Florida’s workers’ compensation insurers rating agency says its request for a 3.3 decrease in rates reflects a stable market, although it cautioned that pending court cases could severely impact the state’s system.
The National Council on Compensation Insurance initially filed for a statewide average 2.5 percent rate decrease. It later amended that filing to 3.3 percent due to a change in hospital reimbursements.
If approved as filed, it would be the first rate decrease in two years when the new rates take effect on January 1. It would also represent a cumulative rate drop of 57.5 percent since state lawmakers re-wrote the workers’ compensation law in 2003.
Florida Insurance Commissioner Kevin McCarty said at a public hearing on the filing that the proposed decrease is good news for employers, especially as the state continues to economically emerge from the 2008 recession.
“Fewer claims and lower loss amounts have been found to have had a favorable impact on our workers’ compensation market,” said McCarty.
McCarty also congratulated the state’s Division of Workers’ Compensation and hospital representatives for resolving what had become a seven-year dispute over hospital reimbursements.
“The cumulative effect of this change means that businesses in Florida will see an addition relief in their workers’ compensation in the form of $26 million,” said McCarty, who has long voiced his objection to hospital costs.
The 3.3 percent statewide average rate request would bring decreases for all five major industry groups. Manufacturing classes would drop by an average of minus four percent and contracting classes by minus 3.7 percent. Office and clerical classes would drop by 2.1 percent and goods and services by 3.4 percent. Miscellaneous classes would decline by 2.4 percent.
NCCI Actuary Kirk Dooley said that Florida’s workers’ compensation market is benefiting from several positive trends, some of which could be attributable to the growing economy.
For example, Dooley said, the state’s workers’ compensation premium base grew by 12 percent in 2013 while at the same time employers’ payrolls have grown. According to state records, Florida employers added over 200,000 jobs last year.
Dooley noted that those trends increased while at the same time claims’ frequency declined in policy year 2012 by 5.2 percent. Typically, during a recession, claims frequency trends upwards as was the case in Florida in 2009, 2010 and 2011.
As a result of the decline in claims frequency, said Dooley, the state’s medical loss ratio and wage-loss ratio both declined. Therefore, the state’s overall loss experience in 2011 and 2012 improved for the first time since the 2010 rate filing, which resulted in a 7.8 percent increase.
“In summary, there are several encouraging indicators for Florida’s workers’ compensation market,” said Dooley. “With premiums growing, loss exposure and rates relatively stable, and with results improving it all results in the first annual NCCI filed decrease since 2010.”
The one point of contention about NCCI’s filing centered on the council’s proposed increase in insurers’ profit and contingency. Florida is one of few administratively priced states, meaning that the filing includes provisions for all insurer expenses and profits.
NCCI this year filed for a profit and contingency factor of 4.5 percent, mainly on the basis that interest rates have been at historical lows since the 2008 recession. That represents a significant increase in the profit and contingency factor from prior years.
Florida State Consumer Advocate Steve Burgess noted that according the Office of Insurance Regulation in 2012 some 245 insurers wrote workers’ coverage in the state. Four insurers entered the market for the first time, while five others withdrew from the market.
Burgess also noted that workers’ compensation insurers are also no longer subject to the state’s excess profit law, which required them to refund money to policyholders if their underwriting gains were greater than their anticipated profit by more than five percent over the three preceding calendar years.
Given those facts and the rate filing under request, Burgess said he could find no compelling reason to increase the profit and contingency factor. He also pointed out that every dollar saved by lower rates leads to an overall better economy.
“Is this not the kind of stability we want,” said Burgess. “This provides a great incentive to mom and pop’s and small business to create jobs,” said Burgess.
McCarty likewise agreed, especially given the pending court challenges to the state’s law. Currently there are four cases pending that could result in everything from higher attorney fees, great workers’ benefits and allowing injured workers to sue for damages in addition to their workers’ compensation benefits.
“It just seems to be the wrong time to adjust the profit and contingency factor,” said McCarty.
Dooley said NCCI did not factor in any potential outcome of a case in this filing, saying the council would file a separate filing if and when a final ruling is made.
However, Dooley noted that any outcome would likely be unfavorable to the state’s workers’ compensation market.
“I don’t see any potential outcome that would reduce costs,” said Dooley. “Very clearly, there are significantly more outcomes that could increase costs to the state.”
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