New York Governor Eliot Spitzer signed into law a measure revising the method used to set workers' compensation rates in the state yesterday.

The measure also extends for five years the New York Compensation Insurance Rating Board's (CIRB) statutory authority to compile data but limits its abilitiy to provide input for rate setting, which had been the insurance industry group's role in the past.

Sponsored by Sen. George D. Maziarz, R-Newfane, and Assemblywoman Susan V. John, D-Rochester, the bill won final legislative approval on Tuesday. Its form followed recommendations in a report submitted to the legislature in September 2007 by State Insurance Superintendent Eric Dinallo.

David Dickson, past president of the Professional Insurance Agents of New York, explained that under the current rate-setting framework, called "administered pricing," the published workers' comp rate "is a composite of an analysis of the premiums and losses--the exposures for each occupation--plus a composite of all of the expense, acquisition and loss-adjustment factors that are provided by each of the carriers."

CIRB collects all of this data and forecasts costs for the coming year, and files rates for approval with the superintendent. CIRB's statutory authority to compile data and set rates, however, was scheduled to sunset on Feb. 1 under workers' compensation reform legislation enacted last year.

Mr. Dinallo's September report had criticized aspects of the existing rate-setting structure, stating that it does not allow for sufficient competition.

The text of the bill, citing Mr. Dinallo's report, also notes that "because the [CIRB] rates filed with the superintendent are set by a committee of insurers, there is an inevitable appearance of collusion and a lack of transparency."

Under the new law, CIRB would be allowed to continue its data-gathering role.

With respect to rate filing, the process would change from "administered pricing" to "loss cost." The law calls for a rate service organization, such as CIRB, to file with the department only the industrywide loss data and related expenses, rather than fully developed rates.

Each individual carrier would then separately file with the department its own loss cost multiplier, which takes into account insurer-specific data, such as operating expenses.

The loss cost data provided by CIRB, combined with the carriers' individual loss cost multipliers, would determine workers' compensation rates for each insurer.

"The loss cost approach to rate setting would remove the appearance of collusion as each insurer would file its own loss cost multiplier and the RSO would only file loss costs," the bill states.

The law also sets the governance structure for a licensed rate-setting organization, in accordance with recommendations made by Mr. Dinallo.

"At present, CIRB's board is comprised of only insurer representatives," the bill states. The measure would require a rate-setting organization to have nine members on its governing body, a majority of whom cannot be representatives of private carriers.

Other members of the RSO governing body would include designees of the State Insurance Fund, the Insurance Department, the Workers' Compensation Board, the AFL-CIO and the Business Council.

Special Reports /

N.Y. Revises Comp Rate Setting

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