N.Y. to Adopt Loss Costs for Workers’ Comp

New York State agents and insurers praised the passage late last month of a key workers compensation reform that will move the state to a loss-costs basis for rates.

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

Currently, the private carriers’ Compensation Insurance Rating Board proposes rates on behalf of all insurance carriers after adding industry overhead and other factors into the rate-making process.

The bill, which has been passed by both legislative houses, awaits the signature of Gov. Eliot Spitzer.

“This legislation will allow for more competition and more choice in the workers’ compensation system, ultimately benefiting the consumers and businesses of New York,” said Gary Henning, assistant vice president for the American Insurance Association, a trade group for insurers. “Enactment of a loss cost system is a critical component of the workers’ compensation reforms that have been taking place in New York.”

The new method will better reflect industry-wide experience and directly related expenses and create a more competitive environment for workers compensation, said the Independent Insurance Agents and Brokers of New York.

IIABNY Chair Stephen R. Zogby said the posting of the insurers’ individual loss cost multipliers should be “a valuable tool for agents and brokers, as well as their clients.”

The legislation is part of the continuing agreement by the Spitzer Administration and legislators in Albany to reform the state’s workers’ compensation system. The measure mirrors a recommendation made by Insurance Superintendent Eric Dinallo last fall when he said rates should be determined by more competition among insurance carriers, instead of through the current rating board that now proposes these rates.

Dinallo was reporting his views as requested by the reform legislation passed in March that included a provision that CIRB not be authorized to perform its current functions as of Feb. 1, 2008. Dinallo was asked to recommend what, if anything, should replace the CIRB in the rate-making role.

The March 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.