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September 4, 2020

Florida Workers’ Comp Rates Going Down, Again


The downward trend for Florida workers’ compensation rates is set to continue next year thanks to favorable loss experiences from policy years 2017 and 2018.

The latest filing from the National Council on Compensation Insurance (NCCI) proposes an average statewide rate decrease of 5.7% in the voluntary market. It will take effect Jan. 1, 2021 if approved by the Florida Office of Insurance Regulation, which is currently reviewing the proposed rates.

NCCI is a licensed rating organization authorized to make recommended rate filings on behalf of workers compensation insurance companies in Florida.

"As always, OIR will review the filing to ensure the proposed changes are not excessive, inadequate or unfairly discriminatory and evaluate its potential effects on the insurance marketplace and employers, who are required by law to carry this insurance on their employees,” the Florida Office of Insurance Regulation said in a statement.

The filing is based on experience data as of year-end 2019 from policy years 2017 and 2018.

"Favorable experience has been observed in each of these years. Florida’s lost-time claim frequency continues its decline while the state’s average indemnity and medical costs per lost-time claim have exhibited relatively more year-to-year volatility,” NCCI said.

If approved, it would be the fifth rate decrease 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.

COVID-19 Impact

One area that could greatly impact workers’ comp results but is still mostly unknown at this time is the impact of COVID-19. The data underlying in the NCCI filing does not include COVID-19 claims.

"Due to the lack of this COVID-19-related ratemaking data and the current level of uncertainty, NCCI has not yet assessed the potential impact on future rate levels. As such, no explicit adjustments have been made in this filing for COVID-19,” NCCI said. "While it is possible that COVID-19 may result in significant adverse loss development and deteriorating loss ratios, the impact on overall system costs could be small.”

COVID-19 could actually offset impacts on system costs by causing an increase in the number of compensable claims for frontline, COVID-19 related occupations, NCCI noted, while at the same time there could be a decrease in general claims due to the increased number of employees teleworking.

NCCI is currently gathering and researching information to preliminarily gauge the pandemic’s direct and indirect impacts on claim frequency, severity, and duration.

"More in-depth analyses related to COVID-19’s impact on frequency and severity will be conducted over time as additional aggregate data becomes available,” NCCI said, though the actual assessment of the pandemic’s impact on claim durations will take longer because claim-specific data is required.

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