Transcript An Overview of Florida’s Workers Compensation Market

An Overview of Florida’s
Workers Compensation Market
Presented by Jim Watford, Actuary
Office of Insurance Regulation, Department of
Financial Services
2003 CAS Spring Meeting - Marco Island, Florida
May 19, 2003
1
Overview of Presentation
Typical Hard Market Characteristics
Compare the Typical Hard Market
Characteristics to the Florida Market
Florida Workers’ Compensation Joint
Underwriting Association (FWCJUA)
Professional Employer Organizations PEOs
2
Typical Hard Market Characteristics
Deterioration of Experience
Loss Ratios, Combined Ratios,
Dividends, Investment Income
Rate Increases
Growth in Residual Market
3
Impact of Dividends
on Premium in Florida
0
Percent
-2
-1.9
-4
-1.9
-3.2
-3.3
-3.5
-4.4
-3.9
-4.0
-4.8
-6
-6.6
-8
-6.8
-7.5
90
91
92
93
94
95
96
97
Calendar Year
Based on Florida data through 12/31/01.
FL WC Overview 5/03
 2003 National Council on Compensation Insurance, Inc.
2
4
98
99
00
01
Florida Accident Year
Combined Ratios
140%
127%
129%
128%
124%
118%
100%
60%
20%
1997
1998
1999
2000
Accident Year
FL WC Overview 5/03
 2003 National Council on Compensation Insurance, Inc.
3
5
2001
Florida Accident Year
Combined Ratios Excluding Dividends
140%
123%
125%
121%
117%
111%
100%
60%
20%
1997
1998
1999
2000
Accident Year
6
2001
Florida’s Manual Rate Changes
40
31.2
30
20
12.9
7.2
10
1.5
2.5
0
No Filing
2.7
-2.1
-10
-10.6
0.0
-11.3
-20
-30 -25.0
9/90
1/92
1/93
1/94
1/95
1/96
1/97
1/98
Effective Date
7
1/99
1/00
1/01
8/02 4/03
Florida’s Cumulative Rate Level
Since 1/90
10
5
5.5
0
-1.2
-1.6
-5
-5.7 -5.7 -5.7
-10
No Filing
-15
-16.4
-20
-12.5
-18.1 -16.9
-14.8 -14.8
-25
-30
-25.0
9/90 1/92 1/93
1/94
1/95 1/96
1/97
1/98
1/99
Effective Date
8
1/00
1/01
8/02 4/03
FWCJUA Written Premium
75,000,000
70,000,000
65,000,000
60,000,000
55,000,000
50,000,000
45,000,000
40,000,000
35,000,000
30,000,000
25,000,000
20,000,000
15,000,000
10,000,000
5,000,000
0
Written
Premium
'94 '95 '96 '97 '98 '99 '00 '01 '02
9
Why are companies restricting
writings in Florida?
 Reinsurance
 Terrorism
 Investment Returns
 Inadequate Rates?
 Policyholders and Brokers are being given vague
reasons like “underwriting” or “home office decision”
10
Florida Workers’
Compensation Joint
Underwriting Association
(FWCJUA)
History of Creation
1980’s – 1990’s background
1993 Special Session
11
Unique Characteristics of FWCJUA

No assessments to insurance companies

Policyholders are assessable in sub-plan “C”

Use and file rating, disapproval prospective only

Not for Profit Florida Corporations

Subject to supervision of a 13 member Board:
5 domestic insurers representatives
5 foreign insurers representatives
Agent Association representatives
Consumer Advocate
Chair

Covers only Florida Exposure
12
Premium Determination for FWCJUA
 FWCJUA manual rates are much higher than
the voluntary market rates.
 Sub-plan “C” premiums are surcharged 99%
on any amounts over $2,500.
 Flat surcharge of $475 applies for all policies.
 Assigned Risk Adjustment Program (ARAP)
surcharge applied to experience rated risks
13
Premium Determination for FWCJUA
 Expense Constant higher than Voluntary
Market.
 Premium discount does not apply.
 Standard classification and rating rules apply.
Assessable policies issued to sub-plan “C”
policyholders.
14
FWCJUA Manual Rate to Voluntary
3.5
3
2.5
2
1.5
1
0.5
0
'94
'97
'99
7/1/2000
Differential
15
'02
FWCJUA Manual Rate Divided
by the Voluntary Rate
Date
Differential
4/1/2003
1.429
1/1/2002
2.534
6/1/2001
2.164
7/1/2000
2.160
1/1/2000
3.172
1/1/1999
3.278
1/1/1998
2.210
1/1/1997
1.750
9/1/1995
1.450
1/1/1994
1.260
16
Definition from National Association of
Professional Employer Organizations
(NAPEO)
A Professional Employer Organization is an
organization that provides an integrated and cost
effective approach to the management and
administration of the human resources and employer
risk of its clients, by contractually assuming substantial
employer rights, responsibilities, and risk and, through
the establishment and maintenance of an employer
relationship with the workers assigned to its clients.
17
Other Types of Employment Services
Temporary Staffing
Payrolling
“Facilities management” or “outsourcing”
Human Resources Services
18
Is the organization the employer for
workers’ compensation purposes?
Statutory provision in Florida (section 468.529, F.S.) provides
that a licensed employee leasing company is the employer of
the leased employee.
Case Law has established that the client company is coemployer and has immunity from suit under workers’
compensation exclusive remedy.
If the PEO/Leasing Company fails to provide the workers’
compensation benefits due to lack of coverage or insolvency
of PEO, the client company may still be responsible for the
workers’ compensation benefits. 19
PEO/Employee Leasing – History in Florida
DOI first became aware of employee leasing in
late 1980’s.
Mid 1990’s – Employee Leasing became
mainstream. Routinely written by major carriers.
Late 1990’s some retraction in market.
CNA became a major writer in Florida by 2002.
Reportedly writing 70% of PEO market.
20
PEO/Employee Leasing – History in Florida
Mid-2002 - CNA notifies agents and PEOs
that they will non-renew all PEO business.
PEOs have been scrambling to find or create
a market outlet.
PEOs are buying insurance companies.
Three Insurance Companies have been
recently licensed that will specialize in PEOs.
21