To Our PGI Client Community:

We wanted to give you an update on the latest ruling regarding a recent Florida Supreme Court case that is likely to have a measurable effect on all workers comp rates in Florida. The following is the latest communication from NCCI (National Council on Compensation Insurance) for your review. This latest proposed increase is in reaction to the overturning of the attorney fee portion of the workers comp statute.

It is important to note that the Department of Financial Services has NOT approved this filing and rates are not approved. That said however, as you look ahead you should anticipate some rate approval from the state.

If (when) the rates are approved, the change will apply to all policies on a mid-term basis through the remainder of the policy term regardless of the anniversary rating date. Right now, based on the recent filing, the change is set to occur October 1, 2016 granted the filing is approved.

The industry has experienced a string of rate decreases for many year leading up to this (since 2003, rates decreased by 50%). With the impending change there will be an even greater need to implement and maintain good risk and claims management practices. We are here to help you do that. Please contact your PGI representative for assistance or if you have any questions.

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.

On June 9, 2016, The Florida Supreme Court issued its opinion in the case of Bradley Westphal vs. St. Peterburg, et al, No. SC 13-1930 (“Westphal) declaring the 104 week limitation on temporary total disability benefits established in Section 440.15(2), Florida Statutes unconstitutional. The anticipated impact of the decision is a combined 260 – week limitation on temporary disability benefits (temporary total disability and/or temporary partial disability).

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

On June 30, 2016, NCCI Amended the above mentioned filing to include the Westphal decision. NCCI estimated that the impact of Westphal will be an increase in overall Florida workers compensation system costs of +2.2%.

The combined impact of these components is 19.6% 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 October 1, 2016. Additionally, NCCI proposes that the increased rates will apply to all policies in effect on October 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 19.6%, Florida at 1.16 would rank as the highest state in the Southeast.

The 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.

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