Since a 1993 rewrite of the state's workers' comp law, Florida has largely thrived as stable rates and an influx of companies produced a highly competitive environment. The 1990s also saw several market shifts as individual self-insured companies opted for large-deductible policies, and tighter regulations dramatically reduced the number of domestic group self-insurance funds.

As a result, mutual and stock carriers' marketshare rose from about 25 percent in 1993 to over 65 percent today.

Recently, however, the workers' comp market has begun hardening as insurers have tightened underwriting guidelines and increased pricing to reflect higher costs. Both large and small employers are feeling the impact of the changes.

Large employers are contemplating a move back to self-insurance, reversing a trend that began in the mid-1990s when large-deductible policies became a highly attractive means for employers to lower their assessments while essentially remaining self-insured. The policies are structured so that while carriers are technically responsible for the first dollar of losses, individual employers could opt for a large per-claim deductible that would significantly cut premiums.

The Jersey City, N.J.-based Insurance Service Office found that under a traditional policy with a premium of $59.9 million, an employer would pay roughly $5.7 million in state assessments. The same employer, however, under a large-deductible policy with a $1 million per-claim deductible, would pay only $1.27 million. A $5 million per-claim deductible would cut the employer's assessment burden to only $700,000.

State lawmakers closed this so-called large-deductible loophole by requiring assessments to be levied against the full value of workers' comp policies before deductibles and credits applied. Florida Self Insurers Guaranty Association Executive Director Baxter Swing said that this change, which took effect July 1, is one reason that some large employers are considering self-insuring again.

In addition to the premium formula change, the market also is facing significant increases due to rising reinsurance rates. Robert Widmer, vice president for the Tampa-based Commercial Risk Management Inc., said he has seen premium hikes up to 30 percent for some firms. “We have seen a strong hardening of the reinsurance market,” he said.

Mr. Widmer said that so far he has not seen a major move by employers toward self-insurance. However, he expects that some may go that way as the impact of rising reinsurance costs and the premium formula change take effect in the next several renewal cycles. “I thought there would be a lot more of a stampede, but it has been pretty quiet,” he said. “As the costs involved increase, I expect we will see more movement.”

One employer that is moving from a large-deductible policy to self-insurance is the Naples-based Shear Corp. The drywall company employs over 200 workers. Company owner Jeff Walls said that his decision reflects a market that is heading toward a significant downturn. “It is becoming less and less attractive to write comp in Florida,” he said. “It is going to force more companies like me to self-insure.”

Mr. Walls attributed many of the market woes to the failure of lawmakers to pass reforms. As a drywall contractor, he said, he is forced to continually juggle cost to compete against firms that use exemptions to avoid paying for workers' comp coverage. Until lawmakers eliminate the exemptions, he said, the market will continue to be plagued by high costs.

“I want a plain comp policy,” he said. “I am being forced to self-insure to compete against these pickup companies.”

Smaller and mid-sized employers are also feeling the pinch. Many carriers have increased their minimum premium levels and have retreated from the smaller markets.

Michael Holleman, president of the West Palm Beach Gardens-based Workers' Compensation Associations insurance agency, said many carriers handling small accounts are now requiring that employers have at least $15,000 in premium and employ four or more workers.

He also noted that the underwriting changes are coming after Florida saw a number of consolidations that have reduced competition. In the past several years, carriers have made several deals as Zenith Insurance Company bought Riscorp, and Liberty Mutual bought Bridgefield Employers and Bridgefield Casualty Insurance Companies.

Mr. Holleman said that while the consolidations have not been bad for the market, they have forced many employers to establish new carrier relationships at a time when the market is tight. “The good news is consolidation,” he said. “The bad news is that there are now strict underwriting criteria. It's a whole different ballpark.”

Adding to premium pressures on all employers is NCCI's recommendation that employers' overall premiums be increased 7.3 percent. The proposed hike includes a 4.7 percent rise for carriers' experience, trend, and benefit changes, 0.8 percent to cover production and general expenses, and 0.1 percent for taxes and assessments. To cover carrier profit and contingency needs, NCCI is recommending a 1.6 percent increase.

NCCI Director of Government Affairs Lori Lovgren said the increase reflects the fact that claims frequency in the state is leveling off or may be slightly rising. The state insurance department is expected to hold a public hearing on the filing in the coming weeks.

Michael H. Adams is also the Editor of Florida Underwriter, a National Underwriter Company publication. He can be reached at [email protected].

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, August 27, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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