Quick Bites

Worker’s compensation:

STORY: VINCENT NIGLIO

Florida law requires businesses to carry Worker’s Compensation for their employees. In the insurance world, we call this a mandatory fi xed commodity. Before 2004, Florida was one of the most expensive states for Worker’s Compensation, second only to California for rates. Gov. Jeb Bush signed S.B. 50-A into law completely changing the business landscape. S.B. 50-A (Senate Bill 50-A) is comprised of 148 sections that place guidelines on Worker’s Compensation, known as the 440 statutes. As a result, rates for class codes dropped dramatically, saving businesses thousands of dollars per year. Florida is now in the middle nationally with class code rates.

There are fi ve main parts to the 440 statutes that should become familiar to business owners. Schedule (A) has four parts. They are death benefi ts, medical expense benefi ts, indemnity benefi ts, and the PIR (permanent impairment rating) schedule. Schedule (B) has one part, called Employer’s Liability, and this is the third-party aspect of Worker’s Compensation.

I want to focus on two sections of the 440 statutes that pertain to Schedule (A) and the recent rulings in the Florida Supreme Court. State Statute 440.15 and 440.34 were both attacked and defeated in a court of law. The fi rst case, Marvin Castellanos vs. Next Door Company, determined that restrictions on attorney fees for Worker’s Comp cases were unconstitutional, and §440.34 was thrown out on April 28 last year. It was 42 days later, on June 9, the case

0f Bradley Westphal vs. City of St. Petersburg, §440.15 was ruled unconstitutional, and the number of weeks a person on disability could be paid indemnity benefi ts went from 104 weeks to the pre-2004 time limit of 260 weeks.

The Council

In 41 states, the governing board for Worker’s Compensation is the National Council on Compensation Insurance (NCCI) often referred to as the Council. They set the standard nationally for Worker’s Compensation, and the three most important things they do are creating class codes, determining rates, and promulgating mods for businesses. Promulgating mods refers to the number that compares an accident experience of an individual company to all the other companies in the state in that industry.

When these two laws were overturned, the Council determined current rates for coverage would not be suffi cient for insurance carriers to continue coverage in Florida. When losses begin to outweigh income, carriers pull out of the market, forcing businesses to pay an even higher rate for coverage, which may create a hostile environment for business owners and affect the overall economic landscape of Florida.

The Council made a request for a 19.6 percent rate hike for all class codes for all policyholders in Florida. The Offi ce of Insurance Regulation took the request under advisement and, after weighing the facts and holding a public hearing, determined that a 14.5 percent rate hike was justifi ed and would go into effect on Dec. 1 for policies renewing on or after that date.

For business owners, this wasn’t good news. The real concern is that, with restrictions off attorneys and employees eligible for benefi ts for fi ve years, this rate increase may be the fi rst of many to compensate for rising costs. Florida may fi nd itself back in the top two for costs of Worker’s Compensation insurance.

What can you do?

Many policyholders feel they are trapped in an incredibly unfair, punitive system. To some extent, this is true, but there are ways to fi ght back, and the Council provides one big tool to do that. It’s called the experience mod. Each year, the Council receives a report from the business owner’s insurance carrier with payrolls, exposures, and losses. They promulgate that data in an aggregate fashion and determine a company’s experience mod. This mod rate determines if a company will pay 100 percent of the premium, a discount on the premium, or have a premium higher than average. As one can imagine, the worse the company’s losses, the higher their mod rate, and the more they pay.

The fi rst thing an owner can do is work with an agent who understands how mods work, how they have promulgated, and the fi ve areas where mistakes can be made on their experience mod worksheet. Class codes, payrolls, and exposures must be accurate to avoid an artifi cially high mod. Overturned fraudulent claims and subrogation returns must also be credited to reduce the mod factor. The right agent can recover aggravated inequity for you in the current policy year in the state of Florida.

Once these areas are all accurately reported, the next step is to have the right work environment. NAC and RTW programs are essential to avoiding the weekend warrior claims that owners get on Monday mornings. If an employer believes that an employee injury did not occur as a result of the scope of work, they have the option of notifying the carrier on the NOI form and attaching an affi davit to that effect. A drugfree workplace will offer a 5 percent discount on Worker’s Comp premiums. There are even companies that offer a test kit for as low as $12.50 that you can administer it as part of a conditional offer of employment on the spot.

All of these things, combined with a good workplace safety program, will drive your mod factor down below 1.00 and save you thousands of dollars per year. The punitive system may be unfair, but smart business owners are partnering with well-versed agents and fi ghting back to protect the company they put their blood, sweat, and tears into for years. Many policyholders feel they are trapped in an incredibly unfair, punitive system. To some extent, this is true, but there are ways to fi ght back, and the Council provides one big tool to do that.

ABOUT THE WRITER: Vincent Niglio is a commercial insurance advisor for Brown & Brown Insurance in Leesburg.