Florida’s insurance regulator has called for a further decrease to proposed workers’ compensation insurance rates in response to a filing by the National Council on Compensation Insurance (NCCI).
In an order issued Oct. 30, Florida Insurance Commissioner David Altmaier said the recent filing for a 5.7% decrease needed to be amended to a larger decrease of 6.6% to be approved.
NCCI was to file the amendment by Nov. 4, 2020. Approval of the revised 6.6% rate decrease is contingent on the amended filing being submitted with changes as stipulated within the order.
Altmaier’s order disapproved the inclusion of large deductible coverage from two NCCI financial calls, saying that NCCI indicated in its testimony at a public hearing that the use of large deductible coverage data imposes a cost on carriers “but does not have a significant impact on the credibility or predictive value of the filing’s aggregate indication. NCCI agreed that this data should be eliminated from the filing’s aggregate indication.”
The order also noted that filing does not include claims from COVID-19, as potential impact of the coronavirus on the workers’ compensation system is in the beginning stages.
“NCCI is gathering information and conducting research to gauge the pandemic’s impact on claim frequency, severity, and duration, but has not yet assessed its impact on future rate levels,” the order states.
If approved by OIR, the revised rate decrease would become effective on January 1, 2021, for new and renewal business.
The decrease would be the fifth for Florida since 2016, when two separate Florida Supreme Court decisions led to a significant rate increase and much anticipation that rates would continue rising in the near future. Those decisions – Westphal v. City of St. Petersburg and Castellanos v. Next Door Company “resulted in changes to the Florida workers compensation landscape” by undoing 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.
NCCI was ordered by OIR in 2017 to begin assessing the market impact of Castellanos, which has been considered the main driver of concern and accounted for most of the 2017 rate increase. In that case the Florida Supreme Court found the state’s mandatory attorney fee schedule unconstitutional as a violation of due process under both the Florida and United States Constitutions.
However, other factors now appear to be impacting rates positively. NCCI’s rate explanation for 2021 noted that carrier loss ratio results are improving over time, which is consistent with the “very favorable WC industry results countrywide over this period.” Nationally, the workers compensation system is experiencing unprecedented results, NCCI said. The combination of underwriting discipline, moderating severity, declining frequency, and adequate reserves has resulted in six straight years of combined ratios under 100%. Claims frequency has been on a downward path thanks to technology, safer workplaces, improved risk management, and a long-term shift from manufacturing to service sectors, NCCI said.
Last year, OIR disapproved NCCI’s statewide average premium decrease of 5.4% and instead required NCCI resubmit the filing for a 7.5% rate decrease for new and renewal policies taking effect Jan. 1, 2020. The regulator said then that 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 appeared to be “unreasonable.”
OIR also said at that time that 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.”
NCCI’s assessment on the Florida’s workers compensation marketplace for the 2021 rate filing included reviewing insurance company feedback from the state’s largest workers’ comp writers that report financial data to NCCI, the change in claimant attorney fees and the change in loss ratios that have occurred since the Castellanos decision.
Carrier feedback was largely unchanged from last year, NCCI noted, with most carriers saying they experienced cost increases after the 2016 decision, particularly for claimant attorney fees. Carriers reported that litigated claims generally take longer to close and are costlier when compared to non-litigated claims.
“Some carriers reported that litigated claims now represent a relatively larger portion of their book of business versus their experience prior to the Castellanos decision,” NCCI said.
At the same time, NCCI said there has been a marked increase in valuation dates for attorney fees from before and after Castellanos, which is supported by data from the Florida Division of Administrative Hearings (DOAH). That data shows claimant attorney fee percentages through June 2020 have increased from 13% prior to the decision to more than 20% in recent years.
NCCI noted carrier indemnity paid loss ratios are worsening over time when looking at a single year, with Castellanos likely contributing to this pattern. However, when looking across years, results are improving over time.
“The combination of two counteracting impacts has contributed to the current state of the Florida WC system. To date, the especially-favorable WC industry results observed across the country have more than offset the observed cost increases associated with the Castellanos decision,” NCCI said.
Topics Florida Trends Carriers Workers' Compensation Pricing Trends
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