Florida Surplus Lines Service Office Board Meeting Recap

The Florida Surplus Lines Service Office (“FSLSO”) held a Board of Directors meeting on July 25, 2007.  The 2006 FSLSO Annual Report and 2nd Quarter 2007 Report were distributed, along with results from the recent FSLSO audit.

Executive Director’s Report

In his report to the Board, FSLSO Executive Director Gary Pullen reported that there has been ongoing consultation with other insurance offices in connection with the FSLSO’s goal of adopting a reporting and reconciliation platform for agent/insurer data.  Heretofore, the FSLSO had been performing this function manually.   The consultation has focused on various application designs.  FSLSO has signed a contract with Infinity Software Development, Inc. to develop a reconciliation application.

An update on the Essex Insurance case was given.  The Florida Department of Financial Service (“DFS”) has been involved through the reconciliation and variance process.  Crestline Hotels, a Virginia policyholder, was identified as having portions of its premium eligible for Florida taxation.  Crestline objected to mailing the payment.  The State maintains the ability to tax the insurer when business is being transacted in another state.  An update on whether DFS will continue its action will be provided as information becomes available.

Another outstanding coverage dispute exists in South Florida in which a construction contractor purchased an insurance policy, part of which was underwritten by a surplus lines carrier.  The proof of insurance was delivered directly to the agent instead of to the insured.

The insurance company argued that because the policy was delivered to the agent and not to the insured, there was no liability for payment.  The case went to the District Court, which certified it to the Florida Supreme Court regarding the applicability of Chapter 627, F.S. to surplus lines insurance. Landmark Insurance has filed an amicus brief in support of Essex.  The Academy of Florida Trial Lawyers has filed in opposition to Essex.

The FSLSO has filed an amicus brief in support of Essex.  The Board voted to participate in oral arguments before the Supreme Court if the opportunity arises.

Collection of Citizens Assessments

Funds collected from the 2004 Citizens assessment could be used to satisfy current regular and special assessments.  Finalization of payment process from OIR is pending, then FSLSO will advise Citizens that funds are available to satisfy the assessment obligation of surplus lines policyholders.

Legislative Report

FSLSO staff is reviewing Florida statutes to identify inconsistencies with actual business practices.  It was discussed that statutory amendments are required, since FSLSO feels Florida law in regard to surplus lines was not written  in contemplation of actual business practices.   In the case of insurer reporting requirements, for example, policies still in force are being reported.  Thus, auditing of policies becomes problematic and redundant.  A decision will be made by the Board to finalize the legislative recommendations list.

Organizational Objectives

• Software is being purchased to meet the growing reconciliation responsibilities.  The new systems are expected to be finalized and live by October.  Individual “dashboards” or “scorecards” are also being developed for employee use, along with a variety of other software programs.  One quarterly billing cycle is estimated to be neeeded to make the transition and tests to determine if the new system is producing the desired result.

• The compensation policy has also been reviewed and a report will be issued to the Chairman.

• A public service billboard campaign and associated Web site with the goal of heightening loss mitigation awareness was created and presented to the Board.  The campaign can be viewed at www.shutterupflorida.org

• A training program to assimilate employees is currently under review by staff.  The long-term goal is to develop an automated orientation program to include competency and testing. 

• An orientation for new Board members appointed in October was finalized and a manual will be distributed at the next meeting.  All Board members will receive a copy of the orientation manual.

• An on-line guide to understanding financial statements should be completed in October.

• Steele Capital Management has been contracted as the FSLSO investment adviser and the transfer of funds has been completed.

NAIC San Francisco Multi-State Compact Working Group

FSLSO attended the June NAIC Multi-State Compact Working Group in San Francisco during early June.  An update was given on the current status of federal multi-state compact bills and a discussion took place regarding a collective State response to pending Federal surplus lines legislation.  A presentation on an interstate compact for allocation of multi-state surplus lines premium taxes was also heard.

• In regard to Federal legislation regulating a multi-state compact, a letter has been sent from the FSLSO Board voicing opposition to Federal legislation.

