Capitol to Courthouse Florida Insurance Week In Review: April 12-16, 2010

   

Above:  Newly-elected Republican Matt Gaetz will join his father, Senator Don Gaetz in the Florida Legislature.   The election was held this week to replace Ray Sansom’s House District 4 seat.

 

The following information is a summary of events from Week Seven of the 2010 Florida Legislative Session (April 12-16)  that includes detailed information on pending major omnibus insurance legislation.  Additional regulatory-related event recaps are included at the latter portion of the report.

Note:  A comprehensive chart comparing the major House and Senate property insurance legislation (SB 2044 and HB 447) is attached as a companion document for the corresponding updates in this bulletin.

 

SB 1196 Passed By Senate Would Require $2,000 in Loss Assessment Coverage for Condo Owners

CS3/1st Eng. SB 1196, which contains provisions relating to insurance on condominium policies, was passed unanimously by the Florida Senate on April 16, 2010.

As amended, CS3/1st Eng. SB 1196 would revise Florida law to require $2,000 in property loss assessment coverage under a condominium unit owner’s policy for policies issued on, or after July 1, 2010. A deductible of no more than $250 may apply. The bill also deletes the term “hazard” insurance and replaces it with “property” insurance throughout section 718.111, F.S. This corrects a glitch in the statutes.

CS3/1st Eng. SB 1196, which mainly relates to condominiums, revises laws applicable to community associations. Associations are defined in the bill to include condominiums, homeowners and cooperative associations.

The bill now goes to the House of Representatives for consideration.

 

Florida Office of Insurance Regulation To Hold Public Hearing On Impact of Federal Health Care Legislation

Florida Insurance Commissioner Kevin McCarty announced on April 16, 2010, that the Florida Office of Insurance Regulation (“OIR”) will hold a joint public hearing with the Florida Health Insurance Advisory Board (“FHIAB”) on Tuesday, May 4, 2010 from 4:00 p.m. to 7:00 p.m. to discuss the potential effects of recent federal health care legislation on Florida, specifically relating to Medical Loss Ratio requirements.

The FHIAB, which is chaired by Commissioner McCarty, will hold a regular business meeting from 1:00 p.m. to 3:00 p.m. on the same day.  Both meetings will be held at the Orange County Commission Chamber in Orlando.

“Although very technical, the Medical Loss Ratio requirements included in the recently passed federal health reform legislation could dramatically alter the health insurance marketplace,” remarked Commissioner McCarty. “This public hearing is intended to be a fact-finding exercise to determine the potential impact of federal MLR requirements on the health insurance marketplace.”

The MLR is the percentage of health insurance premiums dedicated to payment of medical expenses and quality improvement. The federal health reform legislation recently passed by Congress requires health insurance companies to maintain minimum loss ratios for major medical insurance. The hearing transcript may be submitted to the U.S. Department of Health and Human Services in response to its rulemaking efforts. The hearing will include panel discussions as well as public testimony.  Interested parties are encouraged to submit written testimony for the public hearing to FHIAB Executive Director Torre Grissom at edFHIAB@gmail.com prior to the hearing.

  

Florida Governor Charlie Crist Signs Florida Hurricane Catastrophe Fund Contract Year Glitch Fix Bill

SB 1460 became law with the signature of Florida Governor Charlie Crist on April 15, 2010, effectively returning the Florida Hurricane Catastrophe Fund Contract Year to June 1 through May 31 beginning June 1, 2010. 

 

Florida Cabinet Approves $710 million in Florida Hurricane Catastrophe Fund Bonds

To reimburse insurance companies for additional claims relating to hurricanes that struck the State of Florida during 2005, the Florida Cabinet authorized the sale of $710 million in Florida Hurricane Catastrophe Fund (“FHCF”) post-event revenue bonds.  This financing is intended to cover aggregate FHCF claims of $827 million, for which approximately $213 million in reserves was reported to be available.  To secure the bonds, an FHCF emergency assessment also was approved as part of the State Board of Administration’s (“SBA”) Cabinet agenda.  To access the complete April 13 Cabinet agenda, click here.

 

• Note:  A comprehensive chart comparing the major House and Senate property insurance legislation (SB 2044 and HB 447) is attached as a companion document for the following two updates.

House Omnibus Property Insurance Bill Amended, Passed by Final Committee of Reference

The House Government Policy Council (“Council”) took up HB 447 relating to property insurance on April 14, 2010.  Eight amendments had been filed to the bill prior to the Council meeting, including a strike-everything amendment by HB 447’s original sponsor, State Representative Bill Proctor. 

