The purpose of the mandated report, as dictated by Florida Statute 627.211, is "to aid the Legislature in determining whether changes to the workers' compensation rating laws are warranted." The study comes just weeks before Florida's 2010 legislative session, which begins March 2 and is scheduled to adjourn May 7. The report contains -- again, as dictated by statute -- "an analysis of the availability and affordability of workers' compensation coverage and whether the current market structure, conduct, and performance are conducive to competition, based upon economic analysis and tests."
According to the OIR data, Florida's 2008 workers' compensation written premiums were $2.3 billion. Coverage was provided by 251 organizations from among the 411 eligible to write in that market; loss ratio was 52.9 percent, including loss adjustment expense. The largest market share by any one company was 13.0 percent and the largest 10 writers combined had a 45.8 percent market share. This disbursement of business led the report's authors to conclude that, "Florida's workers' compensation insurance market contained a large number of independent firms, none of which had enough market share to individually exercise market control in an uncompetitive nature."
The study showed that over the last nine years the number of writers in Florida has remained relatively stable, despite declines on the national level. During 2008, 14 new entities entered the Florida workers' compensation market. Thirteen of these were new to the state, and one expanded its Florida offerings to include workers' compensation.
Coverage Options
Four group self-insurance funds -- all domiciled in Florida and writing exclusively in Florida -- represent 5.58 percent of the state's workers' compensation insurance market. The total premium written by all four funds was $136.8 million in 2008; the total Florida market, including the Florida Workers' Compensation Joint Underwriting Association (FWCJUA), was $2.4 billion in the same year. Self-insurance funds did not always play such a relatively minor role in the state's workers' compensation market. In 1994, there were 35 defined self-insurance funds.
When one tracks the activity of these funds since 1994, as stated above, four remain active in the market place. Of the remainder, at least six have converted to mutual insurance companies, six exist today as stock insurance companies, one has converted to a mutual holding company, and at least five are out of business. The remainder have been acquired by other insurance organizations.
Although Florida is often viewed by carriers as a highly regulated state, the study said that there were no significant barriers for entry and exit of insurers into and from the Florida workers' compensation insurance market. It stated that there was a "reasonable degree of competition." It went so far as to claim that Florida is among the most competitive within the states with the largest population, including Texas, California, Illinois and Pennsylvania. (New York was excluded by the authors. Its State Insurance Fund has a market share of 38.7 percent and the Empire State is not considered to have a competitive market.) However, the study did note that, "There may be some small segments of the market that may have difficulty obtaining workers' compensation insurance including small firms and new firms."
Small Residual Market
In addition to information on the voluntary market, the analysis included a discussion of the FWCJUA, the current residual market mechanism. It cited the FWCJUA's small market share as further indication of the competitive strength in the voluntary market. The FWCJUA's written premium as a percent of total market has not exceeded 2 percent since 1995 and has been below 1 percent for most years. The FWCJUA total direct written premium in 2008 was $6.4 million.
The precursor of the FWCJUA was the Florida Workers' Compensation Insurance Plan (FWCIP). Unlike its successor, the FWCIP was not a self-funding plan; it was funded by insurance carriers licensed to write workers compensation insurance in Florida. In the mid-1980s, the FWCIP premiums became insufficient to cover its losses, and carrier assessments were levied based on market share. These heavy fees resulted in shrinkage of the voluntary market. By the early 1990s, 35 percent of Florida's workers' compensation market was in the FWCIP, generating over $200 million in underwriting losses. During the FWCIP's last year (1993), the FWCIP had written premiums of $328 million and over 48,000 policies. The assessment to fund FWCIP's deficit for 1993 was 34.2 percent of the voluntary market writings.
The Florida Legislature enacted major workers' compensation reforms in 1993 during a special session. As a part of that reform legislation, the FWCJUA was formed and prohibited by law from levying assessments against insurers in the event of deficits. In fact, the legislation requires the FWCJUA to charge actuarially sound rates. Experts agree that this has helped bring stability and increased availability in the voluntary market
Like all insurance markets, Florida's workers' compensation industry is cyclical, and every decade or so significant reforms are enacted. In 2000, Florida had the highest workers' compensation insurance rates in the country. This latest OIR annual report makes special mention of some major changes coming out of the 2003 legislative session. Legislation passed that year provided a formula limiting claimant attorney's fees. The analysis said this cap is "often credited with saving money in the workers' compensation system, and therefore in the rate needed by workers' compensation insurance companies." Court battles and even more legislation have so far generally kept the cap in place. However, the claimant's bar is expected to continue to contest the fee schedule.
The 2003 reform package has brought significant rate reductions to the Florida voluntary market. In 2003, the OIR approved a 14 percent rate reduction, with an additional reduction of 5.2 percent in 2004. In 2007, workers' compensation premiums decreased by 17 percent; in 2008, by 26 percent. With the most recent rate change, which took effect January 1, the cumulative overall statewide average rate decrease since 2003 has been more than 63 percent.
Ray Neff, MAAA is president of Neff Consulting, an organization that provides insurance and management consulting services to the insurance industry. He may be reached at 941-388-0611 or ray.neff@aihc.net.
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