NCCI’s 1% Rate Cut and Implications for Florida Carriers
The NCCI’s recent rate cut announcement will indubitably affect Florida’s Insurance Carriers.
Using recent articles on the subject in conjunction with expertise from our own actuaries, we’ve summarized some key implications of this change.
The National Council on Compensation Insurance (NCCI) has recommended a 1% rate cut for Florida workers' compensation premiums starting January 1, 2025. On the surface, this is welcome news for businesses, but a closer examination of the filing and market context reveals a more nuanced impact for insurers.
Rate Filing Breakdown and Carrier Concerns
A notable aspect of this year’s filing is the adjustment to the “Profit and Contingencies Provision.” For 2025, this provision has shifted from the previous 0.0% to -0.5%. This adjustment could create pressure for carriers, especially those that rely on underwriting profit. The expectation is that carriers will now face a projected underwriting combined ratio of 100.5%, meaning they would need to rely more heavily on investment income to remain profitable, as underwriting profit would no longer be feasible under the current rates.
In terms of rate composition, the current filing offers the following breakdown for $1,000 of manual premium:
$230 for Loss Adjustment Expenses (LAE), which includes both Allocated (ALAE) and Unallocated (ULAE) expenses.
$246 allocated to Production & General Expenses.
$24 covering Premium Taxes and Assessments.
$505 accounting for the loss-only component, a critical part of workers' compensation insurance.
This leaves only $5 to be covered by investment income, which may be challenging for carriers, particularly in a volatile financial market.
The Legislative Impact: SB 362
NCCI’s rate reduction could have been larger if not for the anticipated cost impacts of Senate Bill 362. Signed by Governor Ron DeSantis, SB 362 increased the maximum reimbursement for physicians from 110% to 175% of the Medicare rate or the state’s Three-Member Panel, whichever is higher. Reimbursements for surgical procedures also saw an increase to 210% of the Medicare or Three-Member Panel rate, up from the previous 140%.
NCCI has estimated that SB 362 will result in a 5.6% increase in overall workers' compensation system costs\ Without the cost implications of this bill, the rate reduction would have been 6.4%, highlighting how the rising cost of medical care is driving workers' compensation costs upward.
Precision in Rate Filings: The Move to Three Decimal Places
Looking ahead, carriers should also prepare for a significant procedural change from NCCI. Beginning in July 2025, NCCI will file rates, loss costs, and expected loss rates to three decimal places, with effective dates starting January 1, 2026. While this move toward greater precision may appear subtle, it is likely to have a material impact on underwriting and pricing strategies.
This change will influence how carriers compute rates and set internal Loss Cost Multipliers (LCM), thereby affecting overall pricing strategies for all parties involved.
Final Thoughts
While the 1% rate reduction might appear to be a positive development for businesses, the adjustments in the Profit and Contingencies Provision, the financial pressures from SB 362, and NCCI’s transition to more precise filings suggest a challenging landscape for carriers. As these changes take effect, insurance companies will need to navigate slimmer margins and adapt to evolving regulatory and market conditions.
Industry professionals interested in deeper insights can review the full 125-page rate filing. Feel free to reach out if you would like a copy or have any questions.
Author: PJ Hughes
Click below to view our sources for this article:
Precision at Work: Filing of Three-Decimal Loss Costs, Rates, and Expected Loss Rates
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