The unstable market conditions and lack of substantive legislative reforms have prompted Governor Jeb Bush to create a special workers' comp commission to make comprehensive recommendations for changes. Gov. Bush formed the 13-member commission after a series of major legislative initiatives in 2001 and 2002 failed to produce a comprehensive solution to the system's ills.

Under an executive order, Gov. Bush specifically charged the commission with evaluating the affordability and availability of coverage, and making recommendations to reduce litigation and overall costs. Additionally, the commission is slated to review the current injured workers' benefit system to ensure that benefits are equitably distributed.

Lieutenant Governor Frank Brogan formally opened the commission's proceedings in June by saying that the workers' comp system is long overdue for reform. Likening workers' comp's troubles to the myriad of problems that befell the state's long-term healthcare system, Mr. Brogan said that the current workers' comp woes are the result of years of neglect. “To say the workers' 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 reform activity, which included studies by the Florida Legislature as well as the findings of a previous task force. Those efforts generated a series of bills that shortened litigation timelines, provided a statutory managed care opt-out, and reduced the number of construction exemptions.

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

Noticeably absent from the commission are any members of a business and insurance company coalition that has been deeply involved in the most recent legislative battles for reform. Alliance of American Insurers lobbyist and coalition member William Stander 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 coalition could not be ignored. “No legislative changes will come without the input of the insurance and business communities,” he said. “We would 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 total disability claims, which is costing the system $11 million per 100,000 workers.

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

Compounding the problems associated with rising costs is the lack of any substantial rate relief in recent years. Since 1993's reforms, employers cumulatively have seen 23.7 percent in rate decreases that have only been offset by 5.7 percent in increases.

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

Due to the combination of rising costs and low rates, carriers are pulling back from the market. The Sarasota-based FCCI Insurance Group recently announced that it would not expand its workers' comp writings beyond its current book of business. Other insurers are taking similar steps.

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

The market's woes have not escaped employers. The construction industry is feeling the effects of a new law that requires all contractors on commercial projects valued at over $250,000 to get workers' comp coverage. Several large professional employment organizations have also lost coverage, leaving hundreds of employers scrambling for insurance.

“Things have really heated up in the last several weeks. It may take a special legislative session before next year to solve these problems,” said Florida Insurance Council representative Gary Guzzo.

Michael H. Adams is 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 19, 2002. Copyright 2002 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.