Harrisburg, PA (WorkersCompensation.com) – A lack of adequate internal controls has landed the state’s insurance rating bureau and two insurers in hot water, and cost millions to affected businesses. Now state regulators have announced steps they say will protect businesses from future such mishaps.
The situation began with an error in loss cost filings submitted by the Pennsylvania Compensation Rating Bureau which took effect in April 2018. The PCRB is an independent bureau that makes filings to the Insurance Department on behalf of approximately 350 companies that write workers compensation insurance in Pennsylvania.
“The error in loss cost filings involved two insurers, Highmark Casualty which subsequently sold its workers compensation insurance business to BrickStreet, and resulted in incorrect information being used by the PCRB, resulting in some businesses paying higher rates than they should have,” said Insurance Commissioner Jessica Altman.
A mid-year loss cost revision filing from the PCRB was approved Dec. 13, 2018 to correct the filing error, starting in January 2019.
“Following an investigation, the Insurance Department determined the incorrect reporting of loss cost data to the PCRB occurred and was approved by the PCRB because of insufficient internal controls at both insurers and the PCRB,” Altman said. “Our department has now taken action, through consent orders with Highmark Casualty, BrickStreet, and the PCRB, to ensure that these companies have sufficient internal controls to lessen the chance of a similar error impacting Pennsylvania businesses’ insurance rates in the future.”
The agreement with the rating bureau includes the following:
- The PCRB must retain an outside auditor approved by the Insurance Department to conduct a full audit of the PCRB’s business practices, including its internal controls
- The third-party auditor will issue a report on the PCRB’s business practices, including recommendations for changes and improvements
- The PCRB must adopt the recommendations of the third-party auditor unless any of these is waived by the Insurance Department
- The Pennsylvania Insurance Department may, within 24 months, conduct an examination, at PCRB expense, to verify the audit report’s recommendations have been adopted by the PCRB
BrickStreet’s agreement includes the same terms in addition to a fine of $80,000 for failing to have sufficient internal controls in the past. Highmark Casualty was fined $145,000. However, since the company has since sold its workers’ compensation business to BrickStreet no audit is required.
“I believe these requirements hold these entities accountable for their lack of internal controls in the past and will protect Pennsylvania businesses from being charged workers comp insurance premiums based on incorrect data in the future,” Altman said. “Workers compensation insurance is vital to protect workers hurt on the job and make sure they get the medical care they need, but this is also a cost for businesses, and that cost must be calculated with accurate information.”
The State Workers’ Insurance Fund has so far returned approximately $10 million to businesses that were overcharged on their workers’ compensation premiums. Included are 90 workers’ compensation insurers that write about $660 million in annual premiums.