Florida Workers' Compensation Rates - What Now?

Are we at the end of the journey for proposed Florida workers' compensation rates?  For now, it would appear yes.

Some background:

On May 27'th of 2016, the NCCI requested the State of Florida Office of Insurance Regulation (FLOIR) to affirm a rate increase of an aggregate 17.1% based on:

1. First year impact of the "Castellanos" v "Next Door" case which lifted the caps on plaintiff attorney fees was estimated to require 15% more rate and;
2. Senate Bill 1402 which increased health care provider reimbursements in the Florida system (Fee Schedule) by 1.8%

This 17.1% aggregate increase was to go into effect on 8.1.16 for all new, renewal and in-force policies.  A copy of the initial full filing here:http://floir.com/siteDocuments/NCCI-FL_Filing_Release-8-1-16.pdfThen, on June 30'th of 2016, the NCCI amended their rate filing upwards another 2.2% or aggregate 19.6% to the FLOIR based on:

1. "Westphal" v "City of St. Petersburg" case which increased the duration of temporary total benefits (TTD) from 24 months to 60 months in the Florida workers' compensation

The combined 19.6% increase was to go into effect on 10.1.16 for all new, renewal and in-force policies.  A copy of the revised filing can be found here:http://floir.com/sitedocuments/NCCIWestphal6-30-16.pdfThe FLOIR then held a town hall meeting in August as well as analyzed submitted and historical data to better understand what they view as the impact of these three events on the overall Florida workers' compensation system.  With a 19.6% overall increase, Florida's overall premium level would go from $2.931 B to $3.645 B, or an increase of $714,000,000.It is at the sole determination of the FLOIR to approve any rates upon guidance of the NCCI and other credible bodies that provide data and opinion.  On September 27'th, the FLOIR rendered an order that denied the 19.6% rate filing, but upon an amended filing by October 4'th, 2016, the State has approved the 14.5% rate increase.  This order from the FLOIR can be found here:http://www.floir.com/siteDocuments/NCCI191880-16-OORF.pdf

Observations:

• The +1.8% rate filing for the increase in fee schedule was granted
• The +2.2% filing due to the Westphal case (60 v 24 months for TTD) was granted
• The +15% filing due to the Castellanos case was not granted, but instead a 10.1% increase was par an amended filing by 10.4.16 (which is when we should expect exact rates by classification code at the latest)

It is very apparent in the order that the NCCI and FLOIR were aligned until it came to Castellanos.  Some background on this issue of attorney caps that spans a 13 year period:In 2003, the Florida Senate passed SB 50A which rolled back a 14% rate increase and prevented another double-digit increase in 2004.  More on the history of that event here:

• Friend, workers' comp attorney and coChair of the Workers' Compensation Institute360,  Jim McConnaughhay noted from 2003 to 2016 for the AIF, “in excess of 60 percent rate decrease happened, suggesting what happened in 2003 “worked.” “The problem we addressed in 2003,” he said, "was rooted in escalated attorney’s fees.  It was not at all unusual for an injured worker’s attorney to get $100 in increased benefits and get a $20,000 fee … for minor issues that could have been resolved otherwise.  The incentive was to file claims. Litigate all you can,” McConnaughhay added.  "That was the reason for the cap on attorney’s fees, he said, restricting fees to a “percentage of recovery.”  Borrowed from Associated Industries of Florida.

The NCCI proved out that in analyzing claims files  pre-SB 50A (2000-2002) versus post (2005-2006) lead to a decline in overall loss costs of (12.2%) - (27.3%).  With the Castellanos case now having neutralized SB 50A, NCCI anticipates an increase in loss costs of +13.8% - +37.5%.

• Of huge consequence is this rate filing will only impact new and renewal policies and not "in-force" policies as both filings from the NCCI requested.
• Unsure of how Anniversary Rating Dates impact the adoption of this new rate set
• As of June, the NCCI estimated $1 B of historical unfunded liabilities... this figure grows by the day.  Impact on collateralization and premium to surplus will be worthy of focus, especially for the rating groups.
• The FLOIR has allowed the NCCI to provide further documentation to the difference in rate needed based on the Castellanos case as long as submitted by January.  It was fairly surprising that only one carrier outside of the NCCI produced data to help reinforce the uptick in litigated claims post Castellanos as noted in FLOIR order.
• We are unknowing of whether a secondary rate filing will be submitted to the NCCI in accordance with the typical January 1 filing that is customary in Florida.  I would expect it with a far deeper data call as "word on the street" is petitions are up +20%

While there is some closure, certainly more discussion and analysis will ensue in Tallahassee, Boca Raton and beyond.14.5% for now on new and renewal, with no impact on "in-force", but smart money says this is an ongoing issue to monitor as the difference in what the state has accepted and what the NCCI forecasts is material.- Paul R HughesLibertate Insurance

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