"An Act relating to workers' compensation insurance rates; and providing for an effective date."

The current crisis in workers' compensation has been caused by a number of factors, but it is accepted that "Loss Costs", as filed by NCCI and approved by the Division, have been inadequate for quite a number of years. This has meant employers have generally being paying less than the actual costs of the benefit system and in turn have under-priced their products and services. Therefore, when the true costs are passed through to employers (there was an average increase of 21.2% at January 1, 2004, which still may be inadequate for the industry as a whole) the impact on their business models is serious.

Until the early 1990's, premium rates were submitted by NCCI to a Classification and Rating (C&R) Committee prior to filing with the Division. In accordance with standard actuarial practice, NCCI generally submitted a range of reasonable rate changes for consideration by the C&R Committee. This Committee, made up of insurers, employers and brokers, was then able to apply their local knowledge to select the most appropriate rate change for submission to the Division.

Unfortunately, due to heightened fears of anti-trust accusations, the C&R Committee was disassembled and the NCCI has since filed premium rates, and subsequently "Loss Costs", directly with the Division with no active participation from the Alaska workers' compensation stakeholders.

Adequate "Loss Costs" are critical to maintaining a stable supply of insurance capacity, as insurers will not put their capital at risk if there is no confidence in "Loss Costs". The current system, which allows little or no input from industry participants, must be changed to avert future crises in the industry. HB 540 provides not only for this needed input, but will raise the awareness of the actual system costs and will help all stakeholders monitor the equity in this critical Alaskan system.

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