After spiking last year, worker’s compensation rates in Florida are set to decline. But some labor organizations contend the decrease doesn’t go far enough.
Last year the National Council on compensation Insurance made a startling announcement—workers comp rates needed to jump almost 20 percent. It was concerned about two court cases scrapping attorney fee provisions in state law. In the end, state regulators approved a modified request increasing rates by about 14 percent instead.
Now the same organization says rates can come down by about nine percent.
“Specifically claim frequency is down more than eight percent in the last two years,” NCCI executive Jeff Eddinger explains, “and this is really the major driver behind the proposed rate decrease.”
NCCI senior actuary Jay Rosen suggests claims are dropping because employers are making safer working environments a priority.
“I think the contributing factors are a number,” he says. “Safer workplaces, enhanced efficiencies in the workplace, increased use of automation in the workplace, innovative technologies that have been implemented in the workplace have all combined to reduce the number of workplace injuries.”
But Mark Touby with Florida Workers Advocates pushes back on NCCI’s explanation.
“The claim frequency has been a trend for the entire 21st century,” Touby says. “From 2000 it has been—with a little hiccup here and there due to the great recession—the claim frequency has been pretty consistently going down.”
The labor organization he represents argues the proposed 9.3 percent reduction in rates doesn’t go far enough.
“I recommend that you approve a 15.4 rate decrease,” actuary Stephen Alexander says, “for industrial classifications based upon a targeted underwriting loss of 4 percent which is consistent with what the experience has been in other NCCI states.”
Alexander argues a projected loss is OK, because insurance companies will make up for the shortfall through investment returns.
Put simply, companies invest the money they collect from premiums, and those holdings begin generating income. Even though the company will eventually pay out slightly more than it originally collected, the returns those investments generated more than make up for the loss. It might sound precarious, but Alexander explains in other states insurers were able to generate 18 percent pre-tax returns.
“And you compare that to Florida,” he goes on, “and Florida was about 26 percent and that resulted in an excess profit of about $1.8 billion.”
Alexander argues that return might be great for insurers and their shareholders, but it’s a drag on the state economy.
State regulators are crunching the numbers, and they’ll make an order on rates soon.