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Proposal calls for greater openness and transparency

The rates that control what businesses pay for workers' compensation should be determined by open competition among insurance carriers, instead of the collective body of insurers that now proposes these rates, New York State Insurance Superintendent Eric Dinallo recommended today.

While Dinallo recommended that the current rate-making body, the Compensation Insurance Rating Board (CIRB), no longer file rates, he said it should continue to collect and analyze the underlying data necessary for the rate-making process. CIRB is a private association of insurance carriers.

Dinallo's recommendations are contained in a report sent today to Governor Spitzer and the Legislature as part of the historic 2007 Workers' Compensation Reform Act passed in March.

“The workers' compensation reforms implemented by the Insurance Department already have saved New York State businesses more than a billion dollars this fiscal year. Establishing a rate-making system that ensures openness and competition will allow us to achieve even greater savings,” Dinallo said.

Currently, CIRB proposes rates on behalf of all insurance carriers after adding industry overhead and other factors into the rate-making process.

Under the proposed competition-based system, aggregate industry-wide costs and associated expenses would be published. Taking those factors into account, each insurance carrier would then set rates based on its individual risk, underwriting experience and expenses. Rates would be subject to the prior approval of the Insurance Department.

“This will result in greater transparency in the rate-making process, increased price competition and lower premiums for employers because it will drive carriers to achieve greater efficiency. Fostering competition will also make the state more attractive to new insurers,” Dinallo said.

While stripping CIRB of its rate-making authority, Dinallo recommended restructuring CIRB, and under the new governance structure, the Legislature should allow CIRB to continue, at least in the short term, its role in collecting and analyzing the industry-wide data that is required in the rate-making process. CIRB will not be authorized to perform its current functions as of February 1, 2008, under the reform law passed by the Legislature in March.

“The absence of accurate industry-wide claims data would lead to a disastrous situation for the workers' compensation insurance market because the health and stability of the system depends on the ability of insurers to accurately evaluate the cost of workers' compensation risks,” Dinallo said.

The recommended governance structure for CIRB includes adding to its Governing Committee representatives of labor, employers and the Insurance Department. This will result in the added directors and the State Insurance Fund constituting a majority of the Governing Committee.

Dinallo said this would ensure “a truly independent CIRB that acts transparently from a public interest perspective.”

Dinallo proposed that the Department be allowed to continue to examine CIRB's performance to evaluate whether, in the long term, an orderly transition of CIRB's data gathering duties should be transferred to another entity. CIRB has functioned as the system's rate-making and data-gathering entity for 90 years.

The Superintendent said the Insurance Department's evaluation of CIRB and recommendations for overhauling the rate-making process were developed after consulting with representatives from business, labor, private and state insurance carriers, regulators and rating boards in several states.

The recommendations for changing the rate-making process are part of the historic agreement reached in March between Governor Spitzer and the Legislature to overhaul the state's workers' compensation system. The comprehensive package included raising maximum weekly benefits paid to injured workers, imposing a 500-week cap on permanent partial disability benefits, an expedited claims hearing process and other reforms.

The text of the Superintendent's CIRB Report is attached.

Department of Financial Services


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