FWCJUA Operations Committee and Rates and Forms Committee Joint Meeting Report: May 29

The Florida Workers’ Compensation Joint Underwriting Association (“FWCJUA”) Operations Committee and Rates and Forms Committee held a joint meeting via teleconference on May 29, 2009.

FWCJUA Operations Committee

The FWCJUA General Counsel presented an update on House Bill 903, which would restore the attorney fee schedule for workers’ compensation cases.  In anticipation of HB 903 becoming law, the National Council on Compensation Insurance (“NCCI”) had issued a May 12 circular announcing a rate filing to reflect the bill’s impact.  In its announcement, NCCI proposed that the voluntary market roll back the rates and rating values that would have become effective April 1, 2009, to the January 1, 2009 rates, which would become effective on July 1, 2009.

Note:  On Friday, May 29, Florida Governor Charlie Crist signed HB 903 into law.  With an effective date of July 1, 2009, HB 903 amends s. 440.34, F.S., to remove all statutory language providing for “reasonable” attorneys’ fees in workers’ compensation cases and specifies that fee awards cannot exceed the amount authorized by a statutory attorney fee schedule.  Thus, claimants’ attorneys’ fees in workers’ compensation cases would be calculated in the manner they had been from the effective date of 2003 Florida workers’ compensation reform legislation, up to the 2008 Florida Supreme Court decision in Murray v. Mariner Health. 

 

FWCJUA Executive Director Laura Torrence presented the 2008 Operations Report, with the following highlights:

• There was a 35 percent reduction in policy count from 2007 to 2008;
• 53 percent of policies issued were in the construction industry and 33 percent were in the service industry;
• There was a 15 percent increase in policy retention from 2007 to 2008;
• There was an 11 percent reduction in mid-term cancellations from 2007 to 2008;
• There was a 33 percent reduction in the number of claims reported from 2007 to 2008;
• 79 percent of claims were reported within seven days of the accident date;
• 73 percent of claims reported in the 2008 accident year closed by year end;
• 10.5 percent of policies received a loss survey in 2008, compared to 13.3 percent in 2007;
• 60 percent of loss surveys completed in 2008 were on construction risks;
• There was a 31.5 percent reduction in the number of accounts referred to Travelers Premium Special Investigations Unit, with 57 percent of accounts referred for payroll suppression; and
• There was 98 percent compliance with service provider performance standards.

Ms. Torrence outlined the following FWCJUA operations enhancements in 2008:

• Greater standardization of exemption-holder trade reporting – The FWCJUA and Travelers have implemented a procedure to work with an insured to determine the applicable trade and, at the same time, ask the individual to revise the ambiguous trade on file with the State.
• Implementation of the Travelers Florida Construction Underwriting Guideline, which allows the FWCJUA to immediately respond to construction subcontractor issues and other important underwriting initiatives during initial underwriting, policy issuance and quarterly reviews in a standardized method, thereby leading to more consistent underwriting.
• Implementation of improved billing statements – The FWCJUA recently completed the transition to a new billing system called the Direct Bill System (“DBS”), in which the statements explain billing due dates, amount due, billing offsets and endorsement reasons to the insured.  DBS also has pay-by-phone capability, which allows an insured to select a next-day automatic withdrawal from a checking account to pay outstanding invoices.
• Paperless work environment in underwriting, issuance and policy maintenance – Travelers recently implemented paperless workflows that enhanced underwriting team efficiencies and helped the Florida team meet specific department “green initiatives.”  The enhancements included: the Travelers Virtual Mailbox, used by underwriters to review incoming correspondence imaged and placed in the insured’s electronic file; a dual monitor set-up, used to view multiple documents and access multiple systems simultaneously on a single expanded desk top; and the Travelers Account Assistant Workstation, to respond to requests for new business policy set-up and issuance, certificates of insurance and the FWCJUA Agency Authorization process.

Ms. Torrence said that in 2009, Travelers and the FWCJUA will develop additional paperless processes to meet suggested “green initiatives,” including:

• Electronic submission of FWCJUA binders to Travelers (completed in May);
• Electronic access to policy paper for producers through a Travelers/FWCJUA secure site (target completion in December); and
• Electronic access to loss runs for producers through a Travelers/FWCJUA secure site (target completion in December).

Additional Operations Report highlights:

• On April 2, 2009, the Florida Department of Financial Services and the Office of Insurance Regulation (“OIR”) were notified that in 2008, the FWCJUA had gross written premiums of $6,427,550 and fixed administrative expenses totaling $2,559,384.
• Committee members received a favorable report regarding the disposition of checks issued.  As of May 15, only 39 checks remained outstanding from a total of 459.

 

The Operations Committee discussed the following budget expenses:

• Computer room air-conditioning reconfiguration:  The $5,000 expenditure was anticipated, and thus allotted in the business plan.  The FWCJUA solicited three quotes, all of which recommended the condenser be located outside of the building. The lowest bid for reconfiguration work was $4,035, and accompanying electrical work $965, totaling $5,000 as budgeted.
• On-line interactive application process:  The Operations Committee considered whether to recommend that the FWCJUA Board of Governors (“Board”) authorize a 2009 budget expenditure of $530,000 to implement an on-line interactive application process by January 1, 2010.  After consideration of what resources were available in-house, FWCJUA Staff decided that some outsourcing is necessary in order to build the optimal system.  Tropics Policy System, which is built specifically for workers’ compensation applications, is considered to be the primary candidate.  An interactive on-line application process would allow streamlined processing and reduced costs for employers, producers and the FWCJUA.  Ms. Torrence said that the extreme slowdown of FWCJUA business and its current surplus position made this a good time to consider enhancing the application process, which would serve the FWCJUA especially well when the market cycle changes and growth occurs.

