A study commissioned by the South Carolina Department of Insurance has found flaws in National Council on Compensation Insurance (NCCI) methods of collecting and reporting data used to determining state workers' compensation rates.
The target market conduct examination report, prepared by AGI Services, was authorized by the Insurance Department to determine if data received by NCCI from insurance carriers is accurate and suitable for ratemaking.
It concluded that "the majority of the data submitted to NCCI for use in ratemaking is deemed to be sufficiently accurate." However, the report continued that certain data reported by carriers, the Standard Earned Premium at Designated Statistical Reporting (DSR) Level, which is used by NCCI to calculate overall loss cost change, is not accurate.
While the report states that these inaccuracies directly impact the calculated overall loss cost change, it notes that the ultimate impact is unknown based on the sample of companies reviewed during the examination.
The report stated that NCCI edit checks fail to identify the inaccuracies.
Additionally, the NCCI manual designed to instruct carriers on how to calculate the Standard Earned Premium at the DSR Level does not provide sufficient guidance, according to the report.
"Without specific instructions on the calculation to convert from Standard Earned Premium at Company Level to Standard Earned Premium at [DSR] Level, carriers are required to develop their own method of performing the calculation," stated the report. It noted that carrier methods vary, and some were found to produce incorrect results.
The report made several recommendations to increase the accuracy of reporting this data, including the establishment of a training program "to address the specific errors found in carrier submissions of the Standard Earned Premium at [DSR] Level."
The report also suggested that audits of carrier calculations of this data be performed, a suggestion with which NCCI disagreed.
In a response submitted to the Insurance Department, NCCI said it "does not believe that an audit program related to this issue is necessary or advisable." NCCI indicated that improved training and instructions on how to calculate the Standard Earned Premium at DSR Level should be adequate to address the problems outlined in the report.
The Insurance Department disagreed with NCCI, however, stating that some auditing is necessary to determine that errors have been corrected.
Ann Roberson, spokesperson for the Insurance Department, said, "The Insurance Department will be scheduling a meeting with [NCCI] regarding its plans and schedule for implementation of the recommendations outlined in the report. The department will monitor also the implementation activities of the organization, and will conduct a follow-up examination on the matters addressed by this report in 2010."
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