Workers’ compensation overcharges are a result of a complex system designed by
actuaries and rating bureaus and implemented by clerical personnel and overseen
by state regulators. The premium that a company pays for workers’ compensation
insurance is derived from a complex relationship between classifications, rates,
payrolls, experience modifications, rating bureau rules and state insurance rules.
• Local Regulation
Insurance regulation is conducted at the state level. There are fifty (50) state
insurance departments and each department enforces its own set of laws created
by its state’s legislature. Each state relies on the expertise from the NCCI or the
state’s rating bureau. Normally, when an insurance department is contacted for
assistance from a policyholder, they often defer to the NCCI or local rating bureau.
Together, they have developed a complex system that is interrelated and
independent at the same time.
• Lack of One Entity Overseeing the Process
Who sees that a company pays only what they are obligated to pay? The insurance
company? The insurance agency or insurance broker? The rating bureau? The
state’s department of insurance? There is not ONE entity that oversees the entire
process from start to finish. The insurance company only does as much as they
have to according to the state insurance laws. They do not calculate the experience
modification factor or develop classification codes. This is done by the rating
bureaus. The insurance agency or broker is paid by the insurance companies and
are subject to contracts with them.
• No Universal Method In Correcting Errors
Since there is no significant oversight of the entire process, most insurance
companies, even after they have learned of a mistaken procedure, apply the wrong
procedure to other policyholders. Once an error is discovered, the insurance
company will correct the mistake, but only for the policyholder that brings the error
to the insurance company’s attention. All the other policyholders continue to be
overcharged.
• Complexity
The workers’ compensation system is incredibly complex. In most states, there are
over 700 approved classifications and the interpretation of classifications varies
from state to state. In addition, insurance company underwriters, premium auditors
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and technicians handle multi-state territories. It is virtually impossible to know all
the rules and regulations of multiple jurisdictions, but our national reps are experts
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