Florida’s 2009 Property Insurance Accord: HB 1495 Summary

During its 2009 Regular Session, the Florida Legislature considered various property insurance proposals, many of which were ultimately contained in House Bill 1495.  Florida Governor Charlie Crist signed HB 1495 into law on May 27, 2009, which also became its effective date.

Below is a partial summary of various property insurance issues addressed by HB 1495:

Florida Hurricane Catastrophe Fund (“FHCF”)

Optional $10 Million Coverage Layer

Under the provisions of HB 1495, limited apportionment companies, insurers approved to participate in Florida’s Insurance Capital Build-Up Incentive Program and insurers that purchased the optional FHCF coverage in 2008 may purchase an optional $10 million in coverage applicable through December 31, 2011.

The premium for this additional reimbursement coverage will be 50 percent of the additional reimbursement coverage provided, which includes one prepaid reinstatement. The minimum retention level associated with this additional coverage layer is 30 percent of the insurer’s surplus: as of December 31, 2008 for the 2009-2010 contract year; as of December 31, 2009 for the 2010 contract year; and as of December 31, 2010 for the 2011 contract year. The $10 million coverage provided by the FHCF is in addition to its claims-paying capacity, but only with respect to those insurers that select the additional coverage option and meet applicable requirements.

The FHCF claims-paying capacity, with respect to all other participating insurers and limited apportionment companies that do not select the additional coverage option, is limited to their reimbursement premium’s proportionate share of the FHCF actual claims-paying capacity and as otherwise provided for under the terms of the FHCF Reimbursement Contract. This optional coverage will be accessed before the mandatory coverage under the reimbursement contract, however, once the limit of coverage selected under this option is exhausted, the insurer’s retention under the mandatory coverage will apply. This coverage will apply and be paid concurrently with mandatory coverage. Coverage provided in FHCF reimbursement contract will not be affected by the additional premiums paid by participating insurers exercising this additional optional coverage.

Temporary Increase in Coverage Limits (“TICL”) Layer

The Florida State Board of Administration (“SBA”) is required to make TICL coverage available from the FHCH for the 2009 through 2013 hurricane seasons; however, TICL will be reduced by $2 billion a year over the course of six years in order to decrease the FHCF’s exposure.

Each insurer purchasing TICL coverage will pay a TICL reimbursement premium to the FHCF under the terms set forth in the FHCF Reimbursement Contract. However, a cash build-up factor does not apply to the TICL reimbursement premium.

The TICL reimbursement premium will be increased in contract year 2009-2010 by a factor of two; in the contract year beginning June 1, 2010, and ending December 31, 2010 by a factor of three; in the 2011 contract year by a factor of four; in the 2012 contract year by a factor of five; and in the 2013 contract year by a factor of six.

Each insurer’s TICL premium will be calculated based upon the additional limit of increased coverage the insurer selects. This limit is determined by the TICL multiple associated with one of the four options multiplied by the insurer’s FHCF reimbursement premium.

For the 2009-2010 contract year, the SBA will calculate the TICL coverage multiples based on 10 options for increasing the insurer’s FHCF coverage limit and report to each insurer. Each TICL coverage multiple will be calculated by dividing the amount of coverage by the total estimated aggregate FHCF reimbursement premiums for the 2009-2010 contract year. Similar calculations will be made for subsequent years, but adjusted to account for the decrease in the TICL layer by $2 billion each subsequent year.

FHCF’s Claims-Paying Capacity

Before the start of the upcoming contract year, and in October of the contract year, the FHCF’s Advisory Board (“Board”) will publish a statement of the FHCF’s estimated borrowing capacity, its estimated claims-paying capacity, and its projected balance as of December 31 in the Florida Administrative Weekly. After the end of each calendar year, the Board will notify insurers of the FHCF’s estimated borrowing capacity, estimated claims-paying capacity, and its balance as of December 31, in order to provide insurers with data necessary to assist them in determining their retention and projected payout for loss reimbursement purposes. In conjunction with the development of the FHCF premium formula, the SBA will publish factors or multiples for the purpose of assisting insurers in determining their retention and projected payout for the next contract year. For all regulatory and reinsurance purposes, an insurer may calculate its projected payout from the FHCF as its share of the total fund premium for the current contract year, multiplied by the sum of the projected balance of the FHCF as of December 31, and the estimated borrowing capacity for that contract year as reported by the FHCF Board.

The SBA may reimburse insurers for amounts up to the published factors or multiples for determining each participating insurer’s retention and projected payout derived as a result of the development of the premium formula in situations where the insurer’s total loss reimbursement of losses would not exceed the estimated FHCF claims-paying capacity. In other cases, these factors or multiples will be reduced uniformly among all insurers to reflect the estimated claims-paying capacity.

Miscellaneous FHCF Provisions

HB 1495 provides for a rapid cash build-up factor for the mandatory FHCF layer as follows:

• For the 2009-2010 contract year, the factor is five percent.
• For the contract year beginning June 1, 2010, and ending December 31, 2010, the factor is 10 percent.
• For the 2011 contract year, the factor is 15 percent.
• For the 2012 contract year, the factor is 20 percent.
• For the 2013 contract year and thereafter, the factor is 25 percent.

HB 1495 maintains the repeal of the $4 billion SBA-approved FHCF coverage option that has never been offered and, if offered, would be above the TICL coverage layer. The bill also changes the reimbursement contracts years:

• In 2010, the contract year begins June 1 and ends December 31, 2010.
• In 2011 and thereafter, the contract year begins January 1 and ends December 31.

