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High rates drive worker’s comp coverage out of state
By Dennis Quick
Senior Staff Writer
During the past four months, worker’s compensation insurance has taken a beating in South Carolina, according to Todd Tyler, president of the North Charleston-based Commonwealth Insurance Group, a worker’s compensation insurance broker.
This year the state’s Second Injury Fund, into which insurers pay money to form a worker’s compensation pool, increased its rates on insurers from 11.1% to 28.8%, Tyler said, adding that the rate hike translates into a jump of $253 million—nearly 46% of the premiums written in South Carolina.
The Boca Raton, Fla.-based National Council for Compensation Insurance Inc. earlier this year proposed a 32.9% rate increase for South Carolina.
Tyler listed the insurance companies that since September have either reduced or ended their worker’s compensation policies in South Carolina because of the costliness of providing the coverage in this state.
American Interstate Insurance Co. ceased writing new business and will increase its rates 25%.
Companion Property & Casualty Group, a BlueCross/BlueShield of South Carolina subsidiary, ceased writing new South Carolina worker’s compensation policies as of Dec. 1. Any existing policies in the company’s worker’s compensation-only line of insurance, also known as “mono-line” worker’s compensation policies, will not be renewed as of Jan. 1.
Summit, a Liberty Mutual subsidiary, is cutting its sales force by one-half but remaining in South Carolina.
Builders Insurance Group stopped writing mono-line worker’s compensation policies as of Sept. 15.
CompTrust AGC of South Carolina, an insurance trust fund for the state’s general contractors association, is assessing all members between 1999 and 2004 to replenish its $4.4 million deficit caused by increased worker’s compensation rates. Some of these assessments exceed $50,000.
Capital City Insurance Co. ended its worker’s compensation program that moved customers from the state’s assigned-risk pool, a last-resort insurance avenue in which customers are randomly assigned to an insurance company and pay higher rates, to Capital City’s worker’s compensation coverage. As of Jan. 1, Capital City will not renew policies in this program.
On average, for every dollar worker’s compensation insurers collected from businesses in South Carolina in 2003, the insurers paid $1.27 in claims and operating expenses compared with the national average of $1.02, Tyler said.
“Insurance companies writing worker’s compensation in South Carolina are exiting the state at an alarming rate due to the inability to make a profit,” Tyler said.
Tyler and others attribute South Carolina’s costly worker’s compensation insurance in large part to the increased rates of the state’s Second Injury Fund, which reimburses the insurers for the claims they pay.
Second Injury Funds were created across the country in 1945 to encourage employers to hire disabled World War II veterans. The funds were intended to offset worker’s compensation costs should war veterans re-injure themselves on the job. Claims for second injuries were covered by Second Injury Funds.
The Americans With Disabilities Act, passed in the 1990s, outlaws employment discrimination against the disabled and, therefore, renders Second Injury Funds obsolete, said Harry Mashburn, chairman of the board of trustees for the Carolinas Association of General Contractors’ self-insurance fund, which provides worker’s compensation insurance for construction companies.
“It’s a horrible burden on insurance companies,” said Mashburn, chairman and CEO of Columbia-based Mashburn Construction Co.
Other factors contributing to the state’s rising worker’s compensation costs include the high reimbursement rates insurance carriers must pay pharmaceutical companies, high hospital rates, excessive findings of permanent total disability, excessive duration of temporary total disability among claimants and injury compensation ratings higher than those given by the American Medical Association.
Mashburn said he thinks South Carolina’s expensive worker’s compensation insurance could harm economic development by encouraging developers to build elsewhere.
This has not happened yet, according to Steve Dykes, Charleston County economic development director.
“With the recent astronomic increase proposed, however, there is always a first time,” Dykes added.
Dennis Quick is senior staff writer for the Business Journal. E-mail him at dquick@charlestonbusiness.com.
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