Florida WC Market Hardening In A Hurry

Florida Correspondent
Tallahassee

Florida employers may be facingsignificant workers' compensation premium hikes as risingreinsurance rates, insurer consolidations, and mounting costs haveresulted in market contractions.

Placing further pressure on premiums is the National Council onCompensation Insurance's recent call for a statewide average 7.2percent rate hike next year.

Since a 1993 rewrite of the state's workers' comp law, Floridahas largely thrived as stable rates and an influx of companiesproduced a highly competitive environment. The 1990s also sawseveral market shifts as individual self-insured companies optedfor large-deductible policies, and tighter regulations dramaticallyreduced the number of domestic group self-insurance funds.

As a result, mutual and stock carriers' marketshare rose fromabout 25 percent in 1993 to over 65 percent today.

Recently, however, the workers' comp market has begun hardeningas insurers have tightened underwriting guidelines and increasedpricing to reflect higher costs. Both large and small employers arefeeling the impact of the changes.

Large employers are contemplating a move back to self-insurance,reversing a trend that began in the mid-1990s when large-deductiblepolicies became a highly attractive means for employers to lowertheir assessments while essentially remaining self-insured. Thepolicies are structured so that while carriers are technicallyresponsible for the first dollar of losses, individual employerscould opt for a large per-claim deductible that would significantlycut premiums.

The Jersey City, N.J.-based Insurance Service Office found thatunder a traditional policy with a premium of $59.9 million, anemployer would pay roughly $5.7 million in state assessments. Thesame employer, however, under a large-deductible policy with a $1million per-claim deductible, would pay only $1.27 million. A $5million per-claim deductible would cut the employer's assessmentburden to only $700,000.

State lawmakers closed this so-called large-deductible loopholeby requiring assessments to be levied against the full value ofworkers' comp policies before deductibles and credits applied.Florida Self Insurers Guaranty Association Executive DirectorBaxter Swing said that this change, which took effect July 1, isone reason that some large employers are considering self-insuringagain.

In addition to the premium formula change, the market also isfacing significant increases due to rising reinsurance rates.Robert Widmer, vice president for the Tampa-based Commercial RiskManagement Inc., said he has seen premium hikes up to 30 percentfor some firms. “We have seen a strong hardening of the reinsurancemarket,” he said.

Mr. Widmer said that so far he has not seen a major move byemployers toward self-insurance. However, he expects that some maygo that way as the impact of rising reinsurance costs and thepremium formula change take effect in the next several renewalcycles. “I thought there would be a lot more of a stampede, but ithas been pretty quiet,” he said. “As the costs involved increase, Iexpect we will see more movement.”

One employer that is moving from a large-deductible policy toself-insurance is the Naples-based Shear Corp. The drywall companyemploys over 200 workers. Company owner Jeff Walls said that hisdecision reflects a market that is heading toward a significantdownturn. “It is becoming less and less attractive to write comp inFlorida,” he said. “It is going to force more companies like me toself-insure.”

Mr. Walls attributed many of the market woes to the failure oflawmakers to pass reforms. As a drywall contractor, he said, he isforced to continually juggle cost to compete against firms that useexemptions to avoid paying for workers' comp coverage. Untillawmakers eliminate the exemptions, he said, the market willcontinue to be plagued by high costs.

“I want a plain comp policy,” he said. “I am being forced toself-insure to compete against these pickup companies.”

Smaller and mid-sized employers are also feeling the pinch. Manycarriers have increased their minimum premium levels and haveretreated from the smaller markets.

Michael Holleman, president of the West Palm Beach Gardens-basedWorkers' Compensation Associations insurance agency, said manycarriers handling small accounts are now requiring that employershave at least $15,000 in premium and employ four or moreworkers.

He also noted that the underwriting changes are coming afterFlorida saw a number of consolidations that have reducedcompetition. In the past several years, carriers have made severaldeals as Zenith Insurance Company bought Riscorp, and LibertyMutual bought Bridgefield Employers and Bridgefield CasualtyInsurance Companies.

Mr. Holleman said that while the consolidations have not beenbad for the market, they have forced many employers to establishnew carrier relationships at a time when the market is tight. “Thegood news is consolidation,” he said. “The bad news is that thereare now strict underwriting criteria. It's a whole differentballpark.”

Adding to premium pressures on all employers is NCCI'srecommendation that employers' overall premiums be increased 7.3percent. The proposed hike includes a 4.7 percent rise forcarriers' experience, trend, and benefit changes, 0.8 percent tocover production and general expenses, and 0.1 percent for taxesand assessments. To cover carrier profit and contingency needs,NCCI is recommending a 1.6 percent increase.

NCCI Director of Government Affairs Lori Lovgren said theincrease reflects the fact that claims frequency in the state isleveling off or may be slightly rising. The state insurancedepartment is expected to hold a public hearing on the filing inthe coming weeks.

Michael H. Adams is also the Editor of Florida Underwriter,a National Underwriter Company publication. He can be reached [email protected].

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, August 27, 2001.Copyright 2001 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.

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