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Group proposes 33% worker’s comp increase
By Matthew French
Staff Writer
South Carolina businesses may soon have to pay a pretty penny to insure their workers, if the South Carolina Department of Insurance accepts a proposal from a national insurance industry group.
In July, the National Council on Compensation Insurance proposed an increase in the premiums businesses in the Palmetto State pay for workers compensation insurance. The new proposal would increase the current insurance rate from about 1.8% to nearly 33%.
Citing increasing costs of health care, the number of attorneys that typically get involved in worker’s compensation decisions, the frequency and severity of claims, and the inefficiencies of the state’s worker’s compensation commission, NCCI proposed raising the rate to 32.9%. The recommendation would have to be approved by the Department of Insurance.
Based in Florida, NCCI is a third-party group that represents insurance carriers. Based on trends its members see over time, the organization recommends increases or decreases in the rate a state’s insurance carriers charge.
In South Carolina, state law requires that any company employing four or more people purchase insurance policies for worker’s compensation. Premiums are higher for more at-risk jobs, such as construction workers or heavy equipment operators.
But the problem, according to several state business groups, is that a jump from about 2% to about 33% is a cost that some businesses, particularly small businesses, cannot afford.
“The issue we’re facing is trying to determine how a business could pay for the increased premiums,” says Otis Rawl, vice president of public policy for the South Carolina Chamber of Commerce. “If you’re a small business, particularly in construction or some other high risk group, worker’s comp insurance is a critical cost to doing business.”
The South Carolina Chamber of Commerce has requested a public hearing with the Department of Insurance and the South Carolina Administrative Law Court to obtain and review the data NCCI used to make its recommendation, calling NCCI’s recommendation “extraordinary.”
In filing for the public hearing, the chamber joins the state Department of Consumer Affairs in challenging the recommended rate hikes.
Chamber executives hope the public hearing has two results: that the chamber can join with other business organizations to negotiate a lower premium rate and that legislative proposals will surface to negate the need for such a large spike.
“We need to identify what is driving this proposal,” Rawl says. “We are hoping to bring about legislation that can help increase the efficiency of the worker’s compensation commission and take the appellate process out of their hands and put it into administrative law court.”
The state worker’s compensation commission is made up of seven commissioners who are each appointed to six-year terms by the governor. The commission enforces the state’s worker’s compensation laws and resolves disputes between injured employees and their employer’s insurance carriers.
Harm to the economy
Small business advocates say that such a dramatic insurance rate increase could be the proverbial straw that breaks the backs of many small businesses.
“This proposed rate hike most definitely will adversely affect South Carolina’s economy,” says Hunter Howard Jr., president and chief executive officer of the state chamber. “It especially stands to harm small employers and devastate an already grim employment environment in the state.”
Others agree with Howard’s assessment, saying South Carolina’s reputation as a favorable state in which to do business could be irreparably harmed by such a marked rate increase.
“In a word, it’s devastating,” says Michael Fields, the South Carolina state director for the National Federation of Independent Business, a nationwide small business lobby group. “This could be a significant damper on all of the optimism out there. We could definitely see some folks put out of business by this.”
Fields says he hopes the Department of Insurance offers some relief but adds that a slight reduction from the 32.9% proposed rate would not have a significant impact.
“If the DOI just tweaks it down a little bit, it will not stem the tide that will assuredly hurt small business. We’re going to have to see a significant reduction from the proposal,” he says.
While NCCI’s proposals are not necessarily rubber stamped, they are often accepted on face value, Fields says.
Legislative escape
When the General Assembly reconvenes in January, the House Labor, Commerce and Industry Committee will likely resume examination of the South Carolina Worker’s Compensation Reform Act of 2005, which is designed to set specific guidelines for the awarding or withholding of worker’s compensation payments.
“Everyone in the business community is appalled by this recommended rate hike,” says Frank Knapp, president of the South Carolina Small Business Chamber of Commerce, a statewide advocacy organization with more than 5,000 small business members. “But it shouldn’t be opposed simply because it appears excessive; it should be opposed because we don’t believe the data NCCI used is accurate, and their projections do not take into consideration systemic changes (like the Worker’s Compensation Reform Act) soon to go into effect.”
The Worker’s Compensation Reform Act would remove some of the administrative and appellate duties from the state compensation commission and instead put it in the hands of the administrative law court. It would also reduce or revoke payments owed to people who were injured while intoxicated or negligent.
“I don’t know if NCCI reviewed these proposed changes. I don’t know if that’s in their purview,” says Fields. “The law could have the effect we’re hoping for, but it remains to be seen. We’ve had such a good legislative year (in 2004), but these rate increase could mean that we take three steps forward, only to take 12 steps back.”
Matthew French is a staff writer for the Business Journal. E-mail him at mfrench@charlestonbusiness.com.
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