Coal and Energy Commission: Subcommittee on Coal

September 3, 2003
Abingdon

The subcommittee’s members heard testimony relating to workers’ compensation insurance for industry classes 1005, surface coal mining, and 1016, underground coal mining.

Insurance Premium Plan

A State Corporation Commission (SCC) spokesman presented an overview of a plan the Bureau of Insurance 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 proposal 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 the Bureau of Insurance, 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.

Rate Increases

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 eight percent increase, and for the assigned risk market, the request is 18 percent 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 percent above or below the average change for the applicable industry group. For coal companies, the applicable industry group is the miscellaneous industry group.)

There was also discussion regarding the 15 percent schedule rating credit limit and whether the bureau thought that changing that to 25 percent would be feasible. The limit could be changed to 25 percent, but insurers probably will not give a credit of 25 percent because credit determination is currently subjective. However, if credits are linked to DMME inspections, their determination will no longer be subjective.

Mine Inspections

A DMME representative spoke briefly regarding how the department 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. The number of closure orders;
4. Nonfatal days lost to 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.

Attorney General

The Office of the Attorney General represents consumers in insurance rate cases. The 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. The Office of the Attorney General’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 the disorder is “caused or aggravated by the miner’s pneumoconiosis”).

The Attorney General 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 office is also considering requesting more flexibility in the schedule rating plan if a methodology change is not made.

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.

Other Interested Parties

The legislative counsel for the Virginia Coal 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 cost increases have averaged 18.2 percent per year for surface mining and 14.6 percent per year for underground, while assigned-risk rate increases have averaged 23 percent per year for surface and 16 percent 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.

Representatives of the NCCI 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.

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. There has been some confusion regarding forecasts of claims resulting from 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.

Discussion followed 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. Big, self-insured companies do things differently, such as using long-wall technology, spraying down the coal, or taking other measures that decrease claims. Senator Wampler stated that NCCI should explain why it does not use the self-insured data when determining the rates. 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, unemployment can increase, 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. Dealing with the worker’s compensation rates and helping new companies is essential because unemployment in southwest Virginia is high.

Next Meeting

The next meeting may include discussions relating to (i) how DMME data would be used if the SCC’s proposal were adopted, (ii) the data showing actual dollars paid for occupational disease claims, (iii) all parties’ positions regarding the occupational disease component, and (iv) 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.state.va.us/cec.htm.

Coal and Energy Commission Chairman:
The Hon. William C. Wampler, Jr.

Coal Subcommittee Chairman:
The Hon. Jackie T. Stump

For information, contact:
Ellen Bowyer
Division of Legislative Services

THE RECORD

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