Monte Almer, president of the New York Compensation Insurance Rating Board (NYCIRB), has written a sharp letter criticizing Insurance Department Superintendent Howard Mills decision to reject NYCIRBs filing for a workers compensation premium rate increase of 7.5 percent.

Almer took issue with Mills questioning of insurers fraud-fighting efforts " a primary reason used by Mills in rejecting the increase " and also expressed concern regarding what Almer termed as Mills lack of an actuarial basis for his decision. While a difference of opinion on certain matters, such as trend, is certainly an actuarial matter, the department, nevertheless, chose to accentuate its long-held perception that the carriers are not committed to fighting fraud as the key reason for disapproval of the boards filing, Almer wrote.

Almer Defends Fraud-Fighting Efforts

In his decision to reject the increase, Mills stressed that insurers need to make a serious effort to combat fraud before immediately seeking a rate increase, and he criticized workers compensation insurers for their collective unwillingness to expand anti-fraud efforts despite being given new and enhanced tools granted by the Legislature in 1996.

Almers letter, though, stated that NYCIRB strongly takes exception to that assessment. This statement could not be further from the truth, wrote Almer. There has been a tremendous increase in fraud-fighting efforts by the carriers since 1996. Carriers now have dedicated fraud units that did not exist prior to 1996. Carriers have expended thousands, if not millions, of dollars in computer technology to assist in identifying potentially fraudulent cases, in undertaking surveillance, in auditing employer records, and in monitoring the utilization of medical services. He added, The carriers have been very diligent in their efforts to combat fraud and it is irresponsible for the department to label their efforts as unwilling and weak.

Further legislative initiatives are also needed if the department expects to see more progress in the fight against fraud, Almer asserted. He wrote that the departments opinion disregards the fact that the Fraud Bureau and WC Fraud Inspector General refer only one percent of those cases identified as fraudulent to a criminal prosecutorial agency (out of a population of claims that have already been heavily investigated and documented as suspicious by the member carriers). As [a NYCIRB study on carrier fraud initiatives, submitted to the department on June 14] indicated, additional statutory reform is clearly necessary to strengthen New Yorks fraud fighting efforts.

Terrorism Uncertainty Looms

Almer also pointed to the threat that the industry faces from terrorism, as he did during the June 28 public hearing held to debate the necessity of the rate increase. Almer stated, Finally, we must point out to the department that the workers compensation line of business is under severe pressure because of the exposure to terrorism, particularly in New York, and, especially, as we approach the sunset of the TRIEA at the end of 2007. Since workers compensation insurance is critical to both the U.S. and New York economies, it is particularly important to preserve the competitive marketplace and to ensure that there is available capacity in that marketplace. The denial of any rate change, including the modest proposed increase in the foreign terrorism rate, could endanger future availability of workers compensation insurance in New York.

The letter to Mills closed with criticism of how the department arrived at its decision, as well as a warning of what may be in store for the workers compensation market as a result of that decision. Almer said in his letter that we wish to remind the department that, in previous discussions with the department, we have stressed the importance of evaluating our rate filings on the actuarial merits upon which they are developed. The Rating Board cannot, and will not, submit amendments to accommodate spurious or non-technical opinions.

You should be aware that, this year, by disapproving the filing and not authorizing a specific percentage change, the equity that is normally built into the workers compensation rate structure will not exist as of October 1, 2006. Our preliminary calculations have shown that many employment classifications would have received manual rate decreases, and other classes would have their rates increased. The traditional pluses and minuses in manual rates ensure equitable distribution between classes so that each class rate is appropriate for the employers in the class. Without this equity, employers in those classes for which decreases are indicated will be subsidizing employers in other classes who should be paying higher premiums.

In summary, we hope that future rate evaluations will be based on the facts contained in the filings, as is done in other states, and as had been done in New York for many, many years during which the department earned its reputation as one of the premier departments in the country.