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Hot topics debated at RIMS Florida meeting.

Hot Topics Debated at RIMS Florida Meeting

During the sizzling mid-August heat in Florida, about 300 risk managers and service providers discussed some of the hottest issues affecting the risk management field today. Gathering in Boca Raton, registrants at the 15th annual Florida RIMS Educational Conference assessed the current state of and future prospects for the insurance industry, the workers' compensation system and environmental regulation.

By far the most time was spent on the workers' compensation crisis plaguing much of the nation, including Florida, which has seen huge surges in loss ratios and premiums. One three-hour general session provided an update on Florida's system, which is in the process of a major overhaul following recent

changes in the state's workers' compensation statutes.

RIMS President Cheri Hawkins briefly addressed the topic during her welcoming remarks, although in a different light. Ms. Hawkins, assistant treasurer and director of insurance for Weyerhaeuser Co. in Tacoma, WA, said that legislators are not going to "fix" the system. "Businesses are going to have to solve this problem," she said, adding that RIMS expects to issue a position paper on the system this fall.

During the general session, state Rep. Bruce McEwan (R-Orlando), a sponsor of the workers' comp reform bill, outlined the new law. In exchange for a 25 percent rollback in workers' comp premiums, which took effect Sept. 1 and will be frozen until Jan. 1, 1992, the law establishes a sliding scale of wage-loss benefits based on the degree of impairment and reduces the amount of those benefits. A worker with a 1 percent to 3 percent permanent partial impairment rating, for example, will receive 26 weeks of benefits, while another with a 25 percent rating can receive the maximum wage-loss benefit of 364 weeks. Previously, all workers with a permanent partial disability could receive up to 525 weeks of benefits regardless of the degree of impairment.

Temporary total disability payments have also been reduced from a maximum of 360 weeks to 260 weeks. Employers and insurers now have the right to schedule independent medical examinations for injured workers. In addition, disputed claims must be reviewed by a new Industrial Relations Commission, composed of five judges appointed by the governor, before an appeal can be filed with the state's First District Court of Appeal.

"Overall it's going to be a cost saver, but we [legislators and businesses] are going to have to work together," said Rep. McEwan.

'Cautiously Optimistic'

"We're cautiously optimistic about the law," said James Nau, director government, consumer and industry affairs for the National Council on Compensation Insurance, which establishes workers' compensation rates. Although there are some reforms that may help insurers accept the rate reduction, he said, certain areas need monitoring. For example, Mr. Nau fears that due to the reduction in benefits some temporary total disabilities could be shifted into the permanent total disabilities category.

Mr. Nau's comments echoed those of others who said that some provisions of the new law need clarification, some of which may come through regulation. Others, such as the AFL-CIO, disturbed by the reduction in benefits, have filed suit against the state to block the reforms. The union claims that the Comprehensive Economic Development Act of 1990, which contains workers' comp and other economic reforms, is unconstitutional because the state's constitution prohibits the inclusion of more than one statute in a law.

"I don't understand these challenges," said Charlie Macon, acting director of the Florida Division of Workers' Compensation. All affected parties had a lot of input into the law, he explained, and the unions should not complain because Florida's benefit levels are still substantially higher than those in the neighboring states of Georgia and Alabama.

"If the law is overturned, we'll certainly be looking at a 40 percent increase" in premiums, warned Mr. Nau.

For now, the state insurance department considers the law in effect, with the exception of a challenged provision allowing directors and officers to elect exemption from it, said Mr. Macon. Consequently, Mr. Macon's division is preparing to enforce the law and hit violators with penalties ranging from monetary fines to felony prosecution to enjoining a company from doing business.

If the reforms are upheld, George Kagan, a defense attorney, believes that it will help the justices in the First District Court of Appeals understand how their liberal interpretations of workers' comp laws in the past have affected the system. "They have not been getting data back on the consequences of their remaking of the industrial face of Florida," he said. For the first time, a statute addresses the high costs the system places on employers, an argument the court has thrown out as frivolous because earlier statutes do not contain such references.

Insurance Industry

Legislation and regulation affecting the insurance industry as a whole was also discussed. William Bailey, general counsel for the Insurance Information Institute, said despite indications that McCarran-Ferguson repeal is looming in the future, "I don't see us as being regulated [by the federal government] in a hurry." He also discredited the House Oversight and Investigations Subcommittee's report on insurance company insolvency because it examines only four insolvent insurers.

Although Proposition 103-type rollback initiatives have spread to several other states, he said, "Prop 103 is bit by bit being dismantled by the courts."

Mr. Bailey also made some predictions about the industry. He said that over the next few years the industry should record profits of 8 percent to 9 percent. Pricing should be more stable and cycles should be shorter and have less volatile swings. The consumer movement, he maintained, will intensify "as it challenges companies' efficiency."


Another lawyer, William Mahoney, senior vice president of Marsh & McLennan, discussed how companies will face tougher environmental regulation and enforcement, increased litigation and a tight insurance market.

Although a few limited coverages exist for environmental liability, Mr. Mahoney said, "I don't think insurance will ever return until we get past the old disposal sites." Thus far, that appears to be impossible as the system, established under Superfund, is bogged down in bureaucratic red tape and litigation.

He cautioned risk managers to avoid complex and costly litigation over environmental coverage with their insurers. "It's iffy if they'll win, lose or draw in the courts now," he explained. "When you have a claim in the environmental field today...most carriers are willing to sit down and discuss things with you. A few years ago they would just go out and get the lawyers."

In certain cases, he said, insurers would rather agree to a structured settlement than go to court. But when trying to negotiate any deal with insurers, risk managers should avoid such counterproductive tactics as hiring attorneys who want to "beat them up" and putting "every property policy on notice," he added.

Mr. Mahoney also predicted heavier enforcement of environmental regulations by the Environmental Protection Agency. However, he warned risk managers that they must also follow state regulations. "You can be right on the mark with the EPA," he said, "but not with the states in which you are operating."
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Title Annotation:Risk and Insurance Management Society
Author:Schussel, Mark L.
Publication:Risk Management
Date:Oct 1, 1990
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