Florida Cabinet Approves Scott Wallace as Florida Commission on Hurricane Loss Projection Methodology Chairman, Tom Grady as Florida Office of Financial Regulation Commissioner

 

The Florida Cabinet considered several insurance-related issues during a very full agenda today, August 2, 2011.

The Cabinet first unanimously voted to approve Tom Grady as the new Florida Commissioner of the Office of Financial Regulation.  A former State Representative and an attorney with over 25 years of experience in the securities and financial services industry, Commissioner Grady stated it will be his mission to make Florida a place where capital is treated well.  His appointment will take effect on August 29, 2011.  

The Cabinet then convened as the Trustees of the State Board of Administration (“SBA”).  SBA Executive Director Ash Williams requested that the Trustees approve the repeal of F.A.C. Rules 19-8.001 and 19-15.001 relating to the Insurance Capital Build-up Incentive Program (“Program”) because they primarily address its application process and thus are no longer necessary.  Also, the relevant terms of the surplus notes set forth in the Rules survive in section 215.5595, F.S., as well as in the terms of the surplus notes issued pursuant to the Program.

With no questions, the Trustees voted unanimously to repeal the Rules.

Mr. Williams then asked the Trustees to approve Scott Wallace as the Chair of the Florida Commission on Hurricane Loss Projection Methodology (“Commission”).  Mr. Wallace, who is the current President, Chief Executive Officer and Executive Director of Citizens Property Insurance Corporation (“Citizens”), was asked by Florida Governor Rick Scott whether his role at Citizens would present any conflicts with his role as Chair of the Commission.  Mr. Wallace responded in the negative, adding that the Commission analyzes empirical data under strict rules, which does not allow for bias or discretion.  Mr. Wallace was approved unanimously as Commission Chair. 

At the request of Florida Chief Financial Officer Jeff Atwater, the Florida Office of Financial Regulation made a presentation relating to money services businesses’ participation in workers’ compensation fraud.  CFO Atwater stated that fraud is driving up the costs of all insurance in Florida, but that the problem is causing legitimate building contractors to lose competitive bids to those who are intentionally engaging in workers’ compensation fraud. 

Further, workers who are injured while working for contractors who are engaging in workers’ compensation fraud are not covered for their injuries, and often end up in emergency rooms where their treatment is paid for out of the public purse.  Colonel John Askins and Major Jeff Branch from the Florida Division of Insurance Fraud reported that, under the typical scheme, a contractor will procure fraudulent workers’ compensation coverage and funnel the construction company’s payroll through a money services business to complete the transactions, which include very high transaction fees. 

It was stated that over $200 million in premium was reported to be paid in fraudulent workers’ compensation schemes, and approximately $20 million in taxes have gone unpaid.  CFO Atwater stated he intends to create an anti-fraud working group to specifically look at workers’ compensation fraud, as well as Personal Injury Protection fraud. 

As part of the Florida Office of Insurance Regulation (“OIR”) agenda, Florida Insurance Commissioner Kevin McCarty requested Cabinet approval of appointments to the Workers’ Compensation Joint Underwriting Association Board of Governors.  The appointments approved by the Cabinet were: Charlie Clary as Chairman, Dan Dannenhauer, James Ward, Claude Revels, Tom Koval, Steve Solomon and Brett Stiegel.

CFO Atwater then asked Commissioner McCarty whether the passage of SB 408 required Citizens to make its recent rate filing, which would increase sinkhole rates significantly.  Commissioner McCarty first clarified that he has not yet seen the rate filing, so he could not speak with great specificity, and then continued that the filing was predicated on past experience, not potential savings provided by the fraud prevention measures contained in SB 408.  Commissioner McCarty also stated that he believes the fraud prevention measures in SB 408 will eventually reduce costs by decreasing the frequency of sinkhole claims, but that “only time will tell.” 

He reminded the Cabinet that Citizens has paid out far more in sinkhole claims over the past year than it has collected in premium, and Citizens has experienced artificial rate suppression over the last several years. 

Governor Scott offered that he believed sinkhole claim payments far outpaced premiums collected, which presents a significant challenge. 

Commissioner McCarty stated that the high cost of sinkhole claims the artificial rate suppression are evidence that Citizens’ rates need to be increased.  He added that the OIR staff always considers intervening legislation when analyzing a rate filing, and they will consider SB 408 while working through the Citizens filing. 

CFO Atwater also asked whether the OIR could force Citizens to phase in any substantial rate increases.  Commissioner McCarty stated that the OIR generally discusses phasing-in large rate increases with all companies.  However, if a rate is authorized under Florida law, the OIR cannot mandate that the rate be phased in. 

 

To view today’s Cabinet agenda and access the complete meeting materials, click here.

 

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

 

 

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