Although there has been a great deal of debate about recent Florida Supreme Court decisions related to workers’ compensation legislation, few employers understand how it will affect their businesses, according to Lykes Insurance, a Florida-based commercial insurance firm.
“These decisions really set a precedent for how Florida workers’ compensation cases will be tried in the future,” says Josh Helmuth, Lykes Insurance risk advisor. “Business owners need to be aware of their situation and actively work their strategy.”
As background, he cites the April 2016 Florida Supreme Court ruling, Marvin Castellanos v. Next Door Company, which found that a 2009 fee law, emanating from a 2003 overhaul of the workers’ compensation system, violated due process rights. At issue was the limit on attorney fees based on a fee schedule for attorneys who represent injured workers. The 2003 regulations were designed to deal with what were then considered some of the highest workers’ compensation rates in the country.
Even though these regulations drove down insurance rates by 60 percent, they were challenged as favoring insurers and businesses to the detriment of injured workers. The Florida Supreme Court found that although the Legislature had intended to deliver benefits more efficiently and quickly to injured workers, “in reality the system has become increasingly complex to the detriment of the claimant, who depends on the assistance of a competent attorney to navigate the thicket.”
What does this mean in terms of workers’ compensation rates in Florida?
The Florida Office of Insurance Regulation (OIR) has given contingent approval for an overall statewide workers’ compensation rate increase of 14.5 percent to take effect Dec. 1, 2016. The rate increase will apply to new and renewal business, with no change in rates for current in-force policies. OIR also noted in the order that if an increase in litigation activity continues or further escalates, as has been the case since the Supreme Court’s Castellanos ruling, and has the effect of extending claim durations, delaying return to work and possibly creating inefficiencies in the system, then there could be a more substantial increase in workers’ compensation costs in the near future.
How will Experience Modifiers be affected?
Insurance companies have already started reserving claims for higher amounts and will likely continue do so. Carriers will also be less aggressive on claim closure. Consequently, E-Mods will go up unless employers are paying attention. Most employers will feel the effects of future claims via E-Mod inflation in policy year 2017 onward. For some employers, there will be “zombie claims” that re-open and re-allocate reserves that will hit the E-Mod immediately, driving costs up.
Employers who are watching this and implementing a strategy to address the changes will be better positioned to get through this.
What can employers do?
“The pendulum has swung in a way that will increase costs to employers,” says Anna Evans, vice president of Claims Management Services at Lykes. “Claim advocacy is critical to control cost in this uncertain environment.” To successfully navigate these times, Evans says that employers must either have an internal claims manager to monitor the process, or outsource to an experienced claims advocate who can offer expert guidance and bring meaningful solutions in reducing the frequency and severity of claims.