FWCJUA History

Before there was an FWCJUA, the Florida Workers Compensation Insurance Plan (FWCIP) was the market of last resort. The Florida Department of Insurance had complete control over the operation of the FWCIP including operating rules and rates, and merely delegated day-to-day responsibilities to the NCCI, as Plan Administrator. The FWCIP was not a self-funding plan, but rather was funded by insurance carriers licensed to write workers compensation insurance in Florida. In the mid-1980's, premiums became insufficient to cover losses in the FWCIP and carrier assessments were levied. Because carriers funded the FWCIP on the basis of their voluntary market share, the impact of the sizable FWCIP operating losses was voluntary market shrinkage. By the early 1990's, 35% of Florida's workers compensation market was in the FWCIP generating in excess of $200 million in underwriting losses.

The domestic insurance industry, foreign carriers, employers, and the Department of Insurance were all very concerned with the plight of Florida's workers compensation marketplace and co-participated in the creation of the FWCJUA enabling legislation. Their objectives were to remove the residual market burden and encourage carriers to return to Florida's voluntary market; address the needs of "small good risks"; depopulate the residual market; and provide a solvent self-funding organization.

Thus, created in 1993 as part of the workers' compensation reform, the FWCJUA was designed as a self-funding plan to provide workers compensation and employer's liability insurance to employers who are required by law to maintain such insurance and who are in good faith entitled to, but who are unable to purchase insurance through the voluntary market. As a result, employers insured within the FWCJUA pay premiums in excess of those paid in the voluntary market. From inception in 1994 through July 2003, there were three rating plans established for various classifications of risks and all employers were assigned to one of these three rating subplans either "A", "B", or "C" with Subplan "C" insureds receiving an assessable policy. During this period, the FWCJUA was required to maintain actuarially sound rates. In 2003, the Legislature established Subplan "D" to provide coverage for generally small employers (15 or fewer employees) and charitable organizations. Subplan "D" rates were capped as a percentage over voluntary market rates. On July 26, 2003, the FWCJUA was required to begin writing policies under the new Subplan "D" at voluntary market rate with a surcharge not to exceed 25%, however those organizations exempt from federal income tax under 501(c)(3) the surcharge was not to exceed 10%. Those capped rates generated a substantial deficit with the only means of elimination being to levy an assessment on those policyholders. In 2004, the Legislature addressed the problem by creating a three tier rating plan that based the insured's premium on their experience and while capping the rates, the surcharges over manual rates were increased and provisions were made to ensure actuarially sound rates by January 2007. Past Subplan "D" deficits and any future deficits would be funded through a Workers' Compensation Trust Fund contingency reserve or through a below-the line assessment levied to all employers purchasing workers compensation insurance in Florida.

The FWCJUA was designed to depopulate the Florida workers' compensation residual market and invigorate the competitive or voluntary market. Accordingly, it is appropriate to compare the FWCJUA's results to that of its predecessor, the Florida Workers' Compensation Insurance Plan (FWCIP).

* Actuarially sound rates in all FWCJUA rating plans
** Does not include the self insurance funds; however, in 1993 if included
would result in a market share of 12.7%

Since the inception of the FWCJUA, there continues to be substantial improvement in the financial bottom line of the Florida workers compensation residual market as well as an overall improvement in the Florida workers compensation system as the comparative results indicate:

• 90% policyholder depopulation
• 90% premium depopulation
• 84% favorable change in the residual market share (utilizing self insurance fund data)
• 106% favorable change in net operating results - from a 1993 net operating loss of ($131,860,000) to a cumulative 12 year net operating surplus of $8,472,399.

Further evidence of this success is that the Florida Office of Insurance Regulation concluded in its 2005 Workers' Compensation Annual Report released in January 2006 that based on the number of entities and market shares of actively writing companies in the market, the number of entities entering and exiting the market and the financial performance of the entities in the market, Florida's workers' compensation market can readily be characterized as a competitive market. The report also noted that the residual market is small, suggesting that the voluntary market is absorbing the vast majority of demand. This is a considerable improvement from 1993. A major contributing factor to the remarkable increase in the availability of affordable, competitive voluntary market workers' compensation insurance coverage in Florida has arguably been the existence of a well managed, generally self-funded workers' compensation insurance residual market mechanism.