One of the most common questions raised by lawmakers, regulators, employers, and carriers is, how do the premiums paid by Floridians compared with other states when it comes to property and casualty lines of insurance? This is especially true when it comes to workers' compensation, whereby the absence of a federal workers' compensation law leaves each state to establish its own system and performance standards. As a result, there are widespread differences in how each state calculates injured workers' indemnity benefits, establishes a health care benefit delivery system, and establishes rules to informally and formally resolve legal disputes.
Along with the regulatory differences from state to state, there are also many other factors that go into calculating employers' premiums. Some of these factors include the demographic makeup of the employer's workforce, the state's economic base, and employer's own loss experience. Florida attracts a growing population due to the warm weather that appeals to retirees and others, while offering numerous jobs in the retail and service sectors. As a result, there is a high demand in the state for new housing, retail shopping centers, and other community needs, such as hospitals and schools.
Along with the differences in demographics and employers' loss trends as translated into experience modification factors, there are also other aspects of a state's makeup that can influence employers' workers' compensation costs. For example, Florida's weather allows general contractors to build homes and other buildings year round. By comparison, some states build fewer homes and other buildings due to the cold weather. However, some northern states have a substantial manufacturing base to offset the low construction combined-loss ratios.
Other major influences on workers' compensation financial results include the state of the insurance market. Since insurers rely heavily on investment income, which means any change in the capitol markets can influence the insurers' financial results. The same holds true for cost of reinsurance. Another major factor is whether a state recently enacted any reforms which have resulted in lower system costs. Given all the factors that influence employers' premiums, there are few studies that try to assess and compare rates from state to state.
Oregon Study
The Oregon Department of Consumer and Business Services conducts perhaps the best study that compares rates on a state-by-state basis. The bi-annual report was first conducted in 1998, and since that time has become a national benchmark for lawmakers, regulators, and other stakeholders. Researchers surveyed all 50 states and the District of Columbia to arrive at a premium index that is based on a premium dollar amount per $100 of payroll. Utilizing 50 of the top classification codes developed by the National Council on Compensation Insurance, researchers then compared each states' approved rates while incorporating administrative and other costs. In order to take into effect the differences in the demographic and other factors that influence states' costs, researchers standardize the industrial makeup and payroll levels by state.
For purposes of the study, researchers compared states' rates based on each state approved rates, which was in effect as of January 1, 2006. As shown in the table, Alaska has the highest index rate at $5.00 per $100 dollars of premium, unseating California, which occupied the top spot with $6.08 per $100 of premiums in 2002, and $4.13 in 2006. North Dakota ranked last on the list for the third study in a row at $1.10 per $100 of premiums. The majority of states (29) had rate indexes of between $2.00 and $2.99 per $100 of payroll, while researchers calculated 10 states averaged between $3.00 and $3.99. Ten states had the lowest index amounts of under $2.00. Tennessee claimed the median position at $2.48 per $100 of payroll.
Florida's position on the chart has substantially improved as a result of the 2003 reforms, although it remains one of the most expensive states in terms of employer premiums. Looking at the state's direct written premiums, NCCI calculated the total amount of premiums in Florida increased from $2.75 billion in calendar year 2001 to $3.7 billion in calendar year 2005. This trend of increasing premiums also mirrors the change in calendar year premiums nationwide. In 2001, the total workers' compensation premiums nationwide equaled $26 billion, a figure that is expected to reach an estimated $40 billion in 2006. At the same time, the calendar year 2001 combined ratio reached 122 percent to an estimated low of 102 percent in 2006. The last time the national combined ratio equaled such a low number was in 1999.
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