Special Workers Compensation Legislation Report–Retrospective Rating

Aug 5, 2014


CS/HB 785 by State Representative Albritton passed the Legislature and was approved by Governor Rick Scott on June 13, 2014.  The effective date of the bill was July 1, 2014. 

In addition to limiting workers’ compensation reimbursements for medical foods, the primary purpose of this bill is to permit a retrospective rating plan to contain a provision for the negotiation of a workers’ compensation premium between an employer and insurer if the employer has exposure in more than one state, an estimated annual standard workers’ compensation premium in Florida of $100,000 and an estimated annual countrywide standard workers’ compensation premium of at least $750,000. 

Additionally, only insurers with $500 million in surplus may negotiate premiums with eligible employers.  The retrospective rating plans are exempt from the provisions of subsection (1) of s. 627.072, F.S., which specifies the factors to determine workers’ compensation rates.  The rating plans and the forms are required to be filed by the National Council on Compensation Insurance (“NCCI”) and approved by the Florida Office of Insurance Regulation (“OIR”).

The specific language in CS/HB 785 is as follows:

627.072 Making and use of rates.-

(2) A retrospective rating plan may contain a provision that allows for negotiation of a premium between the employer and the insurer for employers having exposure in more than one state and an estimated annual standard premium in this state of $100,000 or more and an estimated annual countrywide standard premium of $750,000 or more for workers’ compensation. Provisions within a retrospective rating plan authorizing negotiated premiums are exempt from subsection (1). Such plans and associated forms must be filed by a rating organization and approved by the office. However, a premium negotiated between the employer and the insurer pursuant to an approved retrospective rating plan is not subject to this part. Only insurers having at least $500 million in surplus as to policyholders may engage in the negotiation of premiums with eligible employers.

NCCI submitted a filing to the OIR to implement the changes made by CS/HB 785 on June 6, 2014.  The filing established rules and forms for the use of Large Risk Alternative Rating Option (“LRARO”) in Florida.  The filing would have allowed the LRARO option to be available either on a single line or multi-line policy.

NCCI contended that the wording in CS/HB 785 did not contain limitations regarding the negotiation of retrospective premiums and is not limited to the negotiation of factors.  NCCI stated in a July 14, 2014 letter to the OIR the intent of the new law allowed for the negotiation of any component of the premium, noting that in other states there are no limitations regarding the negotiation of retrospective rating plan premium under the LRARO option. 

The OIR disapproved the filing on July 16, 2014, stating that the new statutory language is limited to the negotiation of workers’ compensation premium only and the new law does not allow the negotiation of premium of other lines of insurance.  The OIR had other issues with the forms submitted by NCCI, including the following items: 

  • The definition of “standard premium” allowed for the negotiation of standard premium, which “circumvents the eligibility criteria contained in the statute.”  The OIR opined that the criteria could be manipulated to included employers that are otherwise not eligible for the LRARO option.
  • The method of determining incurred losses and loss expenses are defined in the Retrospective Rating Plan Rules and the Statistical Plan.  The new law is limited to the negotiation of retrospective premium only and does not allow the negotiation of what is considered a loss or what is included as expenses.
  • Allocated loss adjustment expenses (“ALAE”) may or may not be included within incurred losses in the endorsement.  There was no way to demonstrate whether the ALAE is included or excluded, which is ambiguous and grounds for disapproval under s. 627.411(1)(b), F.S.  Additionally, the new law does not allow for the negotiation of items to be encompassed under ALAE.
  • Cancellation conditions are included in the proposed endorsement and are not subject to negation.
  • The form does not specify the premium charges or contain a schedule to demonstrate the negotiated premium and how it was computed.

NCCI released Circular FYI-FL-2014-01 on July 22, 2014, which stated that it does not plan to resubmit the plans and associated forms and therefore the LRARO is not available in Florida.  


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