January brought yet another decrease in Florida's workers' compensation rates, further ripples from the 2003 reform package and related events.

With rates under control (or, depending on your perspective, under priced), there is an opportunity to examine other components of this complex market. To that end, Florida Underwriter asked the leaders of two well-known providers to share insights on their individual markets and the industry at large.

The Florida United Businesses Association (FUBA) sponsors the Florida Citrus Business & Industries Fund. Marketed as FUBA Workers' Comp, it provides coverage for a range of businesses through approved independent agent agreements. The fund currently has over 4,000 policyholders and over $20 million in annual premium; minimum premium is $1,000. Tom Stahl recently observed his 20th year as executive director of FUBA.

Lakeland-based Summit, a mono-line workers' compensation insurance provider that operates in ten southeastern states, is a member of Liberty Mutual Agency Markets. Its Bridgefield Employers Insurance Co. is the top workers' compensation writer in Florida, with almost twice the direct written premium of the second-place carrier. Long-time executive Carol Sipe recently took over as president of the company upon the retirement of Rick Hodges.

Both executives offered snapshots into how their respective programs and the industry in general are weathering the Great Recession.

“We mirror the demographics of Florida's small businesses. We write a lot of artisan contractors and businesses in the construction industry,” Stahl said, describing FUBA's program. “The recession has had an impact, especially since the majority of our insureds are in the construction industry. We have seen significant decreases in the payrolls being reported by our insureds and we have a number of insureds who have either cancelled coverage because they do not have work or they have simply gone out of business.”

FUBA's current average premium is approximately $5,000, probably half of what it was four or five years ago. Stahl attributed that primarily to the cumulative rate decreases cascading from the 2003 reform legislation. “Today's rates are more than 60 percent lower than they were in 2003,” he said. “A $10,000 account in 2004 is today a $3,000 to $4,000 account. Interestingly, a construction account of this relatively small size, which was a niche type of account several years ago, has become a blue-chip account in today's market.”

“When the drivers that make up insurance rates dropped, premium fell accordingly, but the dive has been faster and more far-reaching than anyone predicted or imagined possible,” Sipe said of the overall market. “Recent reports suggest that the drop in the frequency of claims has leveled off, which is not what was assumed when the 2010 Florida rates were established. Worse, the rate drops have ignored the now unfunded liability that resulted from the Emma Murray v. Mariner case.

“On top of the decline in rates, the economy plunged downward,” she said. “Unemployment has followed, and business failures have occurred. Low workers' compensation rates have now created a hyper-competitive market for a shrinking number of insureds, many of whom now employ less people than before.

“The result is that even as competition among carriers continues to drive pricing lower than financial responsibility suggests, the economy has created an environment where price appears to be the most — if not the only — important variable in insurance selection. But price over carrier stability is not good for policyholders, agents or carriers. For carriers, premium cannot become more important than financial integrity. If it does, long-term solvency is sacrificed for a short-term profit that cannot cover risk costs,” Sipe cautioned.

In keeping with that philosophy, Sipe said that Summit has not changed its underwriting guidelines with respect to eligibility. That business-as-usual approach appears to be working. Sipe noted that in the Summit-managed carriers, policyholder count has risen, and agent count has held steady. “Historically, our policyholder retention rate is greater than 90 percent,” she said.

Dividends and Reinsurance

As with many carriers, dividend programs are longtime features with the FUBA and Summit programs. Even with the current reduced rates, those plans have remained in place and continue to offer rewards to qualified insureds.

FUBA has four different dividend programs, enabling FUBA to present information on a suitable program to almost everyone who receives a coverage quote. Dividends can range from five percent to an impressive 48 percent, depending on specific parameters.

“Our dividend program is based on the insured's loss experience and the overall performance of our program,” Stahl said. “The amount of each dividend is based on the size of the account and the loss experience of the account. As a self-insurance fund, we are owned by our member insureds, and we are committed to returning dividends to those members who have contributed to our success. Our dividends have not been impacted or affected by the recession.”

Reinsurance — often a huge issue in the property market — appears well under control in the workers' compensation arena. “Our excess insurance program is with an A+ rated insurance company and the coverage provides statutory limits on any given claim,” Stahl reported. “We have a long-term relationship with our reinsurance partners and we have not had difficulty in obtaining coverage. The premium has stayed relatively stable.”

Sipe noted that there is upward pressure on reinsurance pricing, mostly because of the drastic rate cuts on underlying premium since the 2003 reform. Although Summit's reinsurance rates are up slightly, Sipe reported that her company has not had any difficulty in finding and securing coverage.

Changing Markets

According to Sipe, the economy has prompted (or in some instances, forced) businesses to re-evaluate how and where they obtain their workers' compensation coverage.

“We are seeing that some self-insureds (such as large companies and municipalities) no longer qualify to insure themselves, because their financial ability to do so has been reduced due to economic factors,” Sipe said. “In other cases, it now makes more sense to obtain coverage through a traditional insurance company because workers' compensation rates have dropped so dramatically.”

Further re-evaluations and marketplace changes may occur after the health-care reform package is passed in Washington. “How that plays out, whether workers' compensation is included, and how physicians are impacted will make a difference to our market,” Sipe noted. “We can adjust — and we will — but we are watching it carefully.

“Rising medical costs will influence the market,” she said. “Tremendous new advances in medicine are made every day. The result is improved medical outcomes, but at a price. It is important to note that 15 years ago, 49 cents of every workers' compensation dollar went to medical costs. Today, it is 58 percent nationwide and 69 percent in Florida.”

However, if getting people back to work can eventually reduce those medical expenses, the 2003 reforms may once again have played a positive role. “A particularly strong offshoot of the 2003 reform is the success of return-to-work programs,” Sipe said. “Since the reform, the average number of days it takes for an injured worker to be able to get back on the job in Florida has dropped from 67 to 55. That is the beginning of a real success story for the workers' compensation system.”

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Rates Are Just One Piece of the Workers' Comp Puzzle

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