Representative Proctor introduced and explained his strike-everything amendment, which would make several changes to Florida’s property insurance statutes.  Following is a summary of actions on the seven additional amendments that were filed to HB 447:

• An amendment by State Representative Steve Precourt relating to a member withdrawal notice from associations, funds or pools authorized for the purpose of risk management or self-insurance for public entities was withdrawn.
• An amendment by State Representative Alan Hays that would require Citizens rate increases to continue until the insurer is financially sound was withdrawn following Council debate.
• An amendment by State Representative Bryan Nelson that added provisions for a Florida Insurance Guaranty Association assessment was adopted.
• A conforming amendment by Representative Nelson was adopted.
• Another amendment by Representative Nelson requiring 100 days or 45 days notice on certain Citizens policy cancellations was adopted.
• A handwritten amendment by State Representative Kevin Rader that would require Citizens Board of Governors members to have insurance experience was adopted.
• Another amendment by Representative Rader that cross references ethics laws to apply to Citizens Board members was adopted.

During the public testimony portion of the Council meeting, OIR representatives addressed three concerns with HB 447 as amended:

• The bill provides for rate increases without empowering the OIR with the authority to deny them for excessiveness.
• The MGA provision in the bill does not “go far enough.”
• The bill provides no funding for the consumer Web site requirement.

Insurer and business association representatives spoke in favor of the bill, while trial attorney representatives spoke in opposition to it.

Following Council Member debate on Representative Proctor’s strike-everything amendment, the bill passed as a committee substitute.

To view the strike-everything amendment, click here.

 

CS/CS/HB 447, the House omnibus property insurance bill, contains the following provisions:

• Medical Malpractice Insurance FHCF Assessment Exemption:
  • Extends the exemption from the Florida Hurricane Catastrophe Fund emergency assessment for medical malpractice insurance;
• Capital and Surplus Requirements:
  • Increases capital requirements to $15 million and surplus-to-policyholders requirements to $12 million for new insurers licensed after July 1, 2010 that are not a wholly-owned subsidiary of an out-of-state insurer;
• MGAs:
  • Deletes the exemption for examinations of an MGA that solely represents a single domestic insurer;
• Annual Residential Property Insurer Report Card:
  • Defines term “valid complaint” for purposes of the Report Card;
  • Delays implementation of the Report Card to 2012;
• Rating Law:
  • Prohibits the OIR from impairing an insurer’s right to advertise or interfere with agent commissions
  • Allows separate filing for adjustment to rates for reinsurance or financing products to replace reinsurance and includes an adjustment based on an inflation trend set by the OIR not to exceed 10 percent for any individual policyholder; strikes existing law that states an insurer cannot make a filing six months before or six months after this filing;
  • Allows an insurer to adjust rates by no more than 10 percent of the statewide average increase and no more than two times the statewide average to an individual policyholder; requires this rate to be filed separately and comply with actuarial standards, but an insurer using this rate may not purchase the FHCF Temporary Increase in Coverage Limits (“TICL”) coverage and must issue certain disclosures to the insured.  A quote is also required from Citizens;
  • Allows an insurer to supplement a filing without rendering the certification of the filing false;
  • Provides for debits and credits for mitigation features and states that it is not the intent of the Florida Legislature that the implementation of the discounts result in losses to an insurer resulting from the discounts being greater than the reduction in expected losses and provides that an insurer can recover lost revenue through an increase in base rates if an insurer can demonstrate the reduction in revenue is more than the reduction in losses;
  • Strikes an existing provision that states that the cost for the purchase of reinsurance to replace TICL may not include a profit load
  • Requires the OIR to research and develop a Web site to provide comprehensive information on insurers and rates;
• Citizens:
  • States that liability for a policyholder surcharge on a Citizens policy attaches on the date of the event, giving rise to the surcharge and clarifying that a regular assessment is not levied until the surcharge has been levied;
  • Provides that the Citizens Board members with insurance expertise fall within an exception and provides that Board members cannot votes on measures in which they have a private interest;
  • Requires agents to collect an acknowledgement from Citizens policyholders that they may be subject to policyholder surcharges;
  • Deletes the HRA choke-down provisions;
• Cancellations:
  • Allows insurers to non-renew policies on a 45-day notice if the OIR finds that such cancellations are in the public interest;
• Notice of Change in Policy Terms:
  • Allows a company to send a Notice of Change in Policy terms upon renewal of the policy and without non-renewing the policy;
• ACV/RCV
  • In regard to dwelling-related claims, requires insurer payment of ACV, minus  the deductible; the insurer pays remaining amounts as repairs are made;
  • In regard to personal property-related claims, requires insurer payment of 50 percent of RCV, minus the deductible and requires additional payments when the insured furnishes receipts;
  • RCV is required for total losses;
• Acknowledgement of claims:
  • Requires an insurer to pay or deny an initial or supplemental claim within 90 days;
• Sinkholes:
  • Allows a holdback until the insured begins making repairs for sinkhole remediation,
  • Requires an insured to enter into a contract for repairs within 90 days if the insurer approves coverage;
  • Requires stabilization to be completed in 12 months;
  • Requires tests for sinkholes to comply with the Florida Geological Survey Special Publication No. 57;
  • Clarifies that the burden of proof shifts to insured if insured disagrees with initial report;
  • Specifies that a clerk of court will keep information of sinkhole insurance payments;
  • Provides for the disqualification of criteria for neutral evaluators;
  • Repeals Florida’s Sinkhole Database
• Mitigation Inspection Forms:
  • Requires a personal inspection of property by the person signing the corresponding mitigation inspection form;
  • Defines misconduct by inspectors;
• Provides for a disclaimer on the declarations page of all policies subject to FHCF, Florida Insurance Guaranty Association (“FIGA”) or Citizens assessments that the policy may be subject to assessments.

