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Coal and Energy Commission Subcommittee on CoalSeptember 3, 2003, Abingdon, VirginiaThe Subcommittee on Coal ("Subcommittee") of the Coal and Energy Commission held a meeting on September 3. Members heard testimony relating to workers' compensation insurance for industry classes 1005, surface coal mining, and 1016, underground coal mining. Mary Bannister, Deputy Commissioner, Property and Casualty Insurance, of the Virginia State Corporation Commission ("SCC"), presented the Subcommittee with an overview of a plan the Bureau of Insurance ("Bureau") is proposing that would link insurance premium credits or debits to the scores a company receives from the inspections performed by the Virginia Department of Mines, Minerals, and Energy ("DMME"). This would create an objective schedule rating plan, whereas current schedule rating plans are subjective. Credits and debits would be based on the inspection scores. However, a true correlation between the inspection scores and claims history must be found prior to requiring insurance companies to use such a plan. According to Eric Lowe from the Bureau, the Bureau will be able to determine the correlations and which credits should go with particular scores. The Bureau expects to have this information by Thanksgiving. If a positive correlation is found between the DMME inspection scores and claims history, the SCC can promulgate a rule requiring that these types of schedule rating plans be used by insurance companies writing policies for the coal classes in Virginia. No additional legislation would be required. Mrs. Bannister also pointed out that only 13 coal companies have applied for the drug-free workplace credit (up to 5%) available to all companies. The Bureau has a brochure describing the credit and are making people aware of the credit. The National Council
on Compensation Insurance, Inc. ("NCCI") recently prefiled testimony
in the annual workers' compensation rate case, which will be heard by
the SCC on November 12, 2003. For the voluntary market for both surface
and underground classes, NCCI has requested an 8% increase, and for the
assigned risk market, the request is 18% for both classes. Most of the
requested increases are related to Occupational Disease claims (black
lung). The increases would have been higher if swing limits had not been
utilized. (The current swing limit is 15% above or below the average change
for the applicable industry group. For coal companies, the applicable
industry group is the Miscellaneous Industry Group.) Steve Walz from DMME spoke briefly regarding how DMME inspects coal mines. There are five different factors considered when determining how often a mine is inspected: 1) the number of investigated serious injuries at the mine; 2) the violation rate of the Virginia Mine Safety Act; 3) number of closure orders; 4) nonfatal days lost injury incidence based on federal data; and 5) an inspector's review of a variety of issues such as, equipment condition, general mine condition, and methane liberation. New mines and mines with a reported fatality are inspected four times a year. The frequency and type (regular or spot) of inspections that other mines undergo is determined by the scores received from reviewing the five factors. DMME inspections are performed regardless of federal inspections. Judith Williams Jagdmann, Deputy Attorney General for the Civil Litigation Division, and Randy Doggett, Assistant Attorney General, Insurance and Utilities Regulatory Section, provided testimony on behalf of the Office of the Attorney General ("OAG"). Mrs. Jagdmann stated that the OAG represents consumers in insurance rate cases. The OAG's goal regarding the latest workers' compensation rate case filed with the SCC is to determine how premiums can be lowered as much as possible while remaining reasonable. Mr. Doggett said that the OAG's actuary is reviewing the rate filing and focusing on three areas: 1) reducing the large loss cap limit (similar to swing limits except that the cap applies to how much an individual loss can increase rates for any given class), 2) adjusting the loss adjustment expense factor (relates to the costs it takes to handle a claim, and an adjustment may reduce loss costs for voluntary market), and 3) determining ways to deal with the new federal regulations (provide rebuttable presumption that if a coal miner receives medical treatment for a pulmonary disorder, then disorder is "caused or aggravated by the miner's pneumoconiosis"). The OAG is also concerned that the methodology for determining rates for the coal classes has changed over the years and that the changes may not have been appropriate. The OAG is also considering requesting more flexibility in the schedule rating plan if a methodology change is not made. The OAG pointed out that there is good news in that the typical mine accident rate has decreased. Thus, but for the black lung disease component of the rates, rates would have actually gone down. John Heard, Legislative Counsel for the Virginia Coal Association ("Association"), stated that Virginia coal companies are paying more for workers' compensation insurance than are companies in Kentucky and West Virginia. Over the past six years, voluntary loss costs increases have averaged 18.2% per year for surface mining and 14.6% per year for underground, while assigned-risk rate increases have averaged 23% per year for surface and 16% per year for underground. The increases do not match the injury experience of the Virginia coal industry. Furthermore, the data needs to be understandable to lay people, not just actuaries, and NCCI should be required to file information in a layperson-friendly format. Bob Maxwell, State Relations Executive, and Tony DiDonato, Actuary, spoke on behalf of the National Council on Compensation Insurance, Inc. ("NCCI"). Mr. Maxwell stated that the Occupational Disease factor is driving the rate increases. Regarding the SCC's idea to link credits to DMME inspection scores, if the DMME inspections show a correlation with reduced losses, then the premiums should be reduced with corresponding credits. Mr. DiDonato stated that the goal of an actuary is to estimate for the policy year what premiums will be received and the losses and expenses that will be paid out for the year, and compare the two. Actuaries forecast how claims will develop over time. One area of focus is how did previous claims develop over time. It is the law of large numbers. Mr. DiDonato emphasized that there has been some confusion regarding forecasts of claims resulting because of the new federal regulations. The SCC did not allow NCCI to use such forecasts last year, and only actual data was used in the filing for this year. NCCI is seeing a huge increase in actual black lung claims. Mr. DiDonato presented a PowerPoint chart showing the increase in black lung disease claims. This was followed by some discussion regarding whether these claims would ultimately be paid out. Senator Wampler, Chairman of the Coal and Energy Commission, requested that NCCI add a third column to its chart to show actual dollars paid out as opposed to just showing claims pending. The numbers must be placed in a format that is understandable. Another discussion related to the huge difference in claims between self-insured companies and those fully insured. Mr. DiDonato stated that big, self-insured companies do things differently, such as they may use long-wall technology, spray down the coal, or do other things that decrease claims. Senator Wampler stated that NCCI should explain why it does not use the self-insured data when determining the rates. Mr. DiDonato responded saying that one problem is that the data is not something that can be validated because NCCI has no way of forcing self-insured companies to provide data to it in a format suitable for determining rates. Senator Wampler voiced his concern that all of the numbers he has reviewed indicate that premiums are higher than claims paid by as much as a 3-to-1 ratio. At that rate, we start to unemploy people, and that is why the Subcommittee chose to meet regarding this issue. He stated that we need to determine what is lacking with the current information and what are practical solutions. His preference is for a work group to be formed to consider these issues. Delegate Stump, Chairman of the Subcommittee on Coal, said that he had spoken with four companies over the last month that could not go into the coal business in Virginia because of the high workers' compensation rates. Those companies could have employed 100 people. We must find a way to deal with the worker's compensation rates and help new companies because unemployment in southwest Virginia is high. The next meeting may include discussions relating to: 1) how DMME data would be used if the SCC's proposal were adopted, 2) the data showing actual dollars paid for Occupational Disease claims, 3) all parties' positions regarding the Occupational Disease component, and 4) practical solutions to the issues relating to workers' compensation rates for the coal classes. Additional information about the Commission and any meeting materials may be obtained at http://dls.virginia.gov/cec.htm.
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