and 2007.

"Without a summary document or checklist in each filing, as well as the appropriate information from insurers, it is difficult to determine if the appropriate analysis or any analysis was conducted by the department," the council said.

The audit recommended that the DOI require insurers to provide all necessary information on workers' comp filings and retain copies of this information. In addition, the council said the DOI should maintain copies of checklists, actuarial memos, and communications of decisions regarding workers' comp filings, as well as document evidence that decisions for filings have been reviewed and approved.

Rate calculation doesn't require latest loss cost data. State law allows insurance companies to use any year's loss cost data when calculating rates.

"A National Council on Compensation Insurance official was unaware of any other state that did not require companies to adopt the current year's loss cost," the audit stated. "A DOI official expressed concern that some companies may use older loss costs in order to manipulate rates."

In order to prevent the possibility of companies' manipulating rates and to be consistent with other states, the audit concluded that South Carolina law should be amended to require insurers to use the most recently approved loss cost data when calculating rates.

In addition to workers' comp, the audit also examined and made recommendations regarding the DOI's handling of captive insurance, coastal property insurance, and its overall regulation of insurance in the state.

Read more at the WORKERSCOMP Forum^TM homepage.

July 20, 2009

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