NOTE:  To view the most recent version (April 15) of CS/CS/HB 447, click here.

 

General Government Appropriations Committee Approves Senate Omnibus Property Bill

The Senate Committee on General Government Appropriations (“Committee”) approved the Senate version of the omnibus property insurance bill, CS/SB 2044, at its April 13, 2010 meeting.  At the outset of the meeting, several amendments and substitute amendments to CS/SB 2044 were requested to be withdrawn by the bill’s original sponsor, Senator Garrett Richter. 

Other amendments then were adopted by the Committee to CS/SB 2044 that, among other provisions, change the qualifications of the Citizens Property Insurance Corporation (“Citizens”) Board of Governors (“Board”) members and limit the portion of the bill relating to notice of change in policy terms to only personal lines property policies.  Actual cash value holdback in certain situations also was limited.

An amendment creating a new surplus action level and requiring certain financial disclosures of affiliates that enter contracts with insurers reaching that level was adopted as well.

Other amendments adopted to CS/SB 2044 at the April 13^th Committee meeting included 213526, which was substituted by 579080 by Senator Charlie Dean.  Senator Dean’s amendment would allow insurers to submit additional information on a rate filing without having to refile it.

CS/SB 2044 was passed by the Committee unanimously.  After next proceeding to the Senate Committee on Rules, it will be ready to be heard on the Senate Floor.

 

As amended, CS/CS/SB 2044 contains the following provisions:

