Florida Looks To Reform WC System

Florida Correspondent

Tallahassee

Florida is on the verge of embarking on its most ambitiousworkers' compensation reform effort in a decade, as rising costsand low rates are forcing carriers to retreat from the market,creating availability problems for risk managers.

The unstable market conditions and lack of substantivelegislative reforms have prompted Governor Jeb Bush to create aspecial workers' comp commission to make comprehensiverecommendations for changes. Gov. Bush formed the 13-membercommission after a series of major legislative initiatives in 2001and 2002 failed to produce a comprehensive solution to the system'sills.

Under an executive order, Gov. Bush specifically charged thecommission with evaluating the affordability and availability ofcoverage, and making recommendations to reduce litigation andoverall costs. Additionally, the commission is slated to review thecurrent injured workers' benefit system to ensure that benefits areequitably distributed.

Lieutenant Governor Frank Brogan formally opened thecommission's proceedings in June by saying that the workers' compsystem is long overdue for reform. Likening workers' comp'stroubles to the myriad of problems that befell the state'slong-term healthcare system, Mr. Brogan said that the currentworkers' comp woes are the result of years of neglect. “To say theworkers' comp system is in a crisis is an understatement,” he said.“We have been here awhile.”

Lt. Gov. Brogan also alluded to the last several years of reformactivity, which included studies by the Florida Legislature as wellas the findings of a previous task force. Those efforts generated aseries of bills that shortened litigation timelines, provided astatutory managed care opt-out, and reduced the number ofconstruction exemptions.

However, they failed to address many serious problems such asthe disparity in injured workers' benefits and soaring medical carecosts. “We are rapidly reaching a dramatic boiling point,” said Lt.Gov. Brogan.

Noticeably absent from the commission are any members of abusiness and insurance company coalition that has been deeplyinvolved in the most recent legislative battles for reform.Alliance of American Insurers lobbyist and coalition member WilliamStander said the coalition welcomes the governors initiative,saying Gov. Bushs leadership has been missed in recent workers'comp debates.

Mr. Stander, however, noted that the interests of the coalitioncould not be ignored. “No legislative changes will come without theinput of the insurance and business communities,” he said. “Wewould rather have had the input earlier rather than later.”

The National Council on Compensation Insurance in Boca Raton,Fla., reports that Florida carriers are operating at a big loss,paying $1.27 in total expenses for every $1 in premium collected.The major cost drivers include a large number of permanent totaldisability claims, which is costing the system $11 million per100,000 workers.

NCCI also found that the state's litigation system is resultingin higher expenses. In Florida, when attorneys are involved, thecost per-case averages over $41,000, which is 40 percent higherthan the countrywide average.

Compounding the problems associated with rising costs is thelack of any substantial rate relief in recent years. Since 1993'sreforms, employers cumulatively have seen 23.7 percent in ratedecreases that have only been offset by 5.7 percent inincreases.

Last year, NCCI filed for an 8 percent hike that would have beeneffective Jan. 1, 2002, but Florida Treasurer Tom Gallagher deniedthe rate increase, which led to a lengthy appeals process. The ratedispute was recently resolved when Mr. Gallagher and NCCI agreed toa 2.7 percent hike. The rate hike, however, will not affect themajority of the state's employers who purchased coverage before theAug. 1 effective date.

Due to the combination of rising costs and low rates, carriersare pulling back from the market. The Sarasota-based FCCI InsuranceGroup recently announced that it would not expand its workers' compwritings beyond its current book of business. Other insurers aretaking similar steps.

“In my crystal ball, availability is where the next crunch iscoming,” said Tom Stahl, executive director of the Florida UnitedBusiness Association, which runs a small self-insurance fund.“Currently, we are turning down $6 in premium for every dollar wewrite.”

The market's woes have not escaped employers. The constructionindustry is feeling the effects of a new law that requires allcontractors on commercial projects valued at over $250,000 to getworkers' comp coverage. Several large professional employmentorganizations have also lost coverage, leaving hundreds ofemployers scrambling for insurance.

“Things have really heated up in the last several weeks. It maytake a special legislative session before next year to solve theseproblems,” said Florida Insurance Council representative GaryGuzzo.

Michael H. Adams is editor of Florida Underwriter, aNational Underwriter Company publication. He can be reached [email protected].

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, August 19, 2002.Copyright 2002 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.