Commercial Insurance Deregulation (CS/CS/HB 99) and First-Named Insured (CS/HB 1087) Bills Sent To Florida Governor Rick Scott Today, June 9, 2011

 

CS/CS/HB 99 relating to Commercial Insurance Rates and CS/HB 1087 relating to Insurance were sent to Florida Governor Rick Scott today, June 9, 2011.  

The Governor has 15 days to act on the bills, otherwise they will become law without his signature.

Complete summaries of each bill are below.

 

CS/CS/HB 99 relating to Commercial Insurance Rates

CS/CS/HB 99, sponsored by State Representative Brad Drake (R-DeFuniak Springs), passed the Florida House of Representatives on March 31, 2011 by a vote of 116 to 0.  Subsequently passed by a vote of 34 to 1 in the Senate on May 2, 2011, the bill, if enacted, will amend current law to expand the types of commercial lines insurance that are exempt from the prior normal rate filing and review requirements to include fiduciary liability, general liability, nonresidential property (except for collateral protection insurance), nonresidential multiperil, excess property, burglary and theft, and commercial motor vehicle insurance.

Although CS/CS/HB 99 exempts these specified lines from the normal rate filing and review requirements, these types of insurance coverages continue to be subject to the requirement that rates shall not be excessive, inadequate or unfairly discriminatory.  Carriers writing the exempt commercial lines of insurance are required to notify the Florida Office of Insurance Regulation (“OIR”) of any changes to their rates within 30 days of a rate change, and are subject to certain recordkeeping and examination requirements.

 

Ratemaking for Property, Casualty and Surety Insurance

The ratemaking requirements for property, casualty and surety insurance are set forth in Section 627.062, F.S., which specifies that the rates for all of these classes of insurance “shall not be excessive, inadequate, or unfairly discriminatory.”

Section 627.062(2)(a), F.S. describes the filing process and time frames that must be followed by all insurers subject to its provisions.  Generally, insurers may choose to submit their rate to the OIR pursuant to either the “file and use” method or the “use and file” method.  Under “file and use,” the insurer submits to the OIR their proposed rate at least 90 days before the proposed effective date and cannot implement the rate until it is approved.

Under “use and file,” the insurer may implement the rate before filing for approval, but must then submit the filing no later than 30 days after the effective date of the filing.  If a portion of the rate is subsequently found to be excessive, the insurer must refund to policyholders the portion of the rate that is excessive.

The following commercial types of insurance are currently exempt from the rate filing and rate review requirements of Sections 627.062(2)(a) and (f), F.S:

• Excess or umbrella
• Surety and fidelity      
• Boiler and machinery and leakage and fire-extinguishing equipment        
• Errors and omissions
• Directors and officers, employment practices and management liability          
• Intellectual property and patent infringement liability                                         
• Advertising injury and Internet liability
• Property risks rated under a highly protected risks rating plan               
• Any other commercial lines categories of insurance or commercial lines risks that the OIR determines should not be subject to the filing and review requirements of paragraph (2)(a) or paragraph (2)(f) because of the existence of a competitive market for such insurance, similarity of such insurance to other categories or kinds of insurance not subject to filing and review requirements of paragraph (2)(a) or paragraph (2)(f), or to improve the general operational efficiency of the OIR. 

CS/CS/HB 99 adds the additional lines of insurance referenced above to the list of exempt commercial lines.

 

Ratemaking for Motor Vehicle Insurance

Motor vehicle carriers are exempt from the requirements set forth in Section 627.062, F.S., but are instead subject to the ratemaking standards set forth in Section 627.0651, F.S.  

Currently, commercial motor vehicle insurance covering a fleet of 20 or more vehicles is exempt from the requirements of section 627.0651(1), F.S., which requires certain rate filing information; section 627.0651(2), F.S., which requires the OIR to review the rate filing; section 627.0651(9), F.S., which allows the OIR to require information necessary to evaluate the filing; and section 627.0645, F.S., which requires annual rate filings.  CS/CS/HB 99 expands this exemption to apply to all commercial motor vehicle insurance, regardless of the size of the fleet being covered.

