Call to Order and Roll Call
The1st meeting of the Interim Joint Committee on Labor and Industry was held on Thursday, July 15, 2010, at 10:00 AM, in Room 131 of the Capitol Annex. Senator Alice Forgy Kerr, Chair, called the meeting to order, and the secretary called the roll.
Members:Senator Alice Forgy Kerr, Co-Chair; Representative Rick G. Nelson, Co-Chair; Senators Julie Denton, Denise Harper Angel, Ray S. Jones II, and Katie Kratz Stine; Representatives Will Coursey, C. B. Embry Jr., Bill Farmer, Richard Henderson, Charlie Hoffman, Dennis Horlander, Joni L. Jenkins, Thomas Kerr, Adam Koenig, Mary Lou Marzian, Charles Miller, Tom Riner, Charles Siler, and Jim Stewart III.
Guests: Sharon Clark, Commissioner, Kentucky Department of Insurance; Randy Peppers, Actuary, Kentucky Department of Insurance; Cathy Booth, State Relations Executive, National Council on Compensation Insurance (NCCI); Kurt Dooley, Actuary, NCCI.
LRC Staff: Linda Bussell, Carla Montgomery and Betsy Bailey.
2010 NCCI Workers’ Compensation Loss Cost Filing—Summary & Status
Sharon Clark, Commissioner of the Department of Insurance, reported that the loss cost filing was received on July 1. The filing recommended a 10.3 percent overall average rate decrease and is the fifth consecutive year of recommended rate decreases. The filing recommended an overall increase of 5 percent for the coal classes. The filing is being reviewed by an independent actuary. A ruling by the department is expected in August. If approved by the department, the rates will become effective October 1, 2010.
Cathy Booth, State Relations Executive, National Council on Compensation Insurance (NCCI), reported that the loss cost filing contained advisory loss costs and are not the final rates charged by the insurance carriers. The carriers add expense factors and multipliers to the loss costs to determine the rates that will be charged.
Kurt Dooley, NCCI actuary, presented an overview of the workers’ compensation marketplace and the basis for the loss cost filing. Since 2006, the cumulative change in the loss cost filings was a decrease of more than 20 percent. The overall change is a decrease of 10.3 percent; although the change for the employer classifications will vary, the overall decrease averages 10.3 percent. Mr. Dooley reiterated that the proposed loss costs are only a small part of the overall rates charged by carriers and do not include expense factors.
Mr. Dooley explained the workers’ compensation loss ratios that formed the basis of the recommended reductions in the loss cost filing. The loss ratio for indemnity (income benefits paid as a percentage of premium) continues to decline in Kentucky. The medical loss ratio (medical expenses as a percentage of premium) has been stable for a number of years, but it has declined during the past decade. The loss ratio decreases are based primarily on the decline in the frequency of claims.
For the coal mining classifications, the loss cost filing recommended no change in the surface coal mine class. For the underground coal class, the filing recommended an increase of 10 percent for traumatic injuries and a slight decrease for occupational disease. Overall, the filing recommended a 7.1 percent average increase for the underground coal classifications.
In response to a question from Representative Farmer, Mr. Dooley said the transition from a manufacturing economy to a service based economy is a factor in the overall decrease in the frequency and cost of claims. In response to a question from Representative Kerr concerning the decline in the medical loss ratio, Dwight Lovan, Commissioner of the Office of Workers’ Claims, responded from the audience that he could not say that employer protests of medical costs is the driving factor in the decline, and it probably has more to do with the frequency of medical claims. The commissioner said the number of medical disputes continues to increase.
KEMI Policyholder Dividend Plan—Summary and Status
Commissioner Clark said the Kentucky Employers’ Mutual Insurance (KEMI) dividend plan was received on July 3. The department reviewed the plan and concluded that the plan would not jeopardize the financial solvency of KEMI and that it was not discriminatory against its policyholders.
Jon Stewart, Executive Vice-President of KEMI, and Michelle Landers, General Counsel of KEMI, not listed on the agenda, spoke on behalf of KEMI. Mr. Stewart said KEMI’s board of directors decided in March to issue a $30.8 million dividend to its policyholders. The dividend plan excluded policyholders that had a loss ratio greater than 75 percent and those that had not been a policyholder for more than 180 days. Also, a policyholder with an annual premium of less than $350 was excluded. After the exclusions, about 66,000 KEMI policyholders would be eligible for a dividend payment. The funds for the dividend payment will be taken from KEMI’s profits.
Mr. Stewart and Ms. Landers responded to questions from Representative Koenig, Senator Kerr, Representative Farmer, and Senator Stine. Mr. Stewart said the surplus is the policyholder surplus which is the equity and retained earnings of the business and is not a cushion as reported in news articles. Ms. Landers reported that KEMI reviewed the transparency recommendations of the state auditor and found that KEMI complies with most of them and are reviewing others to determine whether they are applicable. She commented further that KEMI has always had a policy of transparency. Mr. Stewart and Ms. Landers said policyholders will be notified if they do not qualify for a dividend payment and the reasons they do not qualify, and that KEMI’s board will consider annually whether to issue a policyholder dividend. About half of the dividend payments will be for less than $100, but three policyholders will receive dividend payments of $250,000 or more. Some other state funds similar to KEMI issue dividend payments. KEMI’s board is also working with its actuaries to determine whether it will reduce its rates as proposed by NCCI.
There being no further business the meeting was adjourned.