New York Governor Eliot Spitzer has signed into law a measure revising the method used to set workers' compensation rates in the state.
Sponsored by Senator George D. Maziarz, R-Newfane and Assemblywoman Susan V. John, D-Rochester, the legislation was approved on Tuesday and signed into law today. It 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' compensation 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."
The New York Compensation Insurance Rating Board (CIRB), the private rate service organization (RSO) for workers' compensation in the state, collects all of this data, 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 February 1 under workers' compensation reform legislation enacted last year.
Additionally, Mr. Dinallo's September report criticized certain aspects of the existing rate-setting structure, stating that it does not allow for sufficient competition.
The text of the bill, citing Dinallo's report, also notes that "because the rates filed with the superintendent are set by a committee of insurers [CIRB], 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 industry-wide 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 RSO, in accordance with recommendations made by Dinallo. "At present, CIRB's board is comprised of only insurer representatives," the bill states. "This bill would require an RSO to have nine members on its governing body, a majority of whom cannot be representatives of private carriers. Other members of the governing body would include designees of [the State Insurance Fund], the [Insurance Department], the Workers' Compensation Board, the AFL-CIO, and the Business Council."
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