Report: Florida’s Workers’ Comp Market Still Strong but Uncertainty Remains

January 26, 2016 by

The latest workers’ compensation report from Florida’s insurance regulator says the state’s workers’ compensation market remained competitive and well capitalized in 2014, but reforms put in place by state lawmakers in 2003 may have reached their maximum effectiveness.

Findings and analysis from the Florida Office of Insurance Regulation’s (OIR) 2015 Workers’ Compensation Annual Report reports this factor, coupled with several pending court cases, could impact the affordability and capacity of the Florida’s workers’ comp market going forward. The report’s results didn’t stray too much from OIR’s 2013 analysis as there has yet to be a decision on three of the four major workers’ comp court cases.

The annual report of the state’s workers’ comp market in calendar year 2014 compared Florida with the six most populous states – California, Illinois, New York, Pennsylvania and Texas. In 2014, 256 privately-owned insurers actively wrote workers’ compensation insurance in Florida, ranking it fifth of the six states.

However, OIR’s analysis found that Florida is one of only two states where a private market insurance company – Bridgefield Employers Insurance Co. – is the largest insurance company in the state rather than a state-created residual market entity. Private insurance companies dominate the Florida market by writing more than 95 percent of the workers’ compensation coverage.

In total, these private sector insurers wrote more than $2.5 billion in premium. Three insurers entered the Florida workers’ compensation market in 2014 and five insurers voluntarily exited the Florida market; three of the exits were insurers merging with another insurer.

“These new entrants and voluntary withdrawals had no disruptive impact on the marketplace, as should be the case in a competitive market,” the report states.

Bridgefield had 10.5 percent of the market share in 2014. That was down from the 11.34 percent the company had in 2013. The other top insurers in the state were FCCI Insurance Co. with 5.27 percent of the market and Zenith Insurance with 5.24 percent, followed by Technology Insurance Co., RetailFirst, Comp Options, Associated Industries, Amerisure, FFVA Mutual, and Twin City Fire. The top 10 companies carry a cumulative market share of 43.16 percent, with no one firm having an overly dominant impact on the market.

Bridgefield, owned by Summit Holdings Southeast, was sold by Liberty Mutual at the beginning of 2014 to American Financial Group and is now a member of AFG’s Great American Insurance Group. According to the report, AFG has 12.6 percent of the Florida workers comp market. That’s down from Liberty Mutual’s 16.9 percent the year before but still gives AFG the largest market share of any other insurer group in the state.

AmTrust NGH is right behind AFG with 12.2 percent of the market, followed by Travelers with 6 percent, Fairfax Financial with 5.5 percent, and Hartford Fire & Casualty Group with 5.4 percent.

Additionally, OIR said rates in the state have remained low. OIR ordered the National Council on Compensation Insurance (NCCI) to decrease rates by 4.7 percent for policies effective on January 1, 2016. This was the second decrease in two years and represents a 60.3 percent cumulative reduction in Florida’s workers’ compensation rates since legislative reforms were passed in 2003. The report states this is an indication the reform measures delivered the desired result and lowered costs dramatically.

However, the report goes on to warn that medical cost drivers, particularly in the areas of drug costs, hospital inpatient, hospital outpatient and ambulatory surgical centers are higher in Florida than the countrywide average. It recommends lawmakers pass legislative reforms to address these issues.

There are also still several pending court cases that could negatively affect the workers’ compensation market by leading to increased rates and the state’s inability to retain its competitive advantage in this area.

One of the cases that has been in limbo for several years was over the constitutionality of the exclusive remedy provision of the Workers’ Compensation Act. A lower court judge found the provision unconstitutional but that decision was later overturned by the Third District Court of Appeals. In December, the Florida Supreme Court denied a request by the plaintiffs to review the case.

The three other cases still pending include one over whether the 104-week statutory cap on temporary total disability benefits is unconstitutional and another questioning the constitutionality of the statutory attorney fee formula.

The third case currently being reviewed by the Florida Supreme Court is also challenging the constitutionality of Florida’s workers’ compensation law. The appellant in the case claims the 2003 law is an inadequate replacement for the tort system because of the elimination of permanent partial disability benefits (PPD) and the addition of a copay for medical visits after a claimant reaches “maximum medical improvement.”

OIR said in its report these cases are being closely monitored by Florida regulators.

Florida’s residual market, the Florida Workers’ Compensation Joint Underwriting Association (FWCJUA), has remained small despite significant increases in the number of policies and in written premiums for the past several years. In an NCCI analysis of the residual market based on size, Florida had the smallest percentage of premium when compared with 26 other states except for Idaho. The state also had the smallest number of policies than all states included in the analysis except for Idaho, the District of Columbia, Alabama and South Dakota.

Based on calendar year 2014 data, only 2.3 percent of Florida policyholders obtain coverage through the FWCJUA, which represents only 1.2 percent of the Florida direct written premium.

“The residual market is small, suggesting the voluntary market is absorbing the vast majority of demand,” the OIR report states.

Florida’s aggregate loss ratios are also encouraging – 55.6 percent for the direct loss ratio and 63.8 percent for the direct loss ratio plus defense cost containment costs says the OIR report. In 2014, they were the second lowest among the six most populous states with only Texas having lower ratios. However, they were up slightly from 2013’s loss ratios of 50.77 and 57.10, respectively.

Workers’ compensation fraud continued to plague the state, the report says, but the Bureau of Workers’ Compensation Fraud, within the Division of Insurance Fraud made 540 workers’ comp fraud-related arrests for fiscal year 2014-2015, an increase of 14 percent. In excess of $4.3 million in restitution was requested as a result of the Bureau’s investigations of shell companies, labor brokers and check cashing stores.

Overall, OIR said Florida’s workers’ compensation system is robust and not overly concentrated. It continues to allow for ease of entry and exit for insurance companies in the marketplace.

OIR released its findings to the Florida Legislature, as required by law, to annually evaluate competition in the workers’ compensation market and to investigate and use data in its review of such rate filings.

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