 

Notices to OIR, Recordkeeping and Examination Requirements for Exempt Lines

The following requirements apply equally to the commercial property and casualty and commercial motor vehicle lines of insurance discussed above.

Insurers must notify the OIR of any changes to their rate no later than 30 days after the effective date of the change.  The notice to the OIR must include:

• The name of the insurer or rating organization
• The type of insurance subject to the rate change          
• The average statewide percentage change in rates

In addition, the insurer must maintain, for two years after the effective date of the rate change, actuarial data with regard to the changed rate.  This data is subject to examination by the OIR, and the OIR may require the insurer to incur the costs associated with such an examination.

If a rating organization is providing the required notice, the rating organization must provide loss cost data to the OIR, must maintain actuarial data regarding the changes to loss cost for risks, and is otherwise subject to the same recordkeeping and examination requirements as insurers.  The bill removes the current requirement that, for insurers, the 30-day notice must include total premium written on the product subject to the rate change during the immediately preceding year.

CS/CS/HB 99 also removes the current requirement that an insurer must maintain underwriting files, premiums, losses and expense statistics for the type of insurance subject to the change.  Rating organizations are no longer required to maintain loss and exposure statistics.  Instead, the bill now requires an insurer or a rating organization to keep only “actuarial data” for two years after the effective date of the rate change.

The bill also removes the current provision that the OIR may require the insurer to provide-at the insurer’s expense-all information necessary to evaluate the condition of the company and the reasonableness of the rate.

 

Effective Date

The bill provides an effective date of October 1, 2011.

 

CS/HB 1087 relating to Insurance

CS/HB 1087, sponsored by State Representative Doug Holder (R-Sarasota) and the House Economic Affairs Committee, addresses a variety of issues related to personal and commercial lines of insurance.

 

Payment of Workers’ Compensation Benefits

Currently, workers’ compensation benefits are payable by check or, if authorized by the employee, by direct deposit into the employee’s account at a financial institution. These are the only authorized methods of providing compensation benefits to the employee under current law.

 

Alien Insurer Exemptions from Certificate of Authority Requirements

The OIR is responsible for all activities concerning insurers and other risk-bearing entities authorized under the Florida Insurance Code.  Regulatory oversight includes licensure, approval of rates and policy forms, market conduct and financial examinations, solvency oversight, administrative supervision, and licensure of viatical settlement and premium finance companies, as provided in the Florida Insurance Code or ch. 636, F.S.

The OIR’s Life and Health Financial Oversight unit monitors financial conditions through the use of internal financial analysis and on-site examinations.  Periodic financial report submission is part of the monitoring process.  The Florida Insurance Code contains provisions designed to prevent insurers from becoming insolvent and to protect policyholders. These provisions include minimum capital and surplus requirements, and financial reporting requirements.

Florida law requires that insurers and other risk-bearing entities obtain a certificate of authority (“COA”) prior to engaging in insurance transactions, unless specifically exempted.   Currently, life insurance policies or annuity contracts issued by an insurer domiciled outside of the United States covering only persons who, at the time of issuance are not U.S. residents, are exempt from the requirement to obtain a COA if certain conditions are met.  

Even though these insurers are not required to obtain a COA, they must comply with statutory capital and surplus requirements, and submit both annual and quarterly financial statements to the OIR.

Expanding the opportunity for exemption from the COA requirement to all insurers domiciled outside of the U.S. and covering only persons who, at the time of issuance or renewal, are nonresidents of the U.S. will allow for a variety of insurance offerings. Nonresidents, in their domicile outside the U.S., may be able to purchase health, life, property and casualty, supplemental, and other types of insurance coverage for the time they are in Florida, and for their property in the State.  The nonresidents may also visit Florida to avail themselves of services covered under the policy or contract.

