Florida Citizens Property Insurance Clearinghouse Launch to Be Delayed by One Month, Senators Advised

 

The Florida Senate Committee on Banking and Insurance (“Committee”) was advised during its meeting today, December 10, 2013, that Citizens Property Insurance Corporation’s (“Citizens”) new Clearinghouse would be delayed from its original launch date by approximately one month. 

As part of its agenda, the Committee also heard two bills, both of which it approved:

• SB 7004, which the Committee sponsored, would extend a public records exemption for the Florida Insurance Guaranty Association.
• SB 86 relating to Dentists by Senator Jack Latvala would prohibits a contract between a health insurer and a dentist from requiring the dentist to provide services at a fee set by the insurer under specified circumstances.

Along with the presentation on Citizens, the Committee also heard updates on the Florida Hurricane Catastrophe Fund and the National Flood Insurance Program. 

To view today’s meeting packet, which includes materials from the presentations, click here.

 

Citizens Property Insurance Corporation

Barry Gilway, Citizens’ President and CEO, updated the Committee on the progress of Citizens’ new Clearinghouse.  The platform is currently operating in a test mode.

Mr. Gilway advised that Citizens’ Board of Governors will be presented with a Clearinghouse demonstration in the near future, prior to moving the project into its final testing stage.  There is a possibility that up to seven insurers will be participating when the Clearinghouse is fully functioning.

However, he advised that the Clearinghouse will not be operational on the originally scheduled launch date of January 2, 2014.  Rather, its debut will be postponed approximately one month to January 27, 2014.

Senator Nancy Detert asked Mr. Gilway for assurance that the insurance companies participating in the Clearinghouse are financial stable.  He responded that the Florida Office of Insurance Regulation (“OIR”) will continue to evaluate the financial solvency of participating insurers, just like it would any other company authorized to sell insurance in Florida.

Senator Alan Hays asked if surplus lines companies should be allowed to participate in the Clearinghouse.   Mr. Gilway responded that he is a supporter of surplus lines carriers and believes consideration should be given to including them. 

Representatives from Security First Insurance Company provided the Committee with recommendations for reforming Citizens, including the cessation of writing wind-only policies on July 1, 2014, and the commencement of non-renewing existing wind-only policies on January 1, 2014.

 

Florida Hurricane Catastrophe Fund

Florida Hurricane Catastrophe Fund (“FHCF”) Director of Legal Analysis and Risk Evaluation Leonard Schulte briefed the Committee on issues affecting the FHCF, explaining that the State of Florida’s 100-year probable maximum loss for insured residential property is $54 billion.  The total insured value of properties in Florida’s coastal counties –both residential and non-residential–is $2.8 trillion.  Residential properties account for approximately $2.1 trillion of this total insured value, he said.

Mr. Schulte indicated that Florida has responded to catastrophe risk by reducing future hurricane damage through building codes and mitigation, assuring the availability of insurance coverage through Citizens, protecting consumers through coverage requirements and rate regulation, and promoting market growth through direct aid to new and small Florida domestic companies.  It has used the FHCF to stabilize volatile reinsurance markets.

He explained that the FHCF’s claims-paying capacity was estimated at $17.9 billion as of October 2013.  The capacity is composed of over $9 billion in the fund balance, with $2 billion in pre-event bonding and $5 billion in post-event bonding ability.

Mr. Schulte said the law empowers the Florida Legislature to make critical policy decisions on FHCF coverages and exclusions, coverage dollar limits, retention, ratemaking standards and the ratemaking process.  Each of these decisions involve trade-offs, he added, and listed the following potential resulting dilemmas:

• Cash versus debt?
• Narrow coverage versus broad coverage?
• Residential only versus both residential and non-residential?
• Cover all or most hurricanes versus just the big ones?
• Current hurricane season versus subsequent hurricane seasons?
• Maximum short-term capacity versus maximum long-term stability?
• Risk-based premium calculations versus judgment-based premium calculations?
• Insuring those with “skin in the game” versus full reimbursement?

Senator Jeremy Ring expressed concern that there may not be enough independent oversight of the FHCF’s decision-making. He believes it may be necessary to appoint an independent advisory committee to accomplish this. 

Representatives from Security First Insurance Company presented proposed legislation to improve the FHCF.  Their proposal would clarify the law to make the maximum liability of the FHCF a fixed dollar amount, as well as clarify that any property covered by an HO-3, HO-4, HO-6, HO-8, or dwelling fire policies approved by the OIR are FHCF-covered policies.  Their plan would also eliminate the difference in coverage between traditional reinsurance and the FHCF, determine the amount of coverage that the FHCF would provide for water, flood and other damage that occurs during a hurricane, and require transparency in the FHCF ratemaking process.

Representatives from the Association of Bermuda Insurers and Reinsures (“ABIR”) also made a presentation in which they reminded lawmakers that they have supported Florida domestic insurance companies through increased capacity and declining rates.  According to the ABIR, Bermuda reinsurers provide 60 percent of Florida’s reinsurance.

The ABIR contends that reducing the FHCF’s capacity would not have a negative impact and that reducing its retention level would be counterproductive to the marketplace.

 

National Flood Insurance Program

OIR Deputy Commissioner for Property and Casualty Rich Koon updated the Committee on the National Flood Insurance Program (“NFIP”). Although there are several proposals addressing the NFIP pending in Congress, he said, there has been no action taken to date on any of them.

Mr. Koon reported that the OIR issued Informational Memorandum OIR-13-03M that provides some guidance to insurers for applying to write flood insurance.

Homeowner’s Choice Property and Casualty Insurance Company was recently approved to write flood insurance in Florida.  Additionally, the Underwriters at Lloyd’s are also writing flood insurance in Florida. 

 

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

 

 

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