NCCI

In the past few weeks, there have been a number of relatively routine news stories about NCCI filing new rates and loss costs in various states. Florida just approved a 0.7% increase in average loss costs, based on NCCI recommendations. And Connecticut just approved a 3.2% increase in WC loss costs that had been filed by NCCI. In August, NCCI filed a 4.5% decrease in Illinois Advisory Rates for Workers Comp.

This all got me thinking that a lot of folks might not have a good understanding of what NCCI-the National Council on Compensation Insurance- is and how it operates. And so, this short primer on the organization that is so central to Workers Compensation insurance rates and premium in so many states.

NCCI was organized in 1922 and became operational in 1923, establishing rates for Workers Compensation in ten states. Workers Compensation laws in the U.S. had begun just a decade earlier (The Accidental Republic by John Fabian Witt gives a great history of this.) In the ensuing years, NCCI has significantly increased the number of states where its ratemaking services are used so that a majority of U.S. jurisdictions now use NCCI as the rating bureau for Workers Comp.

That means that, in those states, NCCI has loss and payroll data reported to it by member insurance companies so that NCCI can calculate future rates and rate components (like loss costs) and experience modification factors. NCCI also writes the various manuals of rules that govern premium computation in those states.

But to understand what NCCI is, one should also understand what it is not. It is not a government agency. It is a not-for-profit corporation created by the insurance industry (and technically owned by its member insurance companies.) Insurance company executives constitute a majority of the board of directors of NCCI. And most of NCCI's revenue comes from the fees that insurance companies pay to it. So it's a mistake to characterize NCCI as a regulatory agency, given this close relationship between NCCI and member insurance companies. Yet NCCI is independent of those insurance companies, at least, as independent as an organization can be with such close ties to the industry.

The rates and rating manuals developed by NCCI must be filed with and approved by the various state insurance regulators, but in many states such regulatory oversight is, in this writer/s opinion at least, not as vigorous and well-funded as it might be. And in my experience, NCCI's own internal enforcement of its rules and regulations over member insurers has not always been as thorough and vigilant as policyholders might wish. At the end of the day, NCCI places a high priority on keeping its customers happy. And NCCI's customers are insurance companies, not the policyholders/employers who buy insurance from NCCI member companies.