NCCI Proposes Florida Workers Compensation Rate Increase
Effective August 1, 2016
Overview of Castellanos Decision
On April 28, 2016, the Florida Supreme Court issued an opinion in the case of
Castellanos vs. Next Door Company, et al., No. SC13-2082 (“Castellanos”) declaring Section 440.34, Florida Statutes, unconstitutional. The anticipated impact of the decision is the elimination
of the statutory caps on claimant attorney fees and a return to hourly fees.
NCCI Proposes Rate Increase
NCCI estimates that the first year impact of
Castellanos will be an increase in overall Florida workers compensation system costs of
15%. This estimate does not include the following:
·
Impacts related to
the First District Court of Appeal decision dated April 20, 2016 known as
Miles v. City of Edgewater Police Department (“Miles”) declaring unconstitutional certain restrictions on claimant paid attorney fees. After
Miles, claimant attorney fees can be earned regardless of whether
benefits are secured. Depending on the scenario, the source of
claimant attorney fees could be the claimant, the employer/carrier, or
both. Claimant attorneys may now have the potential
to earn greater compensation than that which would result from the Castellanos decision on its own, putting additional upward pressure on system costs in Florida. NCCI is unable to separately determine the
Miles impact.
·
The entire unfunded liability created in the state due to the retroactive nature of the
Castellanos court decision.
·
Unanticipated
cost impacts not otherwise reflected in this filing that may emerge
over time such as additional stakeholder behavioral changes or
interactions that
may result in changes to workers compensation benefits or practices in
Florida.
On
May 27, 2016, NCCI submitted its filing to the Office of Insurance
Regulation (OIR). It includes components for two law changes:
-
First year impact for Castellanos of 15%
-
Impact of 1.8% in response to SB 1402 which ratified updates to the Florida Workers’ Compensation Health Care Provider Reimbursement Manual
The
combined impact of the two components is 17.1% or $623M (17.1 x
$3.645B). NCCI proposes that the increased rates will apply to new and
renewal policies that
are effective on or after August 1, 2016. Additionally, NCCI proposes
that the increased rates will apply to all policies in effect on August
1, 2016 on a pro-rata basis through the remainder of the term of these
policies. Currently, Florida has a voluntary
pure loss cost of 0.99 that is comparable to other states in the
Southeast
ranging from 0.94 to 1.14. If the rate filing is approved as filed
increasing rates by 17.1%, Florida at 1.16 would rank as the highest
state in the Southeast.
Retroactive Impact of
Castellanos Decision is Not Part of Proposed Rate Increase
This Castellanos
component of this filing only addresses the expected increase in
Florida workers compensation system costs for accidents occurring on or
after August 1, 2016. However, the
decision in Castellanos is also expected to increase overall
system costs in the state for accidents occurring prior to August 1,
2016 that remain open or are re-opened.
Because
workers compensation ratemaking is prospective only, insurers are not
afforded the opportunity to recoup premium to cover such unforeseen
increases in system costs.
Therefore,
it is expected that a significant unfunded liability will be created
due to the retroactive impact of this court decision. NCCI is currently
in the process of estimating the unfunded liability and will provide
further information
at a later date.