HB 1495 also allows the SBA to require notarization of submissions.

 

Citizens Property Insurance Corporation (“Citizens”)

Under the provisions of HB 1495:

• Citizens’ rate increases are capped at 10 percent per policyholder, per year.
• Beginning January 1, 2010, and each quarter thereafter, Citizens must transfer an amount equal to 10 percent of the funds projected to be collected from its rate increases to Florida’s General Revenue Fund. Citizens would cease such transfers upon the implementation of actuarially-sound rates, or the existence of a deficit in any of the Citizens accounts.
• Citizens may also implement a rate increase to reflect the effect of the cash buildup factor on itself.
• For each commercial and personal line of business it writes, Citizens must annually make a recommended actuarially-sound rate filing.
• Reduction of Citizens’ high-risk boundaries will begin on January 1, 2010, if needed.
• A streamlined OIR filing and reporting process is added for insurers to more efficiently recoup and account for Citizens assessments payable by policyholders.
• The initial filing of the recoupment assessment factor is for informational purposes only and must be subject to a final accounting.
• Insurers are allowed to recoup a pass-through (regular) Citizens assessments and other residual market assessments in successive 12-month periods, if the assessment in the first 12 months cannot be recouped after it has been levied. The Florida Financial Services Commission has been given authority to adopt rules for these procedures.
• Citizens’ Board of Governors will have staggered member terms.
• Insurers are permitted to offer ex-wind policies located in high-risk territories that are not eligible for Citizens.

 

Rate Filings

Under the provisions of HB 1495:

• The prohibition against “use and file” rate filings has been extended through December 31, 2010.
• Removes “flex rating” as a method for rate filings by insurers, but a provision has been added that allows insurers to make an expedited rate filing to recoup the costs of alternative financing to replace or finance TICL coverage in regard to the TICL price increase, as well as for the FHCF cash build-up factor, as long as the rate increase is not more than three percent per policyholder for the costs of liquidity instrument(s), and not more than 10 percent per policyholder for all costs contained in the filing.
• Expedited rate filings can be made once every twelve months, provided that the insurer has not implemented a rate increase within the six months immediately preceding the expedited rate filing, and does not make any type of non-expedited rate filing within six months after the expedited rate filing, among other requirements. These expedited rate filings must be submitted 45 days prior to their effective date and the OIR has 45 days to review such filings. This 45-day period is in contrast to the standard 90-day requirement per section 627.062, F.S.
• Insurers can also recoup their private market reinsurance costs that correspond to TICL coverage in a regular rate filing or replace the reduced amount of TICL coverage by up to 10 percent.

 

Reinsurance from an Affiliate

Under HB 1495, insurers may purchase reinsurance or financing products from an affiliated company, but only if the costs for such reinsurance or financing products are charged at, or below charges made for comparable coverage by non-affiliated reinsurers or financial entities making such coverage or financing products available in Florida.

 

Public Adjusters

HB 1495 maintains the current provisions regarding public adjusters. In addition, it adds the following new requirements:

• Public adjusters are prohibited from paying fees to runners.
• Public adjuster apprentices must have the designation of Accredited Claims Adjuster before they can be licensed as a public adjuster.
• Public adjusters may not employ more than 12 public adjuster apprentices and cannot supervise more than three apprentices at a time.
• Requires a study from the Office of Program Policy Analysis and Government Accountability on public adjuster activity and involvement in claims (report due to the Legislature, Governor, CFO, and Insurance Commissioner by February 1, 2010).

 

Rating Agencies

• Rating agencies are not required to disclose on their public reports and ratings whether FHCF reinsurance was counted as an asset in the financial rating of the insurer.

 

My Safe Florida Home (“MSFH”)

HB 1495 provides for home inspections as funding allows.  For a homeowner to be eligible for a grant, he or she must have obtained an inspection on the residential property in question after May 1, 2007, and meet certain criteria.   The bill also expands the types of mitigation improvements a homeowner can install using MSFH funds, including many roof-related mitigation improvements.

HB 1495 gives the OIR rulemaking authority for the maximum grant allowances for any allowed improvements and repeals the MSFH no-interest loan program.

 

Mitigation

HB 1495 maintains that mitigation discounts given in accordance with the uniform home grading schedule supersede current mitigation discounts.

It also requires the Florida Commission on Hurricane Loss Projection Methodology to hold public hearings regarding mitigation and provide a report to the Governor, Cabinet, President of the Senate, and Speaker of the House of Representatives by February 1, 2010.

Under HB 1495, falsification of a mitigation form continues to be a misdemeanor.

 

Policy Disclosure

Under HB 1495, the formerly-required disclosure of a home’s windstorm mitigation rating upon sale has been eliminated.

 

Public Housing Authority Self-Insurance Fund

Under HB 1495, eligible reinsurance companies are authorized to issue coverage directly to a public housing self-insurance fund.

 

Insurer’s right to repair

Under HB 1495, insurers may continue to exercise their right to repair damaged property in compliance with the policy and s. 627.702(7), F.S.

 

Agent Explanation of Florida Insurance Guaranty Association

Under HB 1495, duly-licensed insurance agents may explain the existence or function of the Florida Insurance Guaranty Association to policyholders, prospects, or applicants for coverage.

 

Effective Date: 

HB 1495 will take effect upon becoming law.

 

 

For additional information on Florida’s legislative process and terminology, click here.  Should you have any questions or comments, please contact Colodny Fass.

 

DISCLAIMER  The materials in this presentation are intended