Florida Workers’ Comp Rates Going Down Again, But Future Challenges Remain
Florida businesses could see another significant rate decrease in workers’ compensation rates next year if Florida regulators approve the latest filing from the National Council on Compensation Insurance (NCCI).
But the trend of lower rates may not last for long as two-year-old Florida Supreme Court decisions begin to catch up with insurer loss experience.
NCCI, the licensed rating organization authorized to make rate filings on behalf of workers’ compensation insurance companies in Florida, has filed for a statewide decrease of 13.4 percent with the Florida Office of Insurance Regulation, which is now reviewing the filing. The new rates would become effective Jan. 1, 2019.
If approved, it would be the third decrease in workers’ compensation rates since two 2016 Florida Supreme Court decisions initially spurred a 2017 increase of 14.5 percent.
NCCI said in its 2019 filing summary that the rate filing is based on experience data as of year-end 2017 from policy years 2015 and 2016, which show continued significant improvement in loss experience, and before the cases Castellanos v. Next Door Company and Westphal v. City of St. Petersburg were decided by the Florida Supreme Court. Those decisions created panic in the workers’ compensation space because they undid a primary cost-reduction component of reforms passed by Florida lawmakers in 2003.
In the Castellanos decision, the state’s high court found the state’s mandatory attorney fee schedule unconstitutional as a violation of due process under both the Florida and United States Constitutions. In the Westphal decision, the court found the 104-week statutory limitation on temporary total disability benefits unconstitutional because it said it causes a statutory gap in benefits. The court reinstated a previous 260-week limitation.
“In 2016, [the Supreme Court decisions] resulted in changes to the Florida workers’ compensation landscape,” NCCI said. “…However, the favorable loss experience in policy years 2015 and 2016 has more than offset the combined cost increases that have emerged from those court decisions.”
NCCI said 50 percent of the data analyzed for the 2019 rate filing relates to policies that became effective after the Castellanos and Westphal decisions, and these decisions are “now exerting upward pressure on system costs,” and “will continue to influence Florida workers’ compensation rates.”
The 2017 policy year will be the first full year since Castellanos, but NCCI said the full effects of that decision will not materialize for several years to come.
NCCI said the workers’ compensation reforms passed in 2003, namely the caps on attorney fees that were instituted and found unconstitutional in 2016 by the Florida Supreme Court, had led to a 60 percent reduction in rates by 2015.
Emerging Impact of Court Decisions
OIR requested when it approved a 9.5 percent rate decrease in Nov. 2017 that NCCI include an assessment of the emerging impact of the Castellanos decision on Florida’s workers’ comp marketplace as part of its 2019 filing. NCCI said in doing so, it reviewed insurance company feedback, the change in claimant attorney fees, and the change in loss experience that has occurred since the Castellanos decision.
“To date, observed system changes in each of these areas are directionally consistent with NCCI’s initial assessment of how the Castellanos decision would impact the Florida marketplace,” NCCI said.
Most insurers said they experienced claim cost increases since the Castellanos decision, NCCI said.
Some insurers reported that litigated claims now represent a “relatively larger portion of their book of business,” and companies are adjusting their case reserves because of Castellanos.
For claimant attorney fees, NCCI reported that data from the Florida Division of Administrative Hearings showed a 13 percent increase in the ratio of claimant attorney fees to benefit and settlement amounts in 2014 and 2015, a 15 percent increase in 2016, and a 19 percent increase in 2017. NCCI said through June 2018, claimant attorney fees represent almost 22 percent of benefit and settlement amounts.
Florida CFO Jimmy Patronis said the potential significant rate decrease was welcome, but noted: “We must keep a vigilant eye on Florida’s workers’ compensation insurance marketplace to make certain we don’t return to the age of skyrocketing rates.”
Logan McFaddin, regional manager of the Property Casualty Insurers Association (PCI), said the NCCI data “does not include the lingering impact of the Castellanos decision,” which “will not materialize for a few more years.”