Florida: Reforms have kept state's workers' comp market competitive, report finds

Comprehensive reforms enacted to Florida's workers' compensation system in 2003 have helped keep the state's market healthy and competitive, according to a report.

The Florida Office of Insurance Regulation recently issued its 2008 Workers' Compensation Annual Report, which analyzes the availability and affordability of coverage for workers' comp insurance in the state for the 2007 calendar year. According to the report, availability and affordability in the voluntary market is good overall. However, small firms, new firms and construction firms might face affordability issues due to unique characteristics, such as lack of historical risk experience and the nature of the risk.

Researchers found that Florida's residual market for workers' comp insurance is small relative to other states, which implies that the voluntary market is absorbing the vast majority of demand.

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"I'm pleased that the 2008 report shows that Florida's 2003 legislative reforms have had an enduring effect as workers' compensation rates continue to decline," said Kevin McCarty, insurance commissioner for the state. "Florida continues to offer a good environment for employers to do business."

The report concluded that there are two primary reasons for the continued rate reductions. Researchers said the workers' comp claims frequency has been decreasing faster than medical costs have increased. In addition, McCarty said the continued crackdown on companies that fraudulently avoid payment for workers' comp coverage has added more than $8 million to Florida's premium base while providing greater protection for employees.

During 2007, the report found that 12 new workers' comp writers started doing business in Florida, bringing the number of companies that are actively writing workers' compensation insurance in the voluntary market to 241. Three of the 12 companies were new to the state, while nine companies were already operating in Florida and expanded by adding the line of workers' comp. Of the 12, only one is domiciled in Florida. The other 11 companies are domiciled in New York, Delaware, New Jersey, New Hampshire, Nebraska, Missouri, Kansas, California, Arizona, and two companies in Minnesota -- another indication, McCarty said, of the vitality and competitive nature of the Florida marketplace.

For calendar year 2009, McCarty approved an 18.6 percent reduction in Florida's workers' comp rates, which went into effect on Jan. 1. This is the largest one-year decrease on record. The two previous largest decreases were 18.4 percent for 2008 and 15.7 percent for 2007.

According to the state, the reduction in rates will save Florida employers more than $610 million and represents the sixth consecutive drop in rates since the Legislature passed the reforms in 2003. With this change, McCarty said the cumulative statewide average rate decrease since 2003 will be more than 60 percent. This represents the largest consecutive cumulative decrease on record in Florida workers' comp rates, dating back to 1965.

Rates may increase in coming year. Still under review by the Florida Office of Insurance Regulation, however, is a request for an 18.6 percent rate increase over two years by the National Council on Compensation Insurance. McCarty said the NCCI rate increase request was based on the Florida Supreme Court's ruling in October in Murray v. Mariner, which eliminated the statutory caps on attorney's fees and provided for a return to the "reasonable fee" standard for attorneys handling workers' comp claims. McCarty said this could stall the recent pattern of rate decreases.

The NCCI has proposed implementing a first-year increase of 8.9 percent, to become effective March 1, if approved by McCarty. An order from the commissioner is expected soon.

Comp fraud on the rise. In addition to the annual workers' comp report, Florida's Division of Insurance Fraud, Bureau of Workers' Compensation Fraud, and the Division of Workers' Compensation, Bureau of Compliance recently issued a joint report summarizing their respective efforts and activities in combating workers' comp fraud and employer noncompliance for the period of July 1, 2007, through June 30, 2008. According to the report, the Division of Insurance Fraud received and reviewed nearly 10,000 referrals and opened more than 1,700 cases for investigation during FY 2007. However, officials said that over the past year, the state has seen a significant increase in the sale and brokering of illegal certificates of workers' comp coverage, particularly in the construction industry. According to the Bureau of Workers' Compensation Fraud, the overall number of cases presented for prosecution increased by 17 percent and the number of arrests jumped by 29 percent.

February 5, 2009

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