Moore: Who's Really to Blame for Rating Bureau Mistakes?

Monday, December 3, 2018 | 0

Most workers' comp rating bureaus are only as good as the data the organizations receive from the carriers.   

James Moore

The data progression on final rates, in uncomplicated, terms is:

1. Workers' comp rating bureau (National Council on Compensation Insurance, Workers' Compensation Insurance Rating Bureau or state independent) receives data from carriers and member organizations.
2. The bureau’s actuaries compile that data.
3. Rates are calculated from extrapolations of the data using current and previous filings by the carriers.
4. Insurance carriers can deviate from those rates using loss cost multipliers for any classification code.
5. Employers pay those carriers’ rates in the policy and at the premium audit. 

Let us follow along using the numbers from the above to see how this occurred in Pennsylvania. 

No. 1: Very recently, the Pennsylvania Workers Compensation Rating Bureau produced a press release that was covered extensively and exclusively by WorkCompCentral. One of the major carriers allegedly reported its unit stat wrongly (it happens). 

No 2: The PCRB melded though numbers into their actuarial numbers when the data was compiled.  

No. 3: Inflated rates were calculated from those numbers. The carrier was large enough to cause over a $250 million overcharge (wow) to the insureds in Pennsylvania.

No. 4: Insurers can deviate from those rates using loss cost multipliers to decrease or, usually, increase the loss costs (pure premium rates). The loss costs are usually calculated internally by the carrier’s actuaries with recommendations from the underwriters. One can not be sure if the carriers adjusted the bureau’s erroneous lost costs or used the same loss cost modifiers regardless. 

No. 5: The insured employers take the brunt of the erroneous filings by overpaying their premiums based on the erroneous rates. 

My question was, and it was posed to the PCRB, why was this large error not caught when the data was reported? The Rating Bureau said that it was in the range of the allowable data as set by its actuaries. 

Follow-up question: Were the ranges too large? 

My next question would be, how will this bureau data error be fixed so that the state’s insureds will see some relief from the overcharges? The PCRB decided to initiate a 10% loss cost rate reduction to offset the data error. Then again, what if the carriers adjusted their rates for the increased loss cost rates? Would the carriers then have to readjust their rates again and refile those loss cost multipliers with the Department of Insurance?  

My next question is, did the carrier (anonymously reported by PCRB) redo all of its prior filings? Yes, it did. Will the insured employers receive refunds when these new filings occur? 

Moral of the story

Always question anything that does not look right with your workers' compensation policy; any endorsements during the policy period; your premium audit and bill; loss runs; experience modification factor; or any part of not just your WC policies.

Sometimes wrong data comes from the workers' compensation rating bureaus.  

This blog post is provided by James Moore, AIC, MBA, ChFC, ARM, and is republished with permission from J&L Risk Management Consultants. Visit the full website at www.cutcompcosts.com.