Opinion ID: 2179594
Heading Depth: 1
Heading Rank: 4

Heading: Fresh Start Surcharge

Text: The AFL-CIO contends that the Superintendent over-estimated the residual market deficit by failing to take into account savings resulting from 1987 workers' compensation benefit cuts and, thus, established an excessive fresh start surcharge. Again, we disagree. 24-A M.R.S.A. § 2367 [5] instructs the Superintendent to compare the losses and expenses incurred by carriers in the residual market with the premiums and investment income generated in that market. If incurred losses and expenses are greater than premiums and investment income so that the insurance carriers do not get a fair return on the policies issued, the statute provides for their entitlement to a fresh start surcharge. 24-A M.R.S.A. § 2367(2). Section 2367 does not specifically require the Superintendent to make adjustments for savings resulting from legislative amendments but does say that he should consider all relevant factors in determining whether the rate of return earned in the residual market is reasonable. 24-A M.R.S.A. § 2367(2)(A). The record reveals that the Superintendent was presented with and considered evidence regarding incurred losses and expenses, premium and investment income and profits earned in the residual market. Based upon this evidence, the Superintendent found that the incurred losses and expenses exceeded premiums and investment income and that a surcharge must be established to make up the resulting deficit. The record then reveals a huge discrepancy between the parties' estimate of the size of the deficit: NCCI estimated the deficit to be approximately $40 million; the Public Advocate estimated it between $11 million and $14 million; the AFL-CIO did not suggest a figure. The Superintendent flatly rejected NCCI's estimate and found the residual market deficit to be $14 million. The AFL-CIO suspects that the discrepancy in the deficit figure estimates had something to do with differences of opinion regarding the current impact of certain 1987 benefit cuts specifically the 400 week cap on certain disability benefits and inflation protection adjustments. [6] Indeed, all parties agree that these benefit cuts will, at some point, significantly decrease the amounts insurers will have to pay out on claims thereby reducing incurred losses which in turn would lower the residual market deficit. There is, however, significant dispute over the extent to which these cuts are currently affecting the deficit. Without presenting any data or calculations to support its position, the AFL-CIO contends that there is a quantifiable present impact that should be reflected in the reserves for future payments on injuries currently in the system. Because reserves make up a component of incurred losses, the AFL-CIO contends that the impact should be reflected in the incurred loss statistics for 1990. This methodological argument was rejected by the Superintendent who decided not to adjust the loss figures to compensate for the 1987 benefit cuts cited by the AFL-CIO because, in his judgment, the savings could not be accurately quantified at the present time. On the basis of the evidence before him, the Superintendent concluded that a 3 percent fresh start surcharge would allow the carriers to recoup approximately $10 million of the existing deficit while allowing a $4 million leeway for savings from the benefit cuts, to the extent that any impact might be felt during 1990. We will not interfere with the Superintendent's expert judgment regarding the present impact of the 1987 benefit cuts. We further conclude that the Superintendent's finding regarding the current size of the residual market deficit is supported by evidence in the record. Although the Superintendent's finding ($14 million) is approximately $26 million less than NCCI's estimate ($40 million), an estimate that he flatly rejected, and $3 million greater than the Public Advocate's lowest estimate ($11 million), the AFL-CIO has cited no evidence that would compel us to disturb the Superintendent's finding. Even if the Superintendent's estimate is too high, he has made appropriate allowance by leaving a $4 million leeway in the surcharge. The AFL-CIO has failed to establish that the Superintendent's decision to impose the 3 percent surcharge would produce a rate of return in excess of a just and reasonable profit for the insurance carriers. We cannot conclude, therefore, that the surcharge established by the Superintendent is unreasonable, unfair or lacking in evidentiary support.