Merger of ratings firms clouds future of study

Journal Record, The (Oklahoma City), Jun 23, 1999 by David Meuser Special to The Journal Record

A months-long study of competition in workers compensation rating by industry representatives and staff members of the State Board for Property and Casualty rates may come to naught after an announcement by the market's two competitors that they will merge.

The National Council on Compensation Insurance announced it has agreed to acquire Insurance Services Office's workers compensation insurance subsidiaries, Insurance Data Resources and IDR Statistical Services.

After IDR obtained licensing from the property and casualty board and announced it would compete with NCCI, the board set up a committee to study how such competition could take place. Although the committee looked at myriad issues relating to such competition, the concerns could be boiled down to two methods of allowing competition. Among the issues was separating the functions of a statistical agent from those of a rating service. A statistical agent gathers information about all the losses in one state whereas a rating service takes that information and creates rates or loss costs predictions for the state. In Florida, NCCI and IDR compete with each other to provide loss costs and other services to workers compensation insurers. In Arizona, the state sought bids from both organizations for one to provide statistical services for that market. IDR won the bid. Fred R. Marcon, ISO's chairman and chief executive officer, said the combined firm will be able to offer customers and regulators a unified database and consistent workers compensation materials. "Regulators and insurers have expressed a desire to work with uniform core workers compensation materials and a single database," Marcon said. "Consequently, we have re-examined the economics of full-scale IDR operations and concluded this agreement with NCCI is more beneficial to the industry." NCCI President and CEO Bill Schrempf said the move should result in improved services to the workers compensation industry. "When ISO approached us, we took great care to ensure that the combination would fit with our first priority -- that is, to continually improve our service to our customers and our value to the industry," Schrempf said. "We believe that the combination of these two entities will result in an improved source of information and service for all participants in the workers compensation industry." As part of the transaction, NCCI will assume IDR's licenses for and modifications to its Insider data system for gathering, compiling and analyzing workers compensation data. "We believe the incorporation of components of the Insider system into NCCI's existing portfolio of data collection products will create improvements, efficiencies and cost savings that will be passed on to our member companies," Schrempf said. Following the sale, ISO will continue to provide services to the workers compensation insurance industry as well as to the 12 other commercial lines of insurance that it currently services. NCCI has agreed to the ongoing sale to ISO of NCCI's aggregate workers compensation data products and to allow ISO to distribute NCCI's other Risk Services products so that ISO customers can choose to have access to comprehensive information to analyze risk on an account or classification basis. "Under the agreement, we'll have access to much more comprehensive workers compensation information sooner than we could through current arrangements," Marcon said. David Ostwald of the Insurance Services Office said ISO will collect information on workers compensation in a transaction-based system, with which it currently collects information on its other lines. He said that although the information collected will be more in-depth than what is currently collected for NCCI, companies may actually save money because it will be in the same format that ISO collects information. ISO will then provide the information to NCCI in the format it uses. ISO will also report information to member companies on trends within the workers compensation industry; however, NCCI provides loss cost rates to insurers. Ostwald said insurers can use the information when making decisions about their market segments. He noted many insurers have begun specializing in all insurance coverages for a market. For example, instead of specializing in workers compensation coverage for various types of businesses, an insurance company nowadays may choose to write all the coverages necessary for certain types of businesses, combining such lines as property, liability and workers comp. NCCI and ISO anticipate a smooth and seamless transition for customers. As a result of this transaction, regulators and insurers alike will benefit from a more sophisticated and customer-oriented source of workers compensation information, according to Schrempf. The terms of the transaction were not announced. The transaction is expected to close in the third quarter of 1999 and is subject to various conditions. In the meantime, Steve McCaleb, attorney for the State Board for Property and Casualty Rates, said he will ask the board at its meeting Thursday whether the study will move forward or cease as the result of the merger. He said the recommendation may be to wait for more information on the IDR purchase before a move can be made. In earlier discussions of the study, McCaleb has told board members that one of the goals is to set up a system so that if other rating bureaus or statistical organizations want to enter the Oklahoma workers compensation market, they can. David Meuser is the editor of The Journal Record's Oklahoma Business News division.