Lykes Insurance Advises Business Owners
FORT MYERS, Fla. – (Nov. 27, 2017) — What goes up must come down is a fundamental law of gravity and roller coasters. But it is also starting to become an appropriate depiction for Florida workers’ compensation rates, according to Mark Webb, senior vice president of Lykes Insurance.
“In what is heralded as good news for employers, the Florida Insurance Commissioner approved an amended filing on Nov. 9, 2017 ordering an average decrease of 9.5 percent in workers’ compensation rates effective Jan.1, 2018,” says Webb. “This decrease was slightly more than the 9.3 percent decrease proposed by the NCCI in August.”
Webb notes that this is an average decrease. The actual decrease is allocated among classifications by industry as follows:
Office and Clerical -11.5 percent
Goods and Services -10.6 percent
Manufacturing -10.3 percent
Contracting -7.19 percent
Miscellaneous -8.3 percent
This decrease was filed based on a reduction in claim frequency over the two years prior to 2016. However, it does not take into consideration the two Supreme Court decisions in 2016 that brought the 14.5 percent increase last December: the Castellanos and Westphal decisions.
These two cases resulted in retroactive changes to claimant attorney compensation and impairment benefits. Few deny that these court decisions are and will continue bringing upward pressure on the cost of claims, and it seems unlikely that the Florida legislature will take any action on reforms to address this issue, especially in the wake of a rate decrease. According to Logan McFaddin, Southeast Director for the Property Casualty Insurers Association of America, “Experience data relating to the impact of Castellanos and Westphal continues to mature and will likely be reflected in future rate filings.”
This sentiment was reflected in the order from the Insurance Commissioner that directed the NCCI in future recommended rate filings to provide a detailed analysis of the impact of Castellanos, including reopening of older claims, changes in reserves and settlement rates, changes in claim frequency and severity, increasing attorney involvement, and fees paid to attorneys.
One issue that needs to be acknowledged is the possibility of a mid-term cancellation and re-write of a workers’ compensation policy to take advantage of the new rates. While it is uncertain how willing insurance carriers will be to embrace this action, this should be evaluated on a case by case basis, because there are some reasons for concern over this strategy.
First, a mid-term change will eliminate any potential dividends that may be earned on a policy. Also, carriers may choose to apply a short rate cancellation penalty if a policy is cancelled and moved to another carrier. The short rate penalty is approximately 10 percent of the unearned premium, which, if applied, would completely negate any advantage of the 9.5 percent rate decrease. Finally, if rates do go back up next year, the policyholder would be moving up the date that the policy would be impacted by the higher rates.
“The bottom line is, as usual, uncertainty prevails,” Webb concludes. “With the uncertainty surrounding the market impact and future rates, it is important to not allow a rate decrease to bring complacency to the significance of safety and claims management in your workers’ compensation program. We strongly suggest working with your advisors and advocates to help you prepare for whatever the future may hold for workers’ compensation.”
About Lykes Insurance
Lykes Insurance was founded in 1925 by Lykes Bros. Inc., a 102-year-old privately held Florida-based company. As a premier commercial insurance firm with offices in Tampa, Fort Myers, Winter Park and Sarasota, Lykes Insurance focuses on building long lasting partnerships with companies and individuals, providing protection for businesses, managing risk and designing innovative employee benefit solutions. For more information, please visit www.lykesinsurance.com.