A third consecutive decline in workers' compensation premiums will greet Florida's employers in the New Year after Insurance Commissioner Kevin McCarty signed off on a 13.5 percent rate cut. The rate change will save employers some $445 million, as rates have now dropped by a cumulative 32.6 percent, returning them to levels last seen in the mid-1990s. The new rates will apply to all new and renewal policies as of January 1, 2006.
Employers Benefit
With the prospect of a further rate decrease, employers clearly are benefiting from the reduction in premiums. Manufacturing classes will see an overall average 10.6 percent rate reduction in rates next year, which represents a cumulative decrease of 27.1 percent since the 2003 reforms. Contracting classes will see an 11.3 percent reduction and a cumulative average of 27.7 since the reforms. Office and clerical classes will see a 14.4 percent reduction for a cumulative decrease of 30.2 percent, and goods and services will see a reduction of 14.1 percent for a cumulative decrease of 30 percent. Likewise, miscellaneous classes will see a 17.1 percent reduction for a cumulative decrease of 32.5 percent.
Chief Financial Officer Tom Gallagher said much of the credit for the current rate reduction goes to the Division of Workers' Compensation's efforts to enforce the new compliance laws. Under the law changes, construction exemptions are limited to three officers of a corporation or limited liability company that own at least 10 percent ownership of the business. The division also has implemented a variety of rules, which, among other things, require out-of-state contractors to pay Florida premiums. Other rules increase the division's authority to issue stop-work orders and levy fines.
"We have aggressively fought to combat workers' compensation fraud and doubled the number of fraud arrests in just one year," said Gallagher. "Our compliance efforts also have added over $52 million in evaded premiums to our state's workers' compensation system and ensured that nearly 21,000 employees have coverage."
Politics Plays a Role
NCCI's rate filing provided the most comprehensive evidence yet of the impact of the 2003 reforms on system costs. The filing was based on insurers' 2003-2004 loss data, of which 15-months of the 24-month period fell under the new law. NCCI officials, however, cautioned that not all of the proposed decreases can be attributed to the reforms. The state also is benefiting from national changes in financial and loss trends, such as a continuing reduction in claim frequency. However, the state's accident year combined ratio has dropped from 120 percent in 2000 to 106 percent in 2003.
NCCI's rate filing hinged primarily on the component for insurers' experience, trends, and benefits, which are used to calculate the amount of monies carriers are expected to pay in medical and indemnity benefits next year. To calculate what are referred to as trend factors, the council examines the two calendar-accident years preceding the submitted rate filing.
Since the new rates will be applicable to policies issued after Jan.1, 2006, NCCI's actuaries have to anticipate how insurers' experience in 2003 and 2004 will differ from 2006. Looking at the indemnity side of the equation, NCCI's data shows that the state's indemnity loss ratio has declined slightly over the last five years. As a result, the rate filing contains a minus 0.1 percent indemnity trend. Spurred in part by such national trends in medical costs as rising prescription drug costs, the state's medical costs continue to rise. Based on the data, NCCI projected a medical trend of 1.5 percent. Taking those trends in account along with insurers' loss data, NCCI set the experience, trend, and benefit component at minus 5.8 percent.
Office of Insurance Regulation actuaries, however, contended that the five-year average did not adequately reflect the impact of the reforms on insurers' expected losses.
They maintained that NCCI should have averaged the results of the five-year with a two-year average. Consequently, the OIR approved a trend factor of minus two percent for indemnity and plus 0.5 percent for medical benefits, which equated with an experience, trend, and benefit component of minus 12 percent as opposed to the minus 5.8 percent.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.