 

Annual Statements of Authorized Insurers

Each authorized insurer is required to file with OIR full and true statements of its financial condition, transactions and affairs.  Among these statements, authorized insurers are required to file an audited financial report with OIR following an annual audit conducted by an independent certified public accountant.  Current law prohibits an authorized insurer from using the same accountant or partner of an accounting firm to prepare the annual audit for more than seven consecutive years.  Once the threshold of seven consecutive years is reached, the insurer may not begin to use the same accountant again until a period of two years has passed. 

 

Disqualification and Penalties for Financial Services Licensees and Applicants

Section 626.207, F.S., in part, bars persons who have committed certain felonies from obtaining a license (e.g., as an insurance agent) under the Florida Insurance Code.  The Florida Department of Financial Services (“DFS”) is required to adopt rules establishing specific waiting periods to apply for licensure when a person has engaged in criminal conduct.  The waiting periods are based on the type of conduct, length of time since the conduct occurred, and the propensity to reoffend; and may be adjusted based on aggravating and mitigating factors.

 

Public Adjusters

Chapter 626, F.S. regulates insurance field representatives and operations.  Part VI of the chapter governs insurance adjusters. The law recognizes various types of adjusters, including public adjusters, independent adjusters, company employee adjusters, and catastrophe or emergency adjusters.

Adjusters can be further classified as resident or nonresident. Resident adjusters are those who reside in Florida and are licensed in Florida, whereas nonresident adjusters reside outside of Florida and are licensed by their home state.

The DFS, which regulates all types of adjusters, reports that, as of January 31, 2011, Florida licenses almost 32,500 resident adjusters and almost 45,000 non-resident adjusters.  Of these, 2,086 are resident public adjusters and 380 are non-resident public adjusters.

A public adjuster is hired and paid by the policyholder to act on his or her behalf in a claim the policyholder files against an insurance company.  Public adjusters can represent a policyholder in any type of insurance claim, not just property insurance claims.  Unlike company employee adjusters, public adjusters operate independently and are not affiliated with any insurance company. Independent and company employee adjusters work for insurance companies.

Generally, public adjusters are paid a percentage of the claim payment.  The fee percentage is usually negotiated between the public adjuster and the policyholder, except in residential property and condominium association property claims.  For these claims, public adjuster fees are limited by law.

Independent and company employee adjusters do not charge policyholders a fee for adjusting the claim.

Public adjusters are licensed by the DFS if they meet the statutory qualifications for licensure found in s. 626.865, F.S.  Qualifications include age, residency, testing, experience and trustworthiness.  Public adjusters must also present a $50,000 bond to the DFS in order to be licensed.  No bond is required of company employees or independent adjusters.

Administrative rules relating to public adjusters, in part, address public adjuster contract cancellation, public adjuster actions relating to business referrals, and public adjuster actions relating to the hiring of other professionals to help with the claim.  Administrative rules also govern the solicitation of business and advertising by public adjusters and the contract used by public adjusters.  Public adjusters must also abide by general ethical rules applicable to all types of adjusters.

In 2008, the Legislature enacted numerous changes to laws relating to public adjusters.  Changes included fee restrictions, restrictions on solicitation and other business practices of public adjusters, and restrictions relating to advertising or inducement of business by public adjusters.  The 2008 legislation also created a public adjuster apprenticeship license and specified licensing requirements in s. 626.8651, F.S.

In 2009, the Legislature enacted further changes related to the activity of public adjuster and public adjuster apprentices.  This legislation also required an applicant for a public adjuster apprentice license to obtain a Accredited Claims Adjuster (“ACA”) (a claims adjuster designation), in order to qualify for a license as a public adjuster apprentice. The coursework required for an ACA designation is offered at Florida-accredited postsecondary institutions (many Florida community colleges and the University of Central Florida).

