Mills Rips NY Comp Insurers On Fraud, Nixes Rate Hike

New York Insurance Superintendent Howard Mills said workers' compensation insurers are ignoring a $5 billion-a-year fraud problem, so he has decided to ignore their request for a rate increase.

Mr. Mills, finding that the comp carriers market is a healthy one, yesterday disapproved a filing by the New York Compensation Insurance Rating Board (NYCIRB) seeking an overall workers' compensation insurance premium rate increase of 7.5 percent.

His eight-page opinion and decision was notable for the strong language Mr. Mills used to criticize insurers "anemic" effort to prosecute fraud.

NYCIRB President Monte Almer responded today that the fraud issue was a "smokescreen" and an increase is statistically justified.

The superintendent's action came in the wake of a June 28 public hearing that a department spokesperson said had not produced testimony that the insurers' loss experience justified a rate hike.

"The Insurance Department is disapproving the rating board's request because our detailed analysis of the application demonstrated that an increase is not warranted," said Mr. Mills.

"The statistical data that was submitted as part of the rating board's application, and the testimony received at the public hearing, indicate the workers' compensation insurance market in New York remains quite profitable."

Discussing anti-fraud activity in the wake of a 1996 law, which made comp fraud a felony and created a Workers' Compensation Board inspector general, Mr. Mills said one typical insurer's report on anti-fraud efforts indicated that the carrier referred only 320 claims for investigation to its Special Investigation Unit (SIU) out of 31,000 claims processed from over 40,000 policyholders.

"Without a greater commitment on the part of workers' compensation carriers in New York to fight fraud, this Department is hard pressed to justify any new overall average rate increases," Superintendent Mills stated.

In 2005 Mr. Mills approved a 5 percent rate increase.

All of New York's state-licensed workers' compensation insurers must send statistics to the NYCIRB, a private rate service organization which then evaluates the data and proposes rate changes. The effective date of the proposed increase was Oct.1

Mr. Mills wrote in his opinion that insurers' efforts to fight--both claimant and employer--fraud "can be said to be anemic, at best. The NYCIB presented information to the department at the public hearing that indicated that for the seven policy years running from 1997 to 2003, the total underwriting savings to the insurers [from fraud initiatives] is $12,579,670 or less than two million dollars annually for all the carriers doing business in the State of New York.

"The paucity of fraud savings in an industry which experiences fraud costs of approximately $5 billion per year, according to the National Crime Bureau, is most unsettling."

The poor effort at fraud fighting, Mr. Mills wrote, leads him to conclude "that the cost of fraud in the workers' compensation system is merely being transferred to the insureds."

The New York Insurance Department reviewed a June 14 white paper on fraud submitted by NYCIRB, Mr. Mills noted adding, "While we are aware that there are attendant difficulties in the effort to investigate and prosecute workers' compensation fraud, the 1996 reform act's provisions did provide necessary tools to enhance the fraud fighting effort for insurers in this state. In any case, the difficulties in pursuing fraud investigations that were listed in that paper certainly do not justify the current overall weakness of effort in this area on the part of the insurers."

Mr. Almer said "fraud fighting is a smokescreen they have used before." He said Mr. Mills and his department had failed to find the procedures NYCIRB used to come up with an increase figure were not proper.

"They mention our use of new trend methodology, but they do not say the trend methodology provided incorrect results,"

Denying an increase, he said, means that insurers who have a good loss experience end up subsidizing those with a bad experience.

He faulted the agency for "giving us a disapproval rather than setting a number the department feels is accurate."

This article updated 4:10 p.m.