• Medical Malpractice Insurance FHCF Assessment Exemption:
  • Extends the exemption from the Florida Hurricane Catastrophe Fund emergency assessment for medical malpractice insurance;
• Surplus Requirements:
  • Requires $15 million in surplus for insurers licensed after July 1, 2010; requires insurers to reach $15 million in surplus by 2015;
• MGAs:
  • Creates a “surplus action level” under the risk-based capital statute if an insurer loses surplus in excess of 15 percent (if this action level is triggered then the OIR may request certain financial information from affiliates)
  • Requires an insurer to submit certain plans;
  • Deletes an exemption for the examination of an MGA that solely represents a single domestic insurer;
  • Requires all domestic insurers to notify the OIR of its intention to enter into contracts with affiliates;
• Crop Insurance:
  • Allows the OIR to consider certain financial information when evaluating crop insurers;
• Actual cash value/replacement cost value (“ACV/RCV”):
  • Requires insurers to provide quotes from local market or computer programs to determine repair or replacement cost estimates;
  • In regard to dwelling-related claims, requires the payment of ACV minus the deductible; the insurer pays remaining amounts as repairs are made;
  • In regard to personal property-related claims, requires the payment of 50 percent of RCV, minus the deductible; requires additional insurer payments when the insured furnishes receipts. 
  • Requires RCV for total losses;
• Annual Residential Property Insurer Report Card:
  • Defines term “valid complaint” for purposes of the Report Card;
  • Delays implementation of the Report Card to 2012;
• Rating Law:
  • Extends the prohibition of use and file through December 2012;
  • Prohibits the OIR from impairing an insurer’s right to advertise or interfere with agent commissions;
  • Allows separate filing for adjustment to rates for reinsurance or financing products to replace reinsurance, and includes an adjustment based on an inflation trend set by OIR not to exceed 10 percent for any individual policyholder; strikes existing law that states an insurer cannot make a filing six months before, or six months after this filing;
  • Requires and provides an appropriation for the OIR to research and develop a Web site to provide comprehensive information on insurers and rates;
  • Deletes obsolete provisions of law;
  • Allows an insurer to supplement a filing without rendering the certification of the filing false;
  • Provides for debits and credits for mitigation features and states that it is not the intent of the Florida Legislature that the implementation of the discounts result in losses to an insurer resulting from the discounts being greater than the reduction in expected losses
  • Provides that an insurer ca recover lost revenue through an increase in base rates if an insurer can demonstrate the reduction in revenue is more than the reduction in losses;
• Citizens:
  • States that the liability for a policyholder surcharge on a Citizens policy attaches on the date of the event, giving rise to the surcharge and clarifying that a regular assessment is not levied until the surcharge has been levied;
  • Provides that the Citizens Board members with insurance expertise fall within an exception, and provides that board members will not votes on measures in which they have a private interest;
  • Requires agents to collect an acknowledgement from Citizens policyholders that they may be subject to policyholder surcharges;
  • Delays Citizens’ High-Risk Account (“HRA”) choke-down provisions to December 1, 2012;
    • Changes name of the HRA to “coastal account;”
• Cancellations:
  • Allows insurers to non-renew policies on a 45-day notice if the OIR finds that such cancellations are in the public interest;
• Notice  of Change in Policy Terms:
  • Allows a company to send a Notice of Change in Policy terms upon renewal of the policy and without non-renewing the policy
• Alternative Dispute Resolution:
  • In mediation, requires documents to support repair estimates by insurer and insured;
• Sinkholes:
  • Allows a holdback until the insured begins making repairs for sinkhole remediation;
  • Requires an insured to enter into a contract for repairs within 90 days if the insurer approves coverage;
  • Requires stabilization to be completed in 12 months;
  • Requires tests for sinkholes to comply with the Florida Geological Survey Special Publication No. 57
  • Clarifies that the burden of proof shifts to insured if insured disagrees with initial report;
  • Provides that the a clerk of court will keep information of sinkhole insurance payments;
  • Provides for disqualification of criteria for neutral evaluators;
  • Repeals Florida’s Sinkhole Database
• Mitigation Inspection Forms:
  • Requires a personal inspection of property by the same person signing a corresponding mitigation inspection form;
  • Defines misconduct by inspectors

NOTE:  To view the most recent version (April 15) of CS/CS/SB 2044, click here.

 

Other Pending Bills of Interest

 

Public Adjuster-Related Bills:  SB 2264 and HB 1181

These bills contain the following provisions:

• Creation of certain advertising restrictions for public adjusters;
• Restriction of the amount of compensation for public adjusters to 20 percent on a supplemental or re-opened claim;
• Requirement that an insurance adjuster or other person acting on behalf of the insurer to provides a 48-hour notice to an insured prior to inspection of the property;
• Requirement that certain information be furnished by public adjusters to insurers;
• A prohibition against contractors acting as a public adjusters;
• Creation of a duty to file a windstorm or hurricane claim, including supplemental and re-opened claims, within three years of the corresponding landfall of the hurricane or the date of the windstorm event;

 

“Consumer Choice” (Deregulation-related) Bills:  CS/CS/SB 876 and HB 447

CS/CS/SB 876 relating to Residential Property Insurance by the Senate Committee on Banking and Insurance and Senator Mike Bennett (also known as the “Consumer Choice Bill”) was amended on April 13 by the Senate General Government Appropriations Committee with Amendment 891142, which would create a 10 percent statewide average cap on rate increases and a per-policy cap of 20 percent on a statewide average rate increase. 

The bill was opposed by OIR representatives, who said that SB 876 “goes too far,” and that it will not help Florida, which they characterized as geographically ill-equipped to attract new insurers.  OIR representatives further explained that a free market can’t really exist in Florida if insurance is mandated in certain circumstances.