• A meeting took place with Florida Chief Financial Officer Alex Sink, FSLSO Chairman Dan O’Leary and FSLSO Executive Director Gary Pullen regarding the Federal proposals.

• Mr. Pullen spoke with Pete Mitchell from Senator Nelson’s office, who indicated that in regard to the Federal legislation, Senator Nelson was only concerned with reinsurance as opposed to the surplus lines component.

It was reported that the Terrorism Risk Insurance Extension Act  (“TRIA”) is currently taking priority in Washington.  However, the delay of surplus lines-related legislation gives interested parties time to voice their concerns. 

Financial and Audit report

The audit of financial controls has been finalized.  Nothing significant was reported and the FSLSO was over budget on revenue and under budget on all expense items.  James Moore had been selected to perform the audit based on the internal controls and enabling legislation.

The reduction of service fees has gone into effect as of April, 2007. Typically, services that generated from $700,000-800,000 per month in fees have now returned around $380,000 per month in fees.

This year, surplus lines premium increased by $2.7 billion.  The 2005 Citizens Emergency Assessment will begin distribution in the third quarter of 2007.  The assessment will result in $30 million per year in payments to Citizens.

Florida Insurance Consumer Advocate General Bob Milligan voiced his disappointment that James Moore was not willing to express its opinions in writing regarding the assessment of FSLSO’s effectiveness as an organization.  It had been previously determined that such an assessment would be prohibitively expensive.

Based on the audit findings, General Milligan also recommended the use of a state purchasing credit card for FSLSO as opposed to a VISA.  Mr. Pullen said that FSLSO was not previously eligible, but General Milligan said that access may now be available.

A motion to accept the audit and financial report was approved by the Board.

2nd Quarter 2007 Marketplace Monitoring

• In May, 2007, there were 487 surplus lines agents who received agent report cards for the first quarter of 2007.

• The 2nd quarter Variance Analysis program resulted in 60 unreported policies for a total of $784,387 in taxes, service and penalty fees

• The 2nd quarter compliance review revealed 11 surplus lines agents who were charged a total of $48,970 in taxes, service and penalty fees on nine unfilled policies.

• During 2nd quarter of 2007, FSLSO added 47 new surplus lines agents.  Twenty-three resident agents and 24 nonresident agents were licensed and appointed.

• Two insurers’ applications were received during the 2nd quarter of 2007:  Arch Insurance and Ironshore Insurance were approved by OIR to write surplus lines policies.

• The American Association of Managing General Lines Agents (AAMGA) recognized FSLSO at its recent conference with an advertising and marketing award for placing first in the Print Promotions Surplus Lines segment for its 2006 ad campaign.

• The recent Florida Surplus Lines exam was given in three sessions:  Two Webcasts and one live event.  Statute citations were added in order to promote a better understanding of surplus lines requirements. 

• During the 2nd quarter of 2007, 68 compliance reviews were performed, which yielded 2,683 policy reviews, 3,066 transaction reviews and 39 unfiled policies, for a total of over $1.2 million in unreported premium.

• Everyone was reminded that the FSLSO on-line “SLIP” system expedites filing of affadavits. Report cards may also be reviewed via SLIP.

• Discussion of SB 2498 and its accompanying legislative changes as applicable to surplus lines was made.  The Florida Association of Insurance Agents’ (“FAIA”) legislative review was cited as a good reference.  To access the FAIA review, click here.

• The greatest percentage of non-resident surplus lines agents are reported to be from Texas and Georgia.  DFS has indicated it is in favor of open access to testing through the current vendor and does not support a requirement that prospective non-resident agents travel to Florida.

Compensation Committee

A meeting and review with RSM McGladry took place and a report outlining salaries and industry comparisons was given.  It has been determined that the FSLSO was losing experienced personnel due to uncompetitive salaries.  The Board approved the Compensation Committee’s recommendation to boost FSLSO staff salaries as indicated by its report.

Upcoming

The FSLSO 2008 budget will be presented during the upcoming September meeting. 

 

Should you have any questions or comments, please do not hesitate to contact this office.