15.1% Rate Drop Proposed by the NCCI for Florida Workers’ Compensation Rates
Not a shocker, but Florida workers compensation rates have been proposed to drop on average 15.1%. This now being the ninth straight year that rates have dropped in Florida. Countrywide, workers’ compensation has been extremely profitable for the insurance community with Florida following other States in double-digit rate drops.
With a planned implementation date of January 1, 2024, the proposal targets both new and renewal policies. A focal point of this proposal is a noteworthy 15.1% reduction in average voluntary rate levels for industrial classifications and does not contemplate the Florida JUA. While the figures are compelling, it's crucial to keep in mind that the presented data has yet to receive regulatory approval. It is of note that some of the time the regulators ask for more of a decrease then what the actuarial community proposes on this front but have never seen an increase requested on proposed rates.
Pursuant to the order, key reasons for the increase are below with NCCI’s comments in bold and our comments in italics:
Trend:
· After adjusting to a common wage level, Florida’s lost-time claim frequency has generally declined over the most recent ten years. This decline is primarily due to wage level increases in 2021 and 2022 almost double what was experienced in most prior years.
· The average indemnity cost per case figures have been relatively consistent over time, while those for medical have shown a more distinct decreasing pattern over the last several years. While true, there is an increased amount in “jumper” (+$5m) claims due to increased cost of medical care (especially burns) and overall social inflation.
· This year’s trend analysis included consideration of potential upward pressure on medical costs resulting from the Amended Final Order dated May 23, 2023, in the case of Zenith Insurance Company vs. Department of Financial Services, Division of Workers
Compensation, Medical Services. Refer to Appendix A-III for more details on considerations underlying the Trend selections. https://www.tampabay.com/news/florida-politics/2023/04/10/workers-comp-fight-insurance-company-appeal-court/
Other Items of Note:
· The primary driver of the proposed change is improved experience. The decrease in the experience and trend components include changes in loss experience, as well as changes in loss development and trend factor selections.
· The benefit change reflects the impact of four recent updates to the Florida medical fee schedule.
· This filing proposes a decrease to the profit and continency provision from 1.5% to 0.0%, which reflects the higher investment returns expected in the current interest rate environment compared to prior years. Predominantly driven by the spike in return on the types of investments (i.e. T Bills) that carriers are allowed in invest surplus into.
· Additional proposed methodology changes in this filing include changes to experience rating values, occupational disease provisions, and calendar year wage adjustments.
Please refer to the Additional Proposed Changes section for additional information.
While the authors disagree with this move, a deliberate exclusion of reported COVID-19-related claims from the foundational data was made so that these just “did not happen” from an actuarial standpoint. By doing so, we feel the move helps those that purchase guaranteed cost programs and hurts loss sensitive/large deductible/self-insured participants. By excluding these losses from the experience modification rating process, the guaranteed cost buyer has no economic participation. It hurts those on large deductibles as the economic burden of these types of claims is shouldered by them only if withing their retentions versus ceded to the insurer at no impact.
Author: Paul Hughes
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