Senator Carey Baker stated that he generally hears many insurance-related complaints and that it appears that the OIR has failed at its charge to regulate the market.  Adding that consumers should be able to choose insurance as freely as they choose other purchases, Senator Baker concluded that perhaps the Legislature should try deregulation to evaluate how it works.

Florida Chamber representatives also testified that SB 876 is not a total solution, but part of it.

The Senate General Government Appropriations Committee unanimously approved SB 876 as a committee substitute.  Next, it must be heard by the Senate Policy and Steering Committee on Ways and Means.

 

Commercial Rate Modernization Bills:  CS/SB 2176 and HB 1563

These bills would exempt certain categories or types of insurance and types of commercial lines risks from certain rate filing requirements.

 

Guaranty Fund Bills:  SB 2232  and HB 159

Similar to HB 159, CS/SB 2232, which was amended and passed unanimously on April 7 by the Senate Committee on Banking and Insurance, would change state laws relating to FIGA, the Florida Workers’ Compensation Insurance Guaranty Association and the Florida Life and Health Insurance Guaranty Association. 

The bill implements several policies adopted by the National Association of Insurance Commissioners Property and Casualty Insurance Guaranty Association Model Act.  For example, the bill expands an exemption from the applicability of certain provisions of state law to include workers’ compensation claims under employer liability coverage.  The bill also revises FIGA’s structure by consolidating its auto liability and auto physical damage accounts into one account. 

Further, CS/SB 2232 removes the requirement that an insurer must submit a rate filing to pass through an assessment to the policyholders.  Instead, companies would be allowed to apply a recoupment factor to the premium of the policies subject to the FIGA assessment. 

 

Mitigation Inspection-Related Bills:  SB 648 and 663

Both bills contain building safety provisions, along with guidelines on the licensing of home inspectors and mold remediators.

 

Senate “Second” Omnibus Insurance Bill:  SB 2108

Senate Bill 2108 was reconsidered on April 13, 2010, by the Florida Senate Committee on Banking and Insurance Committee (“Committee”) after a Personal Injury Protection (“PIP”)-related amendment previously passed onto the bill was ruled as non-germane.  

Amendment 519840 by Senator Jeremy Ring was withdrawn.  This proposal would have restricted the Florida Office of Insurance Regulation expenses charged for examinations to those from Florida-based examiners only.

Ultimately, SB 2108 passed by a vote of 6 to 2  as originally amended during the Committee’s April 7 meeting, with the exception of the PIP proposal. 

The provisions of CS/SB 2108, now a committee substitute, would amend Florida law relating to residential property insurance, specifically in relation to sinkhole claims, notice of policy changes, hurricane mitigation inspections and other items.

 

Med Mal Extension on FHCF Assessment Exemption bill: HB 7217

Similar to the provisions of HB 447 and SB 2044, HB 7217 delays the repeal of  the medical malpractice exemption from the FHCF emergency assessments.

 

Residential Property Sales:  HB 545 and SB 2190

HB 545 and SB 2190 would repeal a specified provision relating to sales of residential property in wind-borne debris regions and required disclosures of windstorm mitigation ratings to purchasers.

 

Annuity Bills:  SB 844 and HB 825

SB 844 and HB 825 would enhance penalties for unethical annuities sales practices, as well as provide certain consumer protections for seniors who purchase annuities contracts.

 

Public Record Exemption for Insurance Claim Data Exchange Information:  SB 886 and HB 7091

SB 886 and HB 7091 would provide an exemption from public records requirements for certain records obtained by the Florida Department of Revenue under an insurance claim data exchange system.  The bills would saves the exemption from repeal under the Open Government Sunset Review Act.

 

Additional Recap:  Week Seven of the 2010 Florida Legislature and Other Insurance-Related Events

 

Senate Committee on Banking and Insurance

In addition to SB 2108, the Florida Senate Committee on Banking and Insurance passed the following insurance-related bills on April 13:

• SB 2734 and SB 1758, which would repeal and delete obsolete provisions of law relating to the Florida Workers’ Compensation Joint Underwriting Association and Workers’ Compensation Administrator, respectively;
• CS/SB 1992, which creates the “Florida Ports Investment Act” to incentivize private investment in seaport infrastructure projects through the offering of $100 million in insurance premium tax credits;
• SB 2618 relating to Motor Vehicle Warranty Associations; and
• CS/CS/846 relating to Residential Fire Sprinkler Requirements.

 

OIR Urges Insurers to Carefully Analyze Their Reinsurance and Risk Transfer Programs

In an April 12, 2010 Informational Bulletin, the OIR urged property insurers to carefully analyze their reinsurance and risk transfer programs. The OIR noted that, while it is not requiring the purchase of any specific level of catastrophe reinsurance, such as the 1-in-100 year probable maximum loss level, it will evaluate the entire spectrum of catastrophe risk for each insurer, while recognizing the equal importance of protecting insurer surplus from multiple storms of a smaller magnitude.

To view the Bulletin, click here.

 

Matt Gaetz to Serve With Father in Florida Legislature; Democrat Ted Deutch Headed to Congress

Florida’s April 13 Special General Elections for United States Congressional District 19 and State House District 4 yielded the following results:

• Republican Matt Gaetz took 66 percent of the vote against his Democratic opponent in House District 4.
• Democrat Ted Deutch won the District 19 Congressional seat by more than 10 points over Republican challenger Ed Lynch.

 

Florida Hurricane Catastrophe Fund Releases 2008-2009 Annual Report

The Florida Hurricane Catastrophe Fund (“FHCF”) released its fiscal year 2008-2009 Annual Report on April 14, 2010.  The report includes summaries of the year’s operational activities and pertinent legislative and rulemaking events, as well as a copy of the FHCF’s audited financial statements.

To view the report, click here. (Please note this s a large [6 MB] file and may take longer to download.)

 

Citizens Reports Financial Condition to the Cabinet

In a presentation to the Florida Cabinet at its April 13, 2010 meeting, Citizens Chief Financial Officer Sharon Binnun reported that Citizens is in such sound financial condition that its claims-paying ability — over $14 billion — is more than twice the total amount of claims it has paid for all eight hurricanes that struck the state in 2004 and 2005.

Further, Citizens has benefited from four meteorologically quiet summers and favorable bond market conditions that have solidified its financial stability.  Moody’s, the credit- and risk-analysis company, recently raised its rating of Citizens’ financial condition from negative to stable as a result. 

From its existing cash surplus, Citizens could pay the likely claims and claim adjustment expenses resulting from a Hurricane Wilma-sized event, the cost of which is estimated at $1.5 billion. Even claims from a much-stronger, 1-in-25-year hurricane could be covered without emergency assessments or post-event bonding, she said.

Claims resulting from a 1-in-50-year storm — one with the disastrous impact approximating that of Hurricane Andrew in 1992 — would trigger emergency assessments, but only for Citizens’ High-Risk Account.   Even in such a catastrophe, Ms. Binnun predicted Citizens would not require post-event financing.

She also noted that, although Citizens has become the largest insurer in Florida, its relative size and exposure has declined during the last three years.  The total value of property covered by Citizens has decreased by 20 percent, while its number of policies in force has decreased by 28 percent and its estimated Probable Maximum Loss has declined by 10 percent.

John Forney of Raymond James and Associates, who serves as an advisor to Citizens, told the Cabinet that the insurer’s recent $2.4 billion bond sale — at an interest rate 15 basis points lower than a similar offering last year — indicates that the financial market has “incredibly endorsed the credit construct” of Citizens.

To review Ms. Binnun’s and Mr. Forney’s presentation to the Cabinet, click here.

After Ms. Binnun’s presentation, Florida Commissioner of Agriculture and Consumer Services Charlie Bronson reminded the Cabinet that, after the second year of multiple hurricanes in 2005, the Florida Legislature allocated $714.7 million from General Revenue Funds to reduce Citizens’ insurance assessments.  Likening rate increase requests to assessments, he added that private insurance companies are not afforded the capacity to assess across multiple lines of insurance like Citizens is, and called for a “leveling of the playing field as to what we’re doing with Citizens versus the private insurance industry.”

Commissioner Bronson emphasized that Citizens is “being supported by the full faith and credit of the people of Florida” and said he didn’t believe that the average Floridian understood this concept.

Expressing displeasure at the notion of authorizing additional assessments even though the number of Citizens policies has decreased, Florida Attorney General Bill McCollum asked Ms. Binnun to clarify whether Citizens assessments are accumulated in a pool from which funds are drawn to pay for catastrophes, or whether assessments are made based on a per-event basis.  Ms. Binnun responded that assessments are levied in response to events.

Florida Governor Charlie Crist remarked that, while Citizens assesses “only if a storm hits,” private insurers have requested rate increases “as though a 1-in-100-year storm is going to hit.”

Florida Deputy Insurance Commissioner Belinda Miller, who attended the meeting on behalf of Florida Insurance Commissioner Kevin McCarty, explained that private insurers pay for reinsurance, thus transferring risk.  She explained that Citizens was not designed to transfer risk to the private market and, because it functions as more of a self-insurance mechanism, achieves better cost-effectiveness by financing its own risk. 

The original intent of Citizens, added Ms. Miller, was not to build up enough surplus to pay for a 1-in-100-year event each year.   To illustrate the concept of Citizens’ assessments, she used the analogy of shareholders having to contribute toward the recapitalization of a company.

Ms. Miller said she would like to see Citizens be “as small as we can make it so that most of the risk is covered by the private market.”   Her personal preference would be for the Florida Legislature to withdraw Citizens’ authority to write high-risk, windstorm-only polices, thereby leaving such coverage to be written by private insurers.  She nevertheless reaffirmed the critical role Citizens plays in protecting Florida’s economy from the financial consequences of a catastrophic event.

“If we didn’t have Citizens’, I don’t know how our economy would continue,” she concluded.

During the discussion, Attorney General McCollum called for a separate discussion to be held in the future for the purpose of evaluating the potential impact on the Florida insurance market if Citizens were to be returned to its former status as the State’s “insurer of last resort.”

Emergency Assessment, $710 million in Florida Hurricane Catastrophe Fund Bonds Approved

To reimburse insurance companies for additional claims relating to hurricanes that struck the State of Florida during 2005, the Florida Cabinet authorized the sale of $710 million in FHCF post-event revenue bonds.  This financing is intended to cover aggregate FHCF claims of $827 million, for which approximately $213 million in reserves was reported to be available.  To secure the bonds, an FHCF emergency assessment also was approved as part of the State Board of Administration’s (“SBA”) Cabinet agenda.

In approving the 2010 FHCF Reimbursement Premium Formula, the Cabinet included two versions of the 2010 FHCF Rates:  one that reflects the current law and the other is contingent upon CS/SB 1460 become law.   Concurrently, the Cabinet authorized the filing of a Notice of Proposed Rulemaking for Rule 19-8.028, F.A.C., Reimbursement Premium Formula.   The proposed Rule will be filed for final adoption if no public hearing is requested. 

In his presentation to the Cabinet, SBA Executive Director Ash Williams discussed the FHCF claims process and emphasized its integrity as evidenced by its thorough examination process and comprehensive proof of loss reports. 

He explained that FHCF loss payment requests are carefully reviewed, analyzed and required to have the signature of two executives from the insurance company making the request.   Mr. Williams said that the FHCF’s extensive claims analysis process has revealed some “extraordinary” disparities in loss experience among companies sharing business in similar geographical areas.   Over 17,000 FHCF loss reports from the 2004-2005 hurricane seasons have been reviewed, from which the FHCF is withholding $13.2 million in related reimbursements.  Meanwhile, $43 million in excess reimbursements has been recovered.

Governor Crist remarked that, based upon statistics in Mr. Williams’ presentation, the incidence of homeowners’ insurance-related fraud seems low at 4.23 percent.  Mr. Williams clarified that this number represented a percentage of aggregate convictions across all lines of insurance over the course of a one-year time period.

Since 2004, about two million claims covering all forms of insurance in Florida have generated about 66,000 fraud tips – 46,000 of which are from insurers.  This resulted in the opening of over 9,000 cases that led to 4,700 arrests, 5,000 prosecutions and about 3,000 convictions.  Rewards paid for successful tips amounted to about $140,000.  Mr. Williams also told the Cabinet that a recent review determined that the level of suspected insurance fraud in Florida “seems to be extremely low.”

The meeting was then adjourned.

To access the complete April 13 Cabinet agenda, which includes hyperlinks to the Florida Office of Insurance Regulation, SBA and Florida Hurricane Catastrophe Fund Financing Corporation agendas, click here.

The next Cabinet meeting is scheduled for April 27, 2010.

 

Florida Commission on Hurricane Loss Projection Methodology Advances Review of AIR Worldwide Model; Site Visit Planned for May

The Florida Commission on Hurricane Loss Projection Methodology (“FCHLPM”) voted on April 15, 2010 to continue its review of AIR Worldwide Corporation’s (“AIRs”) Atlantic Tropical Cyclone Model V12.0, subject to the company addressing several deficiencies and issues by April 22.  To view the meeting agenda, click here.

The actions taken by the FCHLPM at its meeting come in advance of an inspection and on-site visit by several FCHLPM Commissioners and staff members to AIR’s facilities on May 4-7.

FCHLPM Commissioners, assisted by the FCHLPM’s Professional Team, identified nine deficiencies and issues with AIR’s model during the April 15 teleconference and noted several other items for the company to address.  Statistician Mark Johnson, leader of the Professional Team, said all of the items were considered minor and said he expected the company would have no difficulty meeting the April 22 deadline.  

AIR Worldwide representative Scott Davidson, who was present for the teleconference, indicated that the company would be able to comply with the FCHLPM’s requests.

Listed below are the nine deficiencies and issues identified by the FCHLPM in AIR’s submitted model:

(To reference the 2009 FCHLPM Report of Activities, which contain the 2009 Model Standards, click here.

• Standard G-1, Disclosure 5-Responses are not provided separately for parts A, B, and C.
• Standard M-3, Part A-Landfall location and peak weighting factor are listed as random variables in Standard M-2, Disclosure 3; therefore, the probability distributions for these variables should be discussed in Standard M-3, Part A.
• Standard M-4, Disclosure 3 -Table is not numbered or listed in the Table of Contents.
• Standard V-2, Part B — Material provided is non-responsive.  Summary response delineating what part of Attachment F corresponds to this standard is required.
• Standard A-2, Part B — Response is incomplete since (3) claim payment practices, (5) contractual provisions, and (6) relevant underwriting practices underlying those losses are not addressed.
• Form A-3 — Storm ID numbers provided for “Other hurricanes included” do not follow instructions as given in Part B.
• Form A-4 — Column headings are not shown and repeated at the top of all subsequent pages.
• Form A-5 — Column headings are not shown and repeated at the top of all subsequent pages.
• Form S-4 — Response is not provided for Part B.

FCHLPM Chairman Randy Dumm and fellow Commissioners Kristen Bessette, Howard Eagelfeld and Florida Insurance Consumer Advocate Sean Shaw are expected to make the site visit to AIR.  Commissioner Lori Schneider, citing schedule conflicts, removed herself from the site-visit team. 

Florida Hurricane Catastrophe Fund Senior Attorney Tracy Allen explained to FCHLPM Commissioners that those making the site visit should expect to receive information, such as trade secrets, that is exempt from Florida’s Open Records law.  However, Ms. Allen noted that any material handled by the FCHLPM at a public meeting becomes a public record.  To avoid this potential conflict, Ms. Allen instructed FCHLPM members of the site-visit team not to discuss with each other — even during the visit itself — any matter related to FCHLPM’s oversight or regulatory duties, because doing so in any context other than a properly noticed public meeting would violate Florida’s Government-in-the-Sunshine law.  As long as FCHLPM members do not discuss FCHLPM business with each other during the site visit, the visit need not be treated as a public meeting, Ms. Allen said.

Individual FCHLPM members can discuss information received during the visit with company representatives or FCHLPM staff members without violating the law, Ms. Allen said.  She also counseled FCHLPM members and staff that they could examine company documents containing trade secrets and even take notes on them, but to leave both the materials and their notes about them in the possession of the company upon leaving to avoid turning them into public records under state law.

FCHLPM Commissioners briefly discussed legislative efforts to amend state law to enable the board to include an engineer among its members.  Florida Hurricane Catastrophe Fund Chief Operating Officer and FCHLPM Board Member Jack Nicholson said those efforts were likely to fail during this legislative session, and recommended getting an early start before the 2011 Florida Legislature convenes to help make that goal a reality.

Mr. Nicholson also told the FCHLPM it was not yet clear how many of the its recommendations would be included in pending windstorm mitigation legislation working its way through the 2010 Florida Legislature, which is currently in Session.  

The Addendum to the 2009 FCHLPM Report of Activities specifies that if an organization’s model changes after the model has been reviewed under the 2009 Standards and prior to the adoption of the 2011 Standards, whether or not the model was found to be acceptable, the modeling organization may submit the revised model under the 2009 Standards by November 15, 2010.   To view the Addendum, which also provides the schedule for a March 31, 2010 model submission, click here. 

 

Should you have any questions or comments, please contact Colodny Fass.

 

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