Audit finds Insurance Dept. shortcomings

COLUMBIA — South Carolina consumers could be paying more for insurance than is necessary, according to a report from the S.C. Legislative Audit Council released Tuesday.

The state Department of Insurance needs to do a better job of documenting reasons for approving rate increases, according to the report. Many of the files audited were missing paperwork, such as projected loss and revenue sheets, that prove why the increase is necessary, said Tom Bardin, director of the audit council.

Without the paperwork, the council could not determine whether reasons for rate increases were properly reviewed. For example, a company could have been approved for a 20 percent increase when 5 percent would have been enough, Bardin said.

The council has no evidence, however, that an excessive rate increase was approved in the past few years.

State insurance director Scott Richardson called portions of the report "erroneous or misleading." He said many of the documents in question were not required by state law and the approval process was not compromised.

The audit was requested two years ago by Senate President Pro Tem Glenn McConnell, R-Charleston, because of concerns over increasing rates for Workers' Compensation Insurance and coastal property insurance.

Workers comp rates in the state, for example, went from one of the lowest in the country to one of the highest in 2008, Bardin said.

The council, which conducts about a half-dozen full-scale audits a year, found that the department generally regulates the insurance industry appropriately.

But it found many areas where improvement is needed, mainly in record-keeping, Bardin said.

"It could be a problem," he said, adding that it could have led to higher than necessary insurance rates for consumers.

Bardin said the insurance department was not required to keep records, such as financial statements that prove the need for an increase, for more than half of the time period that was audited.

But starting in June 2007, state law required the department to begin keeping certain documents as proof that requests were thoroughly vetted.

Efforts to reach McConnell on Tuesday were unsuccessful.

Richardson said in a response letter that the report is misleading and falsely makes it appear that the department has problems that are deep or ongoing. Richardson wrote that the department is making some of the changes cited in the report, such as adding proper paperwork to files that were missing documentation.

Bardin said the council will re-evaluate the department after 18 to 24 months to make sure the new policies are working.