Florida businesses can expect an even greater decrease in workers’ compensation insurance next year, thanks to an order by the state regulator for a further decrease to the recent rate filing proposed by the National Council on Compensation Insurance (NCCI).
The Florida Office of Insurance Regulation has disapproved the filing by the rating organization, which is authorized to make rate filings on behalf of workers’ compensation insurance companies in Florida, that proposed a statewide average premium decrease of 5.4%. Instead, OIR says in its order that NCCI needs to amend its August filing and resubmit with a request for a 7.5% rate decrease for new and renewal policies taking effect Jan. 1, 2020.
The new filing, if amended and submitted by Nov. 4, 2019, will be approved, OIR said.
OIR said the experience-based filing from NCCI proposes a decrease in rate level based on data from policy years 2016 and 2017 valued as of year-end 2018, and while a portion of the filing occurred before the 2016 Florida Supreme Court decisions Castellanos v. Next Door Company and Westphal v. City of St. Petersburg that undid a primary cost-reduction component of reforms passed by Florida lawmakers in 2003, 90% of the data analyzed involves claims that occurred after those decisions.
“Even after considering the impact of the Castellanos and Westphal decisions, other factors at work in the marketplace combined to contribute to the indicated decrease, which included reduced assessments, increases in investment income, and declines in claim frequency,” the OIR order states.
OIR detailed various factors that it said don’t support the 5.4% decrease recommended by NCCI, including the selected annual indemnity trend and medical trend in the loss ratio trend data range NCCI used. OIR said given NCCI’s assertion that claim frequency is declining for workers’ compensation in Florida and nationwide and that is expected to continue, NCCI’s ranges “appear to be unreasonable.”
OIR also said more quantitative analysis needed to be conducted “to determine the effect the Castellanos decision is having on the Florida workers’ compensation market and the data used to support future rate filings.”
In the Castellanos decision, which has been the main driver of concern and accounted for most of a 14.5% rate increase that took effect in 2017, 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.
NCCI said in its 2020 rate filing that since the initial rate increase after the 2016 decisions, “favorable loss experience has more than offset the combined cost increases that have emerged from those Court decisions.”
OIR said in its order that NCCI should use three-year averages for development factor selection when it submits a new filing for the 7.5% decrease, as well as a smaller selected indemnity and medical annual loss ratio trend factor. It is also requiring NCCI provide a “detailed explanatory memo and quantitative analysis” on the effect Castellanos is having on the Florida workers’ comp market and the data used to support future rate filings.
Last year OIR approved a workers’ compensation rate decrease of 13.8 percent for 2019 rates and had previously requested that NCCI include an assessment of the emerging impact of the Castellanos decision on Florida’s workers’ comp marketplace as part of its 2019 filing. NCCI said last year that 50% of the data analyzed for the 2019 rate filing related to policies that became effective after the Castellanos and Westphal decisions.
NCCI said in its August filing for 2020 rates that policy year 2017 is the first full year post-Castellanos, but the full effects of that decision are not expected to materialize for several years to come as workers’ compensation insurance is a long-tail line that often involves a long period for claims to be resolved.
However, NCCI said the workers’ compensation market is experiencing “unprecedented results” thanks to underwriting discipline, moderating severity, declining frequency and adequate reserves that has resulted in five straight years of combined ratios under 100%. NCCI said technology, safer workplaces, improved risk management, and a long-term shift from manufacturing to service sectors has led to a downward trend in frequency for decades.
“NCCI has no expectation that this trend will change course,” it said.
For the Florida filing, NCCI said carriers have experienced claim cost increases since the Castellanos decision, particularly increases in claimant attorney fees. NCCI said many carriers it interviewed reported that litigated claims now represent a relatively larger portion of their book of business since before the Castellanos decision. Loss experience, on the other hand, has improved for Florida carriers.
“While the impacts of the Castellanos decision can be observed, they have been more than offset by the continued improvement in loss ratio,” NCCI said.
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