New York’s Insurance Superintendent, Eric Dinallo, recently issued a report analyzing the workers’ compensation rating system currently in place in New York State. The Report, which was required by the 2007 Workers’ Compensation Reform Act, proposes wholesale changes to the workers’ compensation rating system currently in place. Most notably, Dinallo wants to substantially limit the state’s Compensation Insurance Rating Board’s (the “CIRB”) authority to set workers’ compensation rates for each carrier – something the CIRB has been doing for nearly a century. Dinallo proposes that the state adopt a more formulaic loss costs system that measures industry wide losses and then uses carrier specific information to set rates for each carrier.
The Report praises the CIRB on its ability to collect and analyze data in an efficient and reliable manner. It further concludes that the collection and analysis of this data is a critical function in maintaining a competitive market for workers’ compensation insurance. Dinallo, therefore, proposes that the CIRB continue to collect and analyze data in order to establish the industry wide loss costs that will be used to establish individual rates.
The Report, however, was critical of the CIRB’s actual rate setting practices. Those practices have come under fire in recent years. Namely, critics argue that the CIRB submits rate proposals that appear to be “strategic starting points for rate negotiations with the Department, as opposed to impartial analysis based solely upon actuarial calculations.” See Report, at 3. Dinallo, therefore, proposes that the CIRB instead focus its efforts on collecting the industry-wide data concerning loss costs for workers’ compensation plans. The individual carriers would then be responsible for submitting their carrier specific loss information. That data would be used to establish rates that reflect the individual carrier’s own performance as compared to the industry-wide results. The Report notes that the system must be transparent for it to work. Indeed, Mr. Dinallo has stated in various press reports that “establishing a rate-making system that ensures openness and competition” will lead to savings for New York State businesses.
Currently, the CIRB is scheduled to be phased out of existence by February 1, 2008. Dinallo proposes instead restructuring the CIRB to perform the data collection functions described above.
Click here to review a copy of the Report. We will continue to monitor these reforms as they progress and provide updates at InsureReinsure.com.
