Insurance Regulators Take Up Major Rate Requests

Aug 19, 2016

Credit National Institute for Occupational Safety and Health via wikimedia commons

Florida’s insurance regulators are considering two major rate increases.  The moves would raise rates for workers compensation insurance and property insurance with the state-backed company Citizens.

Court rulings and water claims are driving the rate hikes insurers say, and across two days of public hearings they worked hard to make their case before the office of insurance regulation.  The meetings mark the first major undertakings in the tenure of David Altmaier, the new head of OIR.

“It’s certainly two very important decisions that well have to make,” he says, “but you know when you go into a job like this you know that there will be decisions of this nature that will arise.”

And he explains the concerns aren’t new.  Insurers have been complaining about rising water claims and workers comp cases have been wending their way through the courts for years. 

“We knew they were coming and we knew that they may cause some significant rate increases and so we were geared up for that,” Altmaier says, “and it’s something I knew about going into the job and so we’ll just deal with this the best that we can and move forward.”

The first issue to come before the OIR panel was workers compensation.  After two court cases—Castellanos and Westphal—a number of reforms have been thrown out.  The National Council on Compensation Insurance files rate requests for a number of major carriers in the state and they believe those cases necessitate big increases.

“The pending rate filing is comprised of three main components,” NCCI actuary Jay Rosen explains.  “The first of which is the first year impact of the Castellanos decision, an impact of plus 15 percent, the second is an update to the medical fee schedule—plus 1.8 percent. And then finally the Westphal decision plus 2.2 percent for an overall combined impact of 19.6 percent

The largest chunk of that comes from the Castellanos decision which tore up a state mandated formula for attorney’s fees.  NCCI officials say the fee schedule cut back on attorney involvement, and brought premiums down from the highest in the country to the middle of the pack. 

Now, Division Executive for Florida Linda Lovgren says attorneys are running ads to solicit business.

“The number of spots were up and the average spend per month were also up indicating presumably a willingness now to take more workers comp cases since the Castellanos decision at the more generous fee levels,” she says.

Business interests like the Florida Chamber, The Florida Roofing and Sheet metal Contractors Association, and Walmart all complained about the rising rates, but they criticized attorneys rather than insurers. 

That said, the rate proposal got some pushback from Mark Touby the attorney who represented Mr. Castellanos in the Supreme Court.

“Tell me any other business where if you make a mistake your business doesn’t have to absorb that,” Touby says.  “They’re asking for a fifteen percent increase just on Castellanos alone, to be passed on to the employers who did nothing wrong—the carriers are the ones making these decisions.”

Thursday OIR took up a rate proposal from Citizens Insurance, the state-backed insurer of last resort.  President Barry Gilway says the past few years have put the company in strong position—its book of business continues to shrink, a new clearinghouse appears to be working, and surplus accounts are sitting near 7 and billion dollars.

“Citizens also benefited from major reductions in worldwide reinsurance costs, and of course we have an unprecedented number of years without a major event which has certainly allowed us to build surplus to that 7.5 billion dollar level,” Gilway says.

So why would Citizens be asking for a nearly seven percent average rate increase?

“Unfortunately what is not stable in Florida right now are the trends in water damage costs,” Citizens Chief Risk Officer John Rollins says. 

He argues water claims—and specifically those with an assignment of benefit—are driving costs upward.  According to Rollins, an ordinary claim would come in at about $8,000. 

But with an assignment, “You see a total spike in costs,” he says.  “You see about a very consistent factor of four—$30,000 to $35,000 per claim.”

The way it works is a homeowner gives a third party—usually the business doing repairs—the right to work directly with the insurance company.  Those negotiations often involve public adjustors or attorneys.  Insurers, both public and private complain assignments are hurting their business and could result in higher premiums—like the ones Citizens is currently requesting. 

But Commissioner Altmaier is looking for a balance, calling the issue delicate.

“The assignment of benefits mechanism is something that we believe has value for consumers and it’s a mechanism that probably should stay as a mechanism that consumers can utilize when it’s appropriate,” Altmaier says.  “And I think what makes it delicate situation is that we have identified loopholes in that particular system that could perhaps be driving up insurance rates and claim costs for insurance companies inappropriately.”

In addition to public testimony on the proposed rate increases, Altmaier’s office is taking comment via email.  The comment period ends for workers comp rates on August 23 and on September 1 for citizens insurance.