Florida workers’ compensation rates are going down again next year, the third decrease in the two years since significant Florida Supreme Court decisions created concern and uncertainty over future of the state’s workers’ comp system.
According to an order from Florida Insurance Commissioner David Altmaier, the National Council on Compensation Insurance’s (NCCI) 2019 rate filing proposing a 13.4 percent decrease will be approved if amended to a slightly larger workers’ compensation rate decrease of 13.8 percent by Nov. 7, 2018. The extra .4 percent decrease is attributed in part to a difference in insurers’ profit and contingencies provision, OIR noted in the order.
Approval of the revised rate decrease is contingent on the amended filing being submitted with changes as stipulated within the order. If approved by OIR, the revised rate decrease would become effective on Jan. 1, 2019, for new and renewal business.
The experienced-based filing by NCCI proposes a decrease in rate level based on data as of year-end 2017 from policy years 2015 and 2016, which show continued significant improvement in loss experience, OIR noted of NCCI’s August filing. The improved loss experience is partly attributed to a decline in claim frequency, due in part to safer workplaces, enhanced efficiencies in the workplace, and increased use of automation and innovative technologies, OIR said in its order. NCCI expects the decline to continue in the future and is not unique to Florida.
As requested by OIR, NCCI said in its initial 2019 rate filing that 50 percent of the data analyzed relates to policies that became effective after two decisions from the Florida Supreme Court – Castellanos v. Next Door Company and Westphal v. City of St. Petersburg – and that these decisions are “now exerting upward pressure on system costs,” and “will continue to influence Florida workers’ compensation rates.”
OIR said in its order that even after considering the impact of the Castellanos and Westphal decisions, other factors in the marketplace – such as reduced assessments, increases in investment income, and the decline in claims frequency – combined to contribute to the indicated decrease.
However, OIR noted that any future rate filings must include additional quantitative analysis to determine the effect the Castellanos decision is having on the Florida workers’ compensation market.
“The analysis may include alternative data sources and should examine changes to the Florida workers’ compensation market that are attributed to or observed as a result of the recent court decisions,” the order states.
The changes should include the reopening of claims from older years, changes in reserves or payment patters, changes to claim closure or settlement rates, changes to claim frequency and severities, increasing attorney involvement and fees paid to attorneys.
The 2016 Castellanos and Westphal decisions created panic in the workers’ compensation space because they undid a primary cost-reduction component of reforms passed by Florida lawmakers in 2003. The initial response from NCCI and regulators was a steep rate increase of 14.5 percent for 2017.
In the Castellanos decision, which has been the main driver of concern and accounted for most of the 2017 rate increase, the state’s high court found the state’s mandatory attorney fee schedule unconstitutional as a violation of due process under both the Florida and United States Constitutions. In the Westphal decision, the court found the 104-week statutory limitation on temporary total disability benefits unconstitutional because it said it causes a statutory gap in benefits. The court reinstated a previous 260-week limitation.
“In 2016, [the Supreme Court decisions] resulted in changes to the Florida workers’ compensation landscape,” NCCI said in its August filing. “…However, the favorable loss experience in policy years 2015 and 2016 has more than offset the combined cost increases that have emerged from those court decisions.”
The 2017 policy year will be the first full year since Castellanos, but NCCI said the full effects of that decision will not materialize for several years to come.
NCCI said the workers’ compensation reforms passed in 2003, namely the caps on attorney fees that were instituted and found unconstitutional in 2016 by the Florida Supreme Court, had led to a 60 percent reduction in rates by 2015.
But since the initial 14.5 percent rate increase in 2017, workers’ comp rates in Florida have decreased. A 9.5 percent decrease was approved for 2018 and an additional 1.8 percent rate decrease was approved in May as a result of the Federal Tax Cuts and Jobs Act.
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