NCCI is the Insurance Industry’s Cartel
What do they get out of Workers’ Compensation Florida HB 903?
What is NCCI?
The National Council on Compensation Insurance, Inc., NCCI, is the insurance industry’s own rating organization that files consolidated rate requests for workers’ compensation each year. It is their analyses of the workers’ compensation insurance market in conjunction with Florida’s own actuarial analysis that the Office of Insurance Regulation (OIR) takes into consideration when setting premium rates.
NCCI’s Inherent Conflict of Interest Makes Them Unable to Provide Objective Data Upon Which to Base Workers’ Compensation Rates in Florida
NCCI is a cartel of insurance executives immune by federal law from antitrust laws and federal regulation. They are governed, supported, and controlled by the insurance industry, yet claim their “actions are guided by the principles of honesty, fairness, and professionalism,” making for an inherent conflict of interest. They are a non-profit, privately held corporation owned by major insurance companies whose executives constitute a majority of the directors on NCCI’s Board, yet maintains a strong financial position with expenses of just 53 cents per $100 of direct written premiums, according to its 2007 annual report. Their lobbyists share close ties with major insurance companies and are paid upwards of $300,000 per year to lobby on their behalf. NCCI’s goal is more about assisting its members in maximizing profits through the creation of insurance rates that are as high as possible rather than establishing any “principles of honesty, fairness or professionalism.”
NCCI Data has Led to a Perceived Crisis in the Availability and Affordability of Workers’ Compensation Insurance
In December of 2008, NCCI announced its estimate that the full impact of the Murray decision will be an overall 18.6% increase in system costs, which it said will take two years to be felt. They announced this estimate despite testifying to the Florida Legislature in 2003 that insurer paid attorneys’ fees accounted for only 6% of the cost of the system. Rates should not increase as a result of the Murray decision, especially considering a workers’ compensation insurer never pays attorneys’ fees unless it wrongfully denies benefits to an injured worker in the first place.
In fact, Lori Lovgren, State Relations Executive for NCCI, told the South Florida Business Journal, in September 2008: “No concrete data exists at this point to determine whether attorney’s fees restrictions have been a factor in the decrease in workers’ compensation claims since 2003…we have claim frequency declines, but there are so many changes going on in the market, it’s difficult to tell what portion is due to changes in attorneys’ fees.”
NCCI, whose Board of Directors is a who’s who of insurance executives, generated statistics that an amendment proposed on March 9 but withdrawn from consideration the morning of March 10 (immediately prior to the committee meeting) to HB 903 by Representative Anitere Flores (R-Miami) would cause a “double-digit” increase in rates. These figures are unsubstantiated but were cited for the convenience of proponents of HB 903 claiming the need for a premium adjustment and as a main cause of the ensuing “crisis” that has occurred within the industry. This “crisis” is despite 1) Cumulative premium reductions of over 58% since 2003 and 2) An overall rate decrease of over 12% in 2009.
What Does the Actuary for the Florida Consumer Advocate Have to Say?
In a presentation to the House Insurance, Business, and Financial Affairs Policy Committee on March 10, 2009, Representative Flores said, “We know that without the elimination of reasonable fees, rates will continue to go up.” It is unclear as to how this information can be known as any information regarding the full effect this legislation would have on workers’ compensation rates depends upon the sole acceptance of the opinions of NCCI, and rejection of the opinions of Stephen Alexander, the chief actuary for the Florida Office of the Consumer Advocate. In a report by Stephen Alexander, insurance rates – based upon NCCI data – have resulted in Florida employers being overcharged by an average of 24.6% for the last nine years, resulting in excessive cumulative charges of $4.9 billion dollars. As such, not only have injured workers been affected by unnecessary legislation, but business owners have been equally harmed.
NCCI’s History of Providing Inaccurate, Incomplete, and Misleading Data has Resulted in Excessive Insurance Rates for Florida’s Businesses and Loss of Needed Benefits to Florida’s Injured Workers
Serious consideration needs to be given as to the credibility of NCCI before any legislation is passed that is based upon an acceptance of the testimony and opinions of NCCI. No representative from NCCI has ever been forced to testify under oath as to the authenticity of their claims. Yet, NCCI continues to be the sole provider of workers’ compensation data to the OIR.
Given the magnitude of the task given to them by the OIR – to accurately compile data into a comprehensive rate filing in order to provide employers with a reasonably priced policy of workers’ compensation insurance while still providing for the rights of injured workers – it seems incomprehensible that NCCI should continue to be trusted to be the sole provider of this data.
FJA urges the OIR to consider terminating this exclusive rights arrangement with NCCI and instead utilize the services of an independent actuary to take the data collected by NCCI and provide unbiased information. The fact that insurance carriers own and operate NCCI is evidence of an unacceptable conflict of interest that prevents it from acting objectively in the ratemaking process. They should not be trusted with the important task of assisting the OIR in setting appropriate workers’ compensation premium rates. Employers and employees both suffer in such a situation – employers are required to pay unnecessarily high premiums, and employees experience a loss of benefits because of a perceived crisis in the cost of insurance.