If approved, this would constitute an out-of-budget expense for 2009.  Operations Committee members expressed concern because of the economic climate, and were hesitant to make a recommendation for such a large expenditure at this time. The Committee decided to forego making such a recommendation, and agreed to hold a more detailed discussion on the issue during the Board meeting on June 9, 2009.

• September Board Meeting and 2009 FWCJUA Annual Meeting:  The Operations Committee agreed to recommend to the Board that the September Board meeting and the Annual meeting be conducted by teleconference in lieu of physical meetings in order to reduce expenses.  FWCJUA bylaws do not address the issue, but the Committee agreed to amend the bylaws to reflect that remaining 2009 meetings may be conducted via telephone, and submit the amended language to the Board in June.
• PAMC service provider annual audit:  The Operations Committee considered whether to recommend that the Board cancel the policy administration and managed care services (“PAMC”) 2009 on-site performance audit of Travelers to reduce expenses.  FWCJUA 2009 Business Plan objectives include conducting an on-site performance audit of the PAMC service provider,  as well as including a review of its Disaster Recovery Plan, Document Retention Policy, and Antifraud Plan, in order to ensure adherence to FWCJUA rules and service standards.  FWCJUA Staff believes that this audit and review can be canceled without jeopardizing FWCJUA results, given the favorable findings of the 2007 and 2008 on-site audits and current premium volume.  The savings as a result of cancelling would be approximately $1,100.  Given that the amount was minimal and the expenditure was already in the 2009 budget, Committee members decided to proceed with the on-site audit and reconsider the issue as part of the 2010 budget.

 

FWCJUA Rates and Forms Committee

The Rates and Forms Committee considered draft correspondence to the Florida Office of Insurance Regulation (“OIR”) outlining the FWCJUA’s program for eliminating the 2008 Subplan D deficit, which relied on the use of money from the contingency reserve.  Given that the FWCJUA had a $79,571,324 surplus in 2008, it is not statutorily required to submit a deficit elimination plan to the OIR.  However, with Subplan D posting a deficit of $2,818,667, the Board previously agreed to update its plan to eliminate this individual rating plan deficit and submit the updated plan to the OIR.  

FWCJUA Staff proposed that the filing be based on the Subplan D cash flow model updated through May and that the FWCJUA be authorized to finalize the draft letter and submit the plan to the OIR no later than August 6, which is 90 days from the date that the audit was filed (May 8).  The Rates and Forms Committee recommended that the Board authorize FWCJUA Staff to finalize the draft letter to the OIR as outlined above.

The Rates and Forms Committee considered whether to confirm the booking of the 2009 losses utilizing the latest 2009 filed rates along with the loss ratios evaluated as of the end of 2008.  This procedure was adopted in 2008 at the recommendation of Milliman consultants and thus, was used to estimate the FWCJUA’s 2008 net loss ratios by rating tier.  Milliman’s analysis utilized the April 1, 2009, filed rate changes, along with the loss ratios from the loss evaluated as of December 31, 2008.

Milliman does not recommend any changes to the FWCJUA’s current procedure for booking the current year’s losses.  Milliman updated its analysis and rating tiers to reflect the effect of HB 903 becoming law, and FWCJUA Staff will book any adjustments to the projected 2009 net loss ratios as appropriate.

The Rates and Forms Committee passed a motion to confirm booking the 2009 losses utilizing the current methodology.

 

The Rates and Forms Committee discussed what rate action would be warranted by the FWCJUA when HB 903 went into effect, and whether the OIR should approve the NCCI filing for use in the voluntary market, effective July 1, 2009.

As the Operations Committee discussed, the NCCI filing proposes to roll back the voluntary market rates, effective April 1, 2009, to the level of voluntary market rates that were in effect on January 1, 2009.  The revised rates, which are proposed to be effective July 1, 2009 for new and renewal policies, are also proposed to apply to the unexpired portion of outstanding policies as of July 1, 2009, that meets the following conditions:

• Anniversary rating dates from April 1, 2009 through June 30, 2009; and
• To which the April 1, 2009 rate increase was applied.

On March 2, 2009, the FWCJUA filed to implement the approved April 1, 2009 voluntary market rate increase of 6.4 percent as a result of the Murray v. Mariner decision.  The estimated premium effect of the April 1, 2009 voluntary market rates on the FWCJUA book was an increase of 4.2 percent.  The target premium change was an increase of 3.7 percent above the January 1, 2009 FWCJUA rate level.  Thus, the additional premium decreased 0.5 percent after the implementation of the April 1, 2009 voluntary market rate increase.

During the rate discussion, FWCJUA staff said two outcomes of the 2009 Legislative Session must be considered:

• Restoration of the attorney fee schedule for workers’ compensation cases with HB 903; and
• The lack of a $750,000 budget appropriation for the FWCJUA’s administrative expenses.

The FWCJUA’s January 1, 2009, and April 1, 2009 rates took into consideration the above factors.

FWCJUA Staff recommended not rolling back rates and the Committee concurred.  The expectation is that rates will decrease as a result of HB 903; it has already been determined that rates will fall in the voluntary insurance market.

The Rates and Forms Committee agreed it would address the rate issue again at a later date and would draft a letter to the OIR indicating that the FWCJUA had decided to wait for regular rate evaluation while remaining at the April 1, 2009 rate.  FWCJUA Staff hopes to have the letter ready for consideration for the Board meeting on June 9.

 

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

 

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