Florida Workers' Compensation Rates Continue to Freefall
The National Council on Compensation Insurance (“NCCI”) last week filed a rate decrease order effectively reducing workers’ compensation rates in Florida effective January 1’st 2023 by 8.4%. This marks the ninth consecutive year of rate reductions in Florida totaling more than 70%.
Some of the intriguing considerations of this year’s rate filing were:
Historic out-performance of the workers’ compensation system expectations countrywide with posted combined ratios showing double-digit operational (before investment gain) profit of double-digits over the last three years
$16 Billion of accumulated claims reserve redundancy for the insurance market
For Florida, COVID claims are not being used in the calculation of future rate. Knowing many of these claims were not always caused by COVID, but that comorbidity takes precedence, I wonder how much data is not being used that should be.
Losses being used for the calculation are only from 2019 and 2020 (2 policy years), as of mid-2021 (yes, it is past mid-’22). How will these loss rate per $100 of payroll compare to those loss rates being generated using COVID and five years of data. Under a large deductible, the event may be an anomaly but the money going out the door is just as real.
Wage Inflation: “The Leisure and Hospitality sector was the most affected with an average 15% wage increase. This wage inflation impacts the state’s workers compensation system because payroll is used as the base to calculate premiums. Payroll is a well-known exposure base because it is inflation sensitive. So, as wages rise, premiums automatically rise along with workers compensation benefits. Consequently, wages, premiums, and indemnity benefits typically stay in balance.” I feel that the combination of rapidly-rising inflation and overemployment has caused a pure “supply and demand” of workers that can choose their job and require more to live will continue to drive wages used to generate workers’ compensation premiums.
Medical Inflation: “Changes in medical claim costs are driven by two factors: the price of medical services and utilization, which measures the mix and number of services provided to an injured worker. Medical inflation in workers compensation has been moderate for the past decade, with the Personal Health Care Index (PHC) averaging around 1.5% per year. According to the Centers for Medicare & Medicaid Services, the PHC is projected to increase in 2022 and then drop to anywhere between 2.5% and 3% for the near future. NCCI’s most recent countrywide data shows that drug costs are declining, physician costs are up slightly, and facility costs are rising in the workers compensation system.
https://ycharts.com/indicators/us_consumer_price_index_medical_care
Based on this data, medical inflation alone is up 8.8% over the last 3 years, and 4.6% over the last year.
Florida will not be alone in rate reduction. Expect it in most States, with some even more dramatic than this. Also, to note, the State can still elevate this decrease in the event their math does not agree with that of the NCCI. This will continue an already “soft market”, where carriers will be more competitive in obtaining and retaining market share.
More on the proposed order from our friends at Business Insurance ---