National Council on Compensation Insurance (NCCI) Rate Hearing Report: October 11, 2011

Oct 11, 2011


Today, October 11, 2011, the Florida Office of Insurance Regulation (“OIR”) held a public rate hearing to consider a workers’ compensation filing made by the National Council on Compensation Insurance, Inc. (“NCCI”), which is requesting an overall average rate increase of 8.9 percent, effective January 1, 2012.  Florida Insurance Commissioner Kevin McCarty presided over the hearing, along with Deputy Insurance Commissioners Belinda Miller and Richard Koon, and OIR Actuaries Jim Watford and Cindy Cooper. 

Ms. Miller provided opening remarks, noting that the requested rate would reflect a $140 million premium increase, and that it also was the second increase since the 2003 workers’ compensation legislative reforms.  If enacted, this rate will be 58.6 percent below the 2003 rates.  Following her remarks, NCCI representatives gave a presentation.

Lori Lovgren, NCCI’s State Relations Executive, provided a general overview of the filing and presented national data trends.  She said that Florida and nationwide workers’ compensation results are deteriorating, due to declining premiums and a struggling economy.  Since 2006, Florida premiums have steadily declined as a result of significant rate decreases.  The market reflects deteriorating combined ratios since 2006 as well. 

Other evidence of a deteriorating market includes an increase in claim frequency and growth of the Florida Workers’ Compensation Joint Underwriting Association.  The evidence does not suggest a crisis, as was the case in 2003.  Rather, the filing reflects that the benefits of the 2003 reforms have peaked, and likely represents the “new norm” in Florida, Ms. Lovgren explained.  Florida ranks 12th in premium rate index per $100 of payroll, based on rates in effect on January 1, 2010.

Commissioner McCarty asked questions about legislative solutions that could address the negative trends.  Ms. Lovgren noted that cost increases due to physicians’ drug repackaging are a problem that could be addressed by the Florida Legislature.  Commissioner McCarty also noted that the Three-Member Panel will be looking deeply into this issue.  Florida has the highest rate of physician dispensing, it was explained.

Commissioner McCarty also posed questions about the “pill mill” legislation that passed in the 2011 Legislative Session.  According to Ms. Lovgren, that legislation did not impact the workers’ compensation market.  The issue in workers’ compensation is not dispensing, she said, but rather, the increased costs caused by drug repackaging. 

Citing a personal example, Commissioner McCarty affirmed the significant cost increase caused by repackaging drugs and asked whether the NCCI would file for a rate decrease if this issue was addressed.  Mr. Lovgren noted the 2009 data would reflect a 2.9 percent savings, which would likely be higher today based on the trend since 2008.

NCCI Director and Senior Actuary Tony DiDonato briefly highlighted the component of the filing that included loss experience and trend.  In this filing, he explained, loss experience was determined differently by using two policy years as the experience base, rather than two calendar accident years.  According to Mr. DiDonato, the change reflects a more accurate matching of premium and losses.  The change in loss experience is 1.1 percent.  The change in trend is 8.2 percent.  Mr. DiDonato noted the 8.9 percent increase is the bare minimum that is needed.  The indication could have been much higher.  By using the trends at the lower end of the reasonable range, the filing was reduced by six to eight percent. 

An outside actuary also testified.  While the actuary used different loss development and trends methodology, he noted that the NCCI methodology was not unreasonable.  At 10.3 percent, his rate indication was greater than that of the NCCI filing, but he did not feel the NCCI filing was inadequate.

NCCI Chief Economist Harry Shuford provided an overview of the filing’s economic and financial content.  Also, Dr. David LaPell, a Milliman Economic Consultant, reviewed the economic and financial content of the filing presented by Mr. Shuford, saying that the components used by NCCI are not in dispute and have been used for approximately 30 years.

Mr. Lapell used a different approach to the model for cost of capital.  Explaining that the NCCI approach is not incorrect, Mr. Lapell said his cost of capital was slightly higher than the NCCI value.

During the hearing, Florida Insurance Consumer Advocate Robin Westcott provided a presentation on fraudulent activity related to the money services business.  In these schemes, injured workers are left without coverage, because many of these businesses are shell companies domiciled outside of Florida.  The result of the fraud has a negative impact in the workers’ compensation market.

Following the prepared remarks, Commissioner McCarty readdressed the drug repackaging and money services issues.  From the dialogue, it was determined that it is reasonable to assume workers’ compensation costs associated with drug repackaging are growing.  The data relating to costs of money services fraud is indeterminable at this time.  However, the NCCI is looking into quantifying the problem.  It is clear these are two very important public policy issues, he said.


Public Testimony

An attorney representing the dispensing doctors testified at the hearing, noting that studies to date do not demonstrate that limiting drug repackaging costs would correlate to reduced workers’ compensation premiums. 

According to the presenter, when patients leave physicians’ offices, they often don’t get their prescription filled.  Physicians dispensing drugs increase compliance with the doctor’s orders.  In conclusion, he recommended an independent study.

Adamant that the prices in a doctor’s office should not be higher than those at a pharmacy, Commissioner McCarty and Deputy Commissioner Miller peppered the presenter with questions challenging his assertions. 

Commissioner McCarty suggested that the discussion should continue further, possibly at a Three-Member Panel meeting.

Representatives from the Florida Roofing and Sheet Metal Association expressed concerns with the proposed rate decrease, because it would “dry up” the market for coverage, adding that the workers’ compensation rate for the roofing industry should be held constant at 17.10 percent.

Noting the significant cost increases associated with the drug repackaging system, various business entity representatives also testified in support of reform. 

Commissioner McCarty concluded the hearing, noting that the record would remain open until Friday, October, 14, 2011 for additional written comments.


Should you have any questions or comments, please contact Colodny Fass.



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