 

Persons Designated to Receive Insurer Notifications

Chapter 627, F.S. specifies requirements for notification to a policy holder, or the “named insured,” regarding renewal premium, nonrenewal, cancellation or termination under particular lines of personal and commercial insurance, including workers’ compensation and employers’ liability, property, casualty, homeowners’, mobile home owners’, farmowners’, condominium association, condominium unit owners’, and apartment building insurance.   Additionally, specific statutory provisions for motor vehicle insurance require notice to the “named insured” relating to intent not to renew, intent to transfer a policy, and eligibility for insurance through the Florida Automobile Joint Underwriting Association in the event of cancellation or nonrenewal.

The party designated to receive these notices under current law is the “named insured,” meaning the persons or entities listed on the policy declaration page.  For personal property or motor vehicle coverage, “named insured” may include one or more individuals.  In commercial coverage, particularly in the context of a partnership or corporation, the “named insured(s)” of a policy may often include persons or entities related by common ownership or common enterprise.

A “first-named insured” is generally the first-named insured included in the policy declaration-the person who assumes the legal authority to act on the policy with regard to cancellation, policy changes, reporting losses and other administrative functions. Generally, in a policy that covers more than one “named insured,” the “first-named insured” is designated by the policy holder(s) on an application at the time the policy is adopted.

For example, a company operating multiple retail locations may purchase a workers’ compensation policy identifying the company headquarters as the “first-named insured” and each retail store location as a “named insured.”  Even if the company’s headquarters assumes responsibility for all premium payments, policy changes and other administrative matters as the designated “first-named insured,” current law requires insurers to deliver certain policy notices to each individual store location listed as a “named insured.”

Language for insurance policy provisions is developed and submitted by insurers for approval by the OIR. Many insurance companies, especially domestic insurers, rely on ratemaking organizations like the Insurance Services Office (“ISO”) that have drafted and secured approval for standard form language.  In effect, ISO forms generally reflect industry practice.   Requirements for notice to policyholders are included among the form language provisions drafted by ISO and approved by OIR.

Previously, common industry practice for delivery of cancellation and nonrenewal notices included only the “first-named insured,” reflected in part by the OIR’s approval of form language submitted by the ISO.  In Form CG 02 20 12 07, effective December 2007 and approved by the OIR, common policy conditions provided that notices of cancellation and nonrenewal shall be mailed or delivered to the “first-named insured.”

Subsequently, the ISO has instituted Form CG 02 20 04 11, effective April 2011 and approved by the OIR, which provides common policy conditions for cancellation and nonrenewal consistent with current statutes requiring delivery of notice to the “Named Insured(s).”  Language in Form CG 02 20 04 11 is consistent with an effort by the OIR to conform review and approval of standard policy language regarding policyholder notice to the current statutory requirement of notice to the “named insured.” Under current law and the OIR interpretations, when notice is delivered to the “named insureds” on a policy, multiple copies of each notice must be delivered, even if all “named insureds” are located at the same address.

Industry representatives have indicated that insurance policies usually incorporate lending institutions as loss payees by endorsement rather than as a “named insured.”  As a loss payee under a policy endorsement, the lending institution qualifies for notice from the insurer notwithstanding the provisions for notices to “named insured(s).”

 

Delivery of Information Requested from a Self-Insured Corporation

Section 627.4137, F.S. requires insurance companies and insured entities to provide claimants with certain insurance-related information upon request.  The section, however, does not specify the manner in which such requests are to be made.

 

Licensure of Service Warranty Associations

Service warranty associations are entities other than insurers that issue service warranties.  A service warranty is an agreement or maintenance service contract equal to or greater than one year in length to repair, replace, or maintain a consumer product, or for indemnification for repair, replacement, or maintenance, for operational or structural failure due to a defect in materials or workmanship, normal wear and tear, power surge, or accidental damage from handling in return for the payment of a segregated charge by the consumer. 

Service warranty entities must meet regulatory requirements for licensure, form submission and approval, quarterly reporting and examination by the OIR.  Current law requires any service warranty entity to meet these licensure requirements, regardless to whom the service warranty is offered.

 

 

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

 

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