Catastrophe fund eyed in workers' comp system

Insurance Commissioner David Altmaier has been asked to sign off on a rule change that could lead to Florida businesses being charged a premium to cover costs of a catastrophe that results in more than $50 million in aggregate workers’ compensation losses across all states.

The National Council on Compensation Insurance, which files proposed rates for workers’ compensation insurance carriers, requested the Office of Insurance Regulation consider the change in July. The organization known as NCCI asked that it take effect Aug. 1, but the issue is still being reviewed.

“The exposure to catastrophic workers’ compensation claims losses exists in Florida,” NCCI said in a July 23 informational bulletin explaining its request. “The COVID-19 pandemic is the most recent catastrophic event impacting the workers’ compensation system.”

NCCI did not immediately respond Tuesday to requests from The News Service of Florida for comments about the proposal.

Catastrophes are considered to be infrequent events with large cumulative losses and are not predictive of the future. As a result, losses from catastrophes are not taken into consideration when developing rates.

But actuaries agree that the impacts of catastrophes should be considered and that procedures should be developed that account for such events.

NCCI filed a similar catastrophe-funding request with the Office of Insurance Regulation in 2004, but it was shot down by then-Insurance commissioner Kevin McCarty.

Now a Tallahassee-based consultant, McCarty on Tuesday called the new filing “responsible.”

“It’s the responsible thing for them to address, the issue of claims arising out of COVID-19 in particular, but more generally, to anticipate what future losses might be if you believe there’s going to be an increase in viral bacterial pandemics,” McCarty said.

NCCI worked with AIR Worldwide, a loss modeling firm, to look at the impact that a pandemic can have on workers’ compensation insurance.

McCarty predicted that state officials will thoroughly vet the request, with close attention paid to the modeling system that NCCI used to determine the potential impact of a catastrophe and how rates should be adjusted to accommodate for that.

McCarty said modeling systems for homeowners’ insurance became so controversial in the early 2000s that the Legislature created a state-supported hurricane modeling commission.

“I don’t want to presuppose what the insurance commissioner will do,” McCarty said, adding, “but now they are introducing a new element that hasn’t been in the rate filing before so I think it will probably be a subject of some discussion.”

NCCI also is seeking approval for an average 4.9 percent reduction in workers’ compensation insurance rates for 2022.

NCCI held a phone call with business interests Monday explaining the proposed 4.9 percent reduction and briefly touched on the catastrophe proposal.

Meanwhile, insurance regulators have started asking NCCI questions about the need for the potential catastrophe charge. For example, state actuary Greg Jaynes asked NCCI how many single events have resulted in $50 million in workers’ compensation losses in the aggregate.

NCCI Director of State Relations Dawn Ingham responded that COVID 19 --- which has resulted in the deaths of more than 44,000 Floridians since March 2020 --- was the only catastrophic event that falls into the category of a workers’ compensation exposure in excess of $50 million for which there is no explicit charge to employers.

NCCI estimates that --- excluding self-insured insurance plans --- workers’ compensation claims will exceed $500 million in the 34 states in which it operates. Florida’s COVID-19 workers’ compensation claims --- excluding self insured claims --- for calendar year 2020 are $34.1 million, according to NCCI data.