What goes up must come down is a fundamental law of gravity and rollercoasters. But it is also starting to become an appropriate depiction for Florida workers’ compensation rates.
In what is heralded as good news for employers, the Florida Insurance Commissioner approved an amended filing on November 9, 2017 ordering an average decrease of 9.5% in workers’ compensation rates effective January 1, 2018. This decrease was slightly more than the 9.3% decrease proposed by the NCCI back in August. Keep in mind this is an average decrease. The actual decrease is allocated among classifications by industry as follows:
Office and Clerical -11.5%
Goods and Services -10.6%
As you may recall, this decrease was filed based on a reduction in claim frequency over the two years prior to 2016. However, this does not take into consideration the two Supreme Court decisions in 2016 that brought the 14.5% increase last December: Castellanos and Westphal.
These two cases resulted in retroactive changes to claimant attorney compensation and impairment benefits. Few deny that these court decisions are and will continue bringing upward pressure on the cost of claims, and it seems unlikely that the Florida legislature will take any action on reforms to address this issue, especially in the wake of a rate decrease. According to Logan McFaddin, Southeast Director for the Property Casualty Insurers Association of America, “Experience data relating to the impact of Castellanos and Westphal continues to mature and will likely be reflected in future rate filings.”
This sentiment was reflected in the order from the Insurance Commissioner which directed the NCCI in future recommended rate filings to provide a detailed analysis of the impact of Castellanos, including reopening of older claims, changes in reserves and settlement rates, changes in claim frequency and severity, increasing attorney involvement, and fees paid to attorneys.
One issue that needs to be acknowledged is the possibility of a mid-term cancellation and re-write of a workers’ compensation policy to take advantage of the new rates. While it is uncertain how willing insurance carriers will be to embrace this action, this should be evaluated on a case by case basis, because there are some reasons for concern over this strategy. First, a mid-term change will eliminate any potential dividends that may be earned on a policy. Also, carriers may choose to apply a short rate cancellation penalty if a policy is cancelled and moved to another carrier. The short rate penalty is approximately 10% of the unearned premium which, if applied, would completely negate any advantage of the 9.5% rate decrease. Finally, if rates do go back up next year, the policyholder would be moving up the date that the policy would be impacted by the higher rates.
The bottom line is, as usual, uncertainty prevails. With the uncertainty surrounding the market impact and future rates, it is important to not allow a rate decrease to bring complacency to the significance of safety and claims management in your workers’ compensation program. We are here as advisors and advocates to help you prepare for whatever the future may hold for workers’ compensation.