1. 1 Presented by Jim Watford, Actuary Office of Insurance Regulation, Department of Financial Services 2003 CAS Spring Meeting - Marco Island, Florida May 19, 2003 An Overview of Florida’s Workers Compensation Market

2. 2  Typical Hard Market Characteristics  Compare the Typical Hard Market Characteristics to the Florida Market  Florida Workers’ Compensation Joint Underwriting Association (FWCJUA)  Professional Employer Organizations PEOs Overview of Presentation

3. 3 Typical Hard Market Characteristics  Deterioration of Experience Loss Ratios, Combined Ratios, Dividends, Investment Income  Rate Increases  Growth in Residual Market

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6. 6 Florida Accident Year Combined Ratios Excluding Dividends

7. 7 Florida’s Manual Rate Changes No Filing 9/90 1/92 1/93 1/94 1/95 1/96 1/97 1/98 1/99 1/00 1/01 8/02 4/03 Effective Date

8. 8 Florida’s Cumulative Rate Level Since 1/90 No Filing 9/90 1/92 1/93 1/94 1/95 1/96 1/97 1/98 1/99 1/00 1/01 8/02 4/03 Effective Date

9. 9 FWCJUA Written Premium

10. 10 Why are companies restricting writings in Florida?  Reinsurance  Terrorism  Investment Returns  Inadequate Rates?  Policyholders and Brokers are being given vague reasons like “underwriting” or “home office decision”

11. 11 Florida Workers’ Compensation Joint Underwriting Association (FWCJUA) History of Creation  1980’s – 1990’s background  1993 Special Session

12. 12 Unique Characteristics of FWCJUA  No assessments to insurance companies  Policyholders are assessable in sub-plan “C”  Use and file rating, disapproval prospective only  Not for Profit Florida Corporations  Subject to supervision of a 13 member Board: 5 domestic insurers representatives 5 foreign insurers representatives Agent Association representatives Consumer Advocate Chair  Covers only Florida Exposure

13. 13 Premium Determination for FWCJUA  FWCJUA manual rates are much higher than the voluntary market rates.  Sub-plan “C” premiums are surcharged 99% on any amounts over $2,500.  Flat surcharge of $475 applies for all policies.  Assigned Risk Adjustment Program (ARAP) surcharge applied to experience rated risks

14. 14  Expense Constant higher than Voluntary Market.  Premium discount does not apply.  Standard classification and rating rules apply.  Assessable policies issued to sub-plan “C” policyholders. Premium Determination for FWCJUA

15. 15 FWCJUA Manual Rate to Voluntary

16. 16 FWCJUA Manual Rate Divided by the Voluntary Rate

17. 17 A Professional Employer Organization is an organization that provides an integrated and cost effective approach to the management and administration of the human resources and employer risk of its clients, by contractually assuming substantial employer rights, responsibilities, and risk and, through the establishment and maintenance of an employer relationship with the workers assigned to its clients. Definition from National Association of Professional Employer Organizations (NAPEO)

18. 18 Other Types of Employment Services  Temporary Staffing  Payrolling  “Facilities management” or “outsourcing”  Human Resources Services

19. 19 Is the organization the employer for workers’ compensation purposes?  Statutory provision in Florida (section 468.529, F.S.) provides that a licensed employee leasing company is the employer of the leased employee.  Case Law has established that the client company is co- employer and has immunity from suit under workers’ compensation exclusive remedy.  If the PEO/Leasing Company fails to provide the workers’ compensation benefits due to lack of coverage or insolvency of PEO, the client company may still be responsible for the workers’ compensation benefits.

20. 20  DOI first became aware of employee leasing in late 1980’s.  Mid 1990’s – Employee Leasing became mainstream. Routinely written by major carriers.  Late 1990’s some retraction in market.  CNA became a major writer in Florida by 2002. Reportedly writing 70% of PEO market. PEO/Employee Leasing – History in Florida

21. 21  Mid-2002 - CNA notifies agents and PEOs that they will non-renew all PEO business.  PEOs have been scrambling to find or create a market outlet.  PEOs are buying insurance companies.  Three Insurance Companies have been recently licensed that will specialize in PEOs. PEO/Employee Leasing – History in Florida