Another feature of the falling rates is how well it has been distributed among the five industrial classifications. Factoring in the latest rate change, manufacturing classes will have fallen by a cumulative average 47.6 percent and office and clerical classes by 50.8 percent. Goods and services classes will see a total 51.5 percent decrease and miscellaneous classes will experience a drop of 53 percent. Another highlight is that contracting classes will have fallen by a total of 52 percent, this coming after lawmakers made numerous changes, including placing tighter restrictions on the ability of contractors to secure an exemption.

In 2008, contracting classes will fall by 17.9 percent and manufacturing classes by 17.5 percent. Office and clerical classes will see an average 21.3 percent rate decrease and goods and services 19 percent. Finally, miscellaneous classes will see an average 15.2 percent rate cut.

Claim Frequency Is Key

While the success of the 2003 reforms is justifiably celebrated, it would be wrong to attribute the continual drop in rates solely to the law changes. In fact, NCCI makes the case that the reforms' savings have pretty well hit the target of 14 percent. Instead, the council said that this year's rate reduction is almost entirely due to a decline in claim frequency, a national phenomenon that has no clear explanation. Most experts point to the emphasis on safety, changes in business practices, and the shift in heavy industry from manpower to advances in such things as robotic technology. Be that as it may, the change in claim frequency is impacting rates across the county. In a recent national study, NCCI found in 2006 that indemnity costs per claim dropped by 5.6 percent while medical costs per claim grew by 7.5 percent. During the same time period, however, claim frequency dropped by 6.8 percent. More to the point, claim frequency declined from 1.7 claims per 100,000 workers in 1997 to just 1.1 workers in 2006. The decline has also been evenly distributed among large claims and small claims and across all injury types and geographic regions.

NCCI Actuary Tony DiDonato explained to regulators that due to the claim frequency trend, the trend numbers in the filing were “mechanical,” meaning that they were solely based on the data without many types of judgments made by actuaries to project premium needs going forward. Looking back over an eight-year period, he noted indemnity rates have stayed relatively stable while medical trends continue to climb. Even so, over the last three years, the state's claim frequency rate has dropped by an average 10 percent, more than offsetting any changes in indemnity and medical trends. Looking specifically at the indemnity trend, DiDonato stressed just how much impact the change in claim frequency has had on rates. “It's the most negative trend I've ever filed in Florida, and the lowest trend I've ever made in my career,” he said.

McCarty and Office on Insurance Regulation actuaries agreed with DiDonato's analysis. Putting aside State Consumer Advocate Actuary Stephen Alexander's recommended rate cut of 36.2 percent, McCarty and company made few changes to NCCI's filing. The council filed for a negative six percent indemnity trend and a 0.1 percent medical trend. Regulators adjusted those numbers slightly downward to a negative 6.5 percent indemnity trend and negative 1.5 percent medical trend.

The two other areas where regulators disapproved NCCI's findings are in the areas of the profit and contingency factor and the expense constant. The profit factor is the amount of money carriers should be allowed to earn that is adequate, fair, and not excessive. NCCI proposed a factor of zero percent. Regulators approved a factor of negative 0.8 percent, which reflects the expectation that insurers will receive a slightly higher rate of return on investment income.

The other factor under dispute was the expense constant, which reflects a per-policy charge related to fixed administrative costs for policy underwriting and issuance. NCCI proposed an increase from $200 to $240, while making other adjustments to ensure the change was revenue neutral. However, regulators rejected the change.

A following is a summary of the changes in the rate components between 2007 and 2008:

Experience, Trend, and Benefits: -19.3 percent.

Loss Adjustment Expenses: 2.1 percent.

Production and General Expenses: 0.1 percent

Taxes and Assessments: zero percent

Profit and Contingency: -1.1 percent.

Overall Rate Level Change: 18.4 percent.

Going Forward

In Florida, there is no doubt that the market is becoming increasingly competitive and that more insurers are seeing workers' compensation as a profitable option when compared to more troubled lines, such as homeowners' insurance. One measure of this trend is the number of insurers that have been added to NCCI's roster of affiliated carriers. By state law, all carriers writing workers' compensation in the state must become affiliated with NCCI for purposes of developing the statewide loss data necessary to calculate rates. That includes new carriers or carriers that currently write other lines of business and have added workers' compensation products. Between July 1, 2003 and June 30, 2004, the number of NCCI member companies equaled 311. That number increased to 334 between July 1, 2004 and June 30, 2005, and 358 between the same time period between 2006 and 2007.

In terms of market share, the top companies have significantly expanded their piece of the market over the past six years. Liberty Mutual Insurance Group has increased its premiums by 23.7 percent between 2000 and 2006. Likewise, AIG Insurance has grown by 14.7 percent and Zenith Insurance Company by 5.3 percent. The top 10 carriers now account for 68 percent of the market. In addition to the carriers mentioned above, the carriers rounding out the top 10 include: FCCI Insurance Group (5.4 percent), Hartford Insurance Company (4.1 percent), Zurich Insurance Company (3.4 percent), Travelers Insurance Company (3.3 percent), and CNA Insurance Company (3.1 percent).

Those carriers are followed by Amerisure Insurance Company (2.8 percent), and AMComp Insurance Company (2.7 percent).

Even as employers welcome the latest rate decrease, there are some economic factors that are raising a measure of concern. Since workers' compensation is a regulated line of insurance, lawmakers and regulators can affect issues such as wage-loss benefit, medical reimbursements, and attorneys' fees. However, those actions cannot control the ongoing downward trend in claim frequency or changes in the economy as a whole. Speculatively, that has raised the question of whether rates can fall so far that they eventually become inadequate, forcing regulators to do an about face and start approving rate increases.

Billy Cone, president of the Florida Roofing, Sheet Metal, and Air Conditioning Contractors Association, raised this very point at a public hearing on the rate filing. He noted that due to the hurricane damage sustained by the state in 2004 and 2005, and the boom in housing, the roofing industry and the construction industry saw a major expansion in business. Between 2003 and 2005, the construction industry's payroll increased by 38.2 percent and the number of covered employers by 23.8 percent. Cone, however, said that those trends are quickly reversing themselves, especially with the bursting of the housing bubble, which is expected to reduce residential construction by half in 2008.

As a result, Cone said contractors might see more small claims for employees who previously kept working because they were motivated by higher wages and overtime pay. “Trust us, we like paying less money,” he said. “But if we see more claims, the rate cuts could come back to haunt us and we don't want you to come back in a couple of years and have to raise rates.”

Even so, for now the market is seeing nothing but clear skies.