Workers' Comp Reform

Florida Business Groups Push for Comp Reform

With meaningful reform stalled and premiums rising, employers want their concerns to be heard.
By: | May 26, 2017 • 6 min read

Employers are expected to pressure Florida lawmakers to agree on workers’ compensation reform next year.

The Florida Supreme Court ruled unconstitutional significant components of the state’s workers’ compensation statutes in 2016, triggering a rate spike for employers. Attempts at reform — House Bill 7085 and Senate Bill 1582 — sputtered out in May, after lengthy debates.

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While next year’s legislative session starts Jan. 8, business groups believe the pressure will start in late summer or early fall, when the National Council on Compensation Insurance is expected to recommend significant rate increases — likely double-digit rate increases for two years in a row, said Carolyn Johnson, director of business, economic development and innovation policy at the Florida Chamber of Commerce.

“That should force the Legislature’s hand to act — at least that’s our hope,” she said.

This year’s rate increase of 14.5 percent followed two significant rulings. Castellanos vs. Next Door Company invalidated current caps on attorneys’ fees in workers’ comp claims, said Johnson.

The current system in Florida requires that the employer and carrier pay for an employee’s attorneys’ fees in workers’ comp claims.

In Westphal vs. the City of St. Petersburg, the court invalidated the length of time an injured worker could receive temporary total disability and temporary partial disability under current law, removing the cap on benefits workers could potentially receive, Johnson said.

Carolyn Johnson, director of business, economic development and innovation policy, Florida Chamber of Commerce

Following the rulings, the National Council on Compensation Insurance (NCCI) filed for a 19.6 percent increase. The Florida Office of Insurance Regulation disapproved the filing, but approved the amended increase of 14.5 percent.

The attorney fee decision resulted in about 10 percent of the 14.5 percent rate increase, and the invalidation of the cap on benefits resulted in about 2.2 percent, with the remaining portion due to the Florida Legislature having to ratify any rulemaking that has a significant impact on the business community.

“The key thing for the Florida Chamber of Commerce and Florida’s business community is how do we put constraints on how much claimant attorneys can make under the system of the post-Castellanos world,” Johnson said.

“We started out last year’s legislative session suggesting that the state move to a claimant-pay attorney fee system, but the political reality was that no one wanted to touch that.”

The Florida House’s initial proposal was to cap attorney fees at $150 an hour if the fee that the claimant’s attorney was making was 40 percent below or 120 percent above what the average defense attorney was making on a workers’ comp case.

The bill would not only have controlled costs, but would have also tied the cap to defense attorney fees, Johnson said.

The Florida Senate took a much different approach to solving the workers’ comp problem, as lawmakers believed it was time to move from an administered rate system to a loss cost system, she said. Florida is one of the few states that still has administered pricing.

“But we believe that is a red herring and will not reduce rates,” Johnson said.

Senate legislation would have codified the court’s decision but with one caveat — capping claimant attorney fees at $250 an hour, but business groups contended that would not have resulted in any real savings to the workers’ comp system.

“We believe any reforms to the workers’ comp system should first focus on making sure the injured worker is getting back to work as quickly as possible, while getting the benefits they deserve under the workers’ comp system,” she said.

“We also need to control and reduce the amount of litigation, and really take a look at what’s driving litigation.”

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One cost driver is the amount of claimant attorney fees, and business groups are now looking at how to derive an attorney fee schedule in which a “departure fee” from the current statutory fee structure is narrow enough to control the amount in attorney fees, but meets the Florida Supreme Court’s decision in Castellanos, Johnson said.

There are also other areas for reform, such as requiring a good-faith effort to resolve the dispute before it goes on to a hearing, which includes requiring more information about what benefits are being sought, Johnson said.

“If it’s an average weekly wage issue, we would like for the claimant to let the employer know what they think the number should be, and what formula is being used to calculate that number,” she said.

“That way, claims can be resolved faster. We should try to make our workers’ comp system fully self-executing.”

Pressure to Build

Tom Feeney, president and chief executive of Associated Industries of Florida, said that 2016 was largely “an educational process” for lawmakers about the state’s workers’ comp system.

Out of the 160 lawmakers, likely only five had ever voted on a comprehensive workers’ comp reform bill before.

The last reform occurred in 2003, which Feeney said took Florida from being the most expensive workers’ comp state to being in the top half of the least expensive states, with an annual savings of more than 60 percent for the average business.

“Legislators will soon get an earful from their constituents going into an election year, and maybe we’ll go back to a system of putting the focus back on getting injured workers healthy and not making lawyers wealthy.” — Tom Feeney, president and chief executive, Associated Industries of Florida

“The consequence of those cases is that lawyers who are now getting into the business know they can run up bills that their client won’t have to pay — it will be the employers paying,” he said.

“We estimate that the increased costs to the system because of these decisions will ultimately be between 30 percent and 40 percent, after two or three more rate increases.”

When rates rise again this summer, small businesses will likely start talking to legislators and the pressure will continue to mount, Feeney said. That’s what happened during the last crisis that came to a head in 2003, which drove reform efforts.

“Legislators will soon get an earful from their constituents going into an election year, and maybe we’ll go back to a system of putting the focus back on getting injured workers healthy and not making lawyers wealthy,” he said.

Shifting the Burden

A simple way to fix the problem would be for the claimant to pay their own attorney fee — presumably Floridians would not hire a lawyer for a frivolous claim if they had to pay a lawyer, Feeney said.

Tom Feeney, president and chief executive, Associated Industries of Florida

Thirty-one states have some version of a claimant-pay system, with some having the employer paying a fixed amount and the claimant paying the overage. The claimant pay could be a contingency fee.

“However, in Florida we’ve never had a workers’ comp system where claimants pay their own lawyers, so politically it could be unpopular,” he said. “But if we build in some additional benefits and more pay, we could likely get more support from more advocacy groups.”

There are other things that can be done to lower costs, Feeney said. For example, before a lawyer files a claim for an injured worker, the claim should detail exactly what that claimant is entitled to.

If a worker twisted their ankle, what kind of specific treatment do they want, and if they need psychotherapy, what kind of specific therapy do they need and why.

“Right now, lawyers are filing dozens of unrelated claims, which puts pressure on Florida employers and insurance companies to settle claims that have no value,” he said.

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What are the chances for such reforms?

“I’m an optimist and I think we made progress this year,” Feeney said. “When the next rate increases start generating enormous grassroots heat from small businesses, I could see landscape contractors, manufacturing facilities with 15 employees, and others telling lawmakers that they can no longer make a profit because of the rising rates,” he said.

“At that point, it will be crucial for lawmakers to do something to help Florida’s employers that are being crushed by alarmingly high costs.”

Katie Kuehner-Hebert is a freelance writer based in California. She has more than two decades of journalism experience and expertise in financial writing. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Black Swan: EMP

Chaos From Above

An electromagnetic pulse event triggered by the detonation of a low-yield nuclear device in Earth’s atmosphere triggers economic and societal chaos.
By: | July 27, 2017 • 9 min read

Scenario

The vessel that seeks to undo America arrives in the teeth of a storm.

The 4,000-ton Indonesian freighter Pandawas Viper sails towards California in December 2017. It is shepherded toward North America by a fierce Pacific winter storm, a so-called “Pineapple Express,” boasting 15-foot waves and winds topping 70 mph.

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Normally, Pandawas Viper carries cargo containers. This time she harbors a much more potent payload.

Unbeknownst to U.S. defense and intelligence officials, the Viper carries a single nuclear weapon, loaded onto a naval surface-to-air missile, or SAM, concealed below deck.

The warhead has an involved history. It was smuggled out of Kyrgyzstan in 1997, eventually finding its way into the hands of Islamic militants in Indonesia that are loosely affiliated with ISIS.

Even for these ambitious and murderous militants, outfitting a freighter with a nuclear device in secrecy and equipping it to sail to North America in the hopes of firing its deadly payload is quite an undertaking.

Close to $2 million in bribes and other considerations are paid out to ensure that the Pandawas Viper sets sail for America unmolested, her cargo a secret held by less than two dozen extremist Islamic soldiers.

The storm is a perfect cover.

Officials along the West Coast busy themselves tracking the storm, doing what they think is the right thing by warning residents about flooding and landslides, and securing ports against storm-related damage.

No one gives a second thought to the freighter flying Indonesian colors making its way toward the Port of Long Beach, as it apparently should be.

It’s only at two in the morning on Sunday, December 22, that an alert Port of San Diego administrator charged with monitoring ocean-going cargo traffic sees something that causes him to do a double take.

GPS tracking information indicates to him that the Pandawas Viper is not heading to Long Beach, as indicated on its digital shipping logs, but is veering toward Baja, Calif.

Were it to keep its present course, it would arrive at Tijuana, Mexico.

The port administrator dutifully notifies the U.S. Coast Guard.

“Indonesian freighter Pandawas Viper off course, possibly storm-related navigational difficulties,” he emails on a secure digital communication channel operated by the port and the Coast Guard.

“Monitor and alert as necessary,” his message, including the ship’s current coordinates, concludes.

In turn, a communications officer in the Coast Guard’s Alameda, Calif. offices dutifully alerts members of the Coast Guard’s Pacific basin security team. She’s done her job but she’s about an hour late.

At 3:15 am Pacific time on December 22, the deck on the Pandawas Viper opens and the naval surface-to-air missile, operated remotely by a militant operative in Jakarta, is let loose.

It’s headed not for Los Angeles or San Diego, but rather Earth’s atmosphere, where it detonates about 50 miles above the surface.

There it interacts with the planet’s atmosphere, ionosphere and magnetic field to produce an electromagnetic pulse, or EMP, which radiates down to Earth, creating additional electric or ground-induced currents.

The operative’s aim is perfect. With a charge of hundreds and in some cases thousands of volts, the GICs cause severe physical damage to all unprotected electronics and transformers. Microchips operate in the range of 1.5 to 5 volts and thus are obliterated by the billions.

As a result, the current created by the blast knocks out 70 percent of the nation’s grid. What began as an overhead flash of light plunges much of the nation into darkness.

The first indication for most people that there is a problem is that their trusty cellphones can do no more than perform calculations, tell them the time or play their favorite tunes.

As minutes turn to hours, however, people realize that they’ve got much bigger concerns on their hands. Critical infrastructure for transportation and communications ceases. Telecommunication breakdowns mean that fire and police services are unreachable.

For the alone, the elderly and the otherwise vulnerable, panic sets in quickly.

Hospital administrators feverishly calculate how long their emergency power supplies can last.

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Supermarkets and other retailers anticipating one of their biggest shopping days of the year on that Monday, December 23, instead wake up to cold homes and chilling prospects.

Grocery stores with their electricity cut off are unable to open and product losses begin to mount. Banks don’t open. Cash machines are inoperable.

In the colder parts of the United States, the race to stay warm is on.  Within a day’s time in some poorer neighborhoods, furniture is broken up and ignited for kindling.

As a result, fires break out, fires that in many cases will not draw a response from firefighting crews due to the communication breakdown.

As days of interruption turn into weeks and months, starvation, rioting and disease take many.

Say good-bye to most of the commercial property/casualty insurance companies that you know. The resulting chaos adds up to more than $1 trillion in economic losses. Property, liability, credit, marine, space and aviation insurers fail in droves.

Assume widespread catastrophic transformer damage, long-term blackouts, lengthy restoration times and chronic shortages. It will take four to 10 years for a full recovery.

The crew which launched the naval surface-to-air missile that resulted in all of this chaos makes a clean getaway. All seven that were aboard the Pandawas Viper make their way to Ensenada, Mexico, about 85 miles south of San Diego via high-speed hovercraft.

Those that bankrolled this deadly trip were Muslim extremists. But this boat crew knows no religion other than gold.

Well-paid by their suppliers, they enjoy several rounds of the finest tequila Ensenada can offer, and a few other diversions, before slipping away to Chile, never to be brought to justice.

Observations

This outcome does not spring from the realm of fiction.

In May, 1999, during the NATO bombing of the former Yugoslavia, high-ranking Russian officials meeting with a U.S. delegation to discuss the Balkans conflict raised the notion of an EMP attack that would paralyze the United States.

That’s according to a report of a commission to assess the threat to the United States from an EMP attack, which was submitted to the U.S. Congress in 2004. But Russia is not alone in this threat or in this capability.

Wes Dupont, vice president and general counsel, Allied World Assurance Company

North Korea also has the capability and the desire, according to experts, and there is speculation that recent rocket launches by that country are dress rehearsals to detonate a nuclear device in our atmosphere and carry out an EMP attack on the United States.

The first defense against such an attack is our missile defense. But some experts believe this country is ill-equipped to defend against this sort of scenario.

“In terms of risk mitigation, if an event like this happens, then that means the best risk mitigation we have has already failed, which would be our military defense systems, because the terrorists have already launched their weapon, and it’s already exploded,” said Wes Dupont, a vice president and general counsel with the Allied World Assurance Company.

The U.S power grid is relatively unprotected against EMP blasts, Dupont said.

And a nuclear blast is the worst that can occur. There isn’t much mitigation that’s been done because many methods are unproven, and it’s expensive, he added.

Lloyd’s and others have studied coronal mass ejections, solar superstorms that would produce a magnetic field that could enter our atmosphere and wipe out our grid.  Scientists believe that an EMP attack would carry a force far greater than any coronal mass ejection that has ever been measured.

An extended blackout, with some facilities taking years to return to full functionality, is a scenario that no society on earth is ready for.

“Traditional scenarios only assume blackouts for a few days and losses seem to be moderate …” wrote executives with Allianz in a 2011 paper outlining risk management options for power blackout risks.

“If an event like this happens, then that means the best risk mitigation we have has already failed … because the terrorists have already launched their weapon, and it’s already exploded.” — Wes Dupont, vice president and general counsel, Allied World Assurance Company

“But if we are considering longer-lasting blackouts, which are most likely from space weather or coordinated cyber or terrorist attacks, the impacts to our society and economy might be significant,” the Allianz executives wrote.

“Critical infrastructure such as communication and transport would be hampered,” the Allianz executives wrote.

“The heating and water supply would stop, and production processes and trading would cease. Emergency services like fire, police or ambulance could not be called due to the breakdown of the telecommunications systems. Hospitals would only be able to work as long as the emergency power supply is supplied with fuel. Financial trading, cash machines and supermarkets in turn would have to close down, which would ultimately cause a catastrophic scenario,” according to Allianz.

It would cost tens of billions to harden utility towers in this country so that they wouldn’t be rendered inoperable by ground-induced currents. That may seem like a lot of money, but it’s really not when we think about the trillion dollars or more in damages that could result from an EMP attack, not to mention the loss of life.

Allianz estimates that when a blackout is underway, financial trading institutions, for example, suffer losses of more than $6 million an hour; telecommunications companies lose about $30,000 per minute, according to the Allianz analysis.

Insurers, of course, would be buffeted should a rogue actor pull off this attack.

Lou Gritzo, vice president and manager of research, FM Global

“Depending on the industries and the locations that are affected, it could really change the marketplace, insurers and reinsurers as well,” said Lou Gritzo, a vice president and manager of research at FM Global.

Gritzo said key practices to defend against this type of event are analyzing supply chains to establish geographically diverse supplier options and having back-up systems for vital operations.

The EMP commission of 2004 argued that the U.S. needs to be vigilant and punish with extreme prejudice rogue entities that are endeavoring to obtain the kind of weapon that could be used in an attack like this.

It also argued that we need to protect our critical infrastructure, carry out research to better understand the effects of such an attack, and create a systematic recovery plan. Understanding the condition of critical infrastructure in the wake of an attack and being able to communicate it will be key, the commission argued.

The commission pointed to a blackout in the Midwest in 2003, in which key system operators did not have an alarm system and had little information on the changing condition of their assets as the blackout unfolded.

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The commission’s point is that we have the resources to defend against this scenario. But we must focus on the gravity of the threat and employ those resources.

Our interconnected society and the steady increase in technology investment only magnify this risk on a weekly basis.

“Our vulnerability is increasing daily as our use of and dependence on electronics continues to grow,” the EMP commission members wrote back in 2004.

But “correction is feasible and well within the nation’s means and resources to accomplish,” the commission study authors wrote. &

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]