Senator looking for the truth on workers' comp rates

Published The Greenville News: Wednesday, March 28, 2007 - 2:00 am

By Frank Knapp Jr.

Recently many of us who are trying to address the rising costs of workers' compensation
insurance were shocked when the South Carolina Chamber of Commerce sent out a newsletter and e-mail to its members attacking specific state senators who they contended were deliberately delaying progress on workers' compensation reform legislation. This attack, reported in a March 14 GreenvilleOnline.com story, was not only unfounded but was revealing in its motivation.

As president and chief executive officer of the SC Small Business Chamber of Commerce (which is not affiliated with the state Chamber), I have been immersed in all factors driving the increase in workers' compensation premiums. The Small Business Chamber has successfully proposed systemic legislative reforms that have addressed fraud, provided resources needed to speed up the system and created an assessment of how rate-making data is processed. The Small Business Chamber successfully intervened in the most recent court hearing to have an insurance industry-proposed increase in workers' compensation reduced by about 44 percent. The Small Business Chamber was the only business organization that fought the insurance industry on this increase.

This legislative session, the state Senate is addressing workers' compensation cost drivers in two paths. The Senate Judiciary Committee looked at the costs of claims as a driving force. Insurance carriers collectively file medical and indemnity claim costs to the state Department of Insurance. Based on this data and often through a court hearing, the state determines allowable rate increases related to these costs. A bill dealing with this issue, S. 332, has been vigorously debated by parties representing business, attorneys, state agencies and workers.
It is in regard to the progress of this bill that the state Chamber fired off its "Thumbs Down" attack accusing four senators, including Greenville Sen. David Thomas, of being "Trial Bar-friendly" and delaying progress on S. 332.

The truth is Sen. Thomas doesn't even serve on the Judiciary Committee and therefore he had absolutely no responsibility for the progress of that bill. There is no evidence Sen. Thomas has in any way wielded his influence on the committee's work. That bill has now moved to the full Senate.

So why would the state Chamber launch an attack on Sen. Thomas?

Because the senator has shown the willingness to investigate a second issue that certainly is driving up workers' compensation rates -- the little-understood and obscure-sounding "loss-cost multiplier." It is critical the public understand what this means and what is at stake. As chairman of the Senate Banking and Insurance Committee, David Thomas, does understand the significance of the "loss-cost multiplier."

Here is how this cost driver works:

After the state determines workers' comp rates related to the actual cost of claims, insurance companies themselves can add to the approved rate increase additional costs not related to the cost of claims. This additional charge is called the "loss-cost multiplier" and is easily manipulated to increase premiums because it is not regulated by our Department of Insurance.

The insurance companies do not even give the Department of Insurance documentation explaining what expenses they have included in the "loss-cost multiplier." South Carolina is the only state in the country that does not at least require insurance carriers to show how they arrived at their "loss-cost multiplier," let alone regulate this add-on charge.

Consequently, we do not know that the insurance carriers aren't driving up premiums on their own over and above covering their legitimate expenses. A rate increase they can't convince a judge to accept can simply be achieved by increasing their "loss-cost multiplier."
This is the issue that Sen. Thomas has bravely undertaken to investigate in his Banking and Insurance Committee. On this issue, the state Chamber also attacked the senator, accusing him of being unfriendly and presenting a "frosty demeanor" while insurance industry representatives answered questions about the "loss-cost multiplier."

It is this attack that tells the true motivation of the state Chamber's anger against Sen. Thomas. The state Chamber is representing the interest of its big dues-paying insurance company members. Because the state Chamber and the insurance industry cannot defend the practice of carriers manipulating workers' compensation rates through the "loss-cost multiplier," they indiscriminately throw mud at the bulldog investigating the issue.

The Small Business Chamber congratulates Sen. Thomas on his important work to uncover the real reason for rate increases and gives him two "thumbs up."

Frank Knapp Jr. is president, chief executive officer and co-founder of The S.C. Small Business Chamber of Commerce. For more information, visit www. scsbc.org or e-mail him at sbchamber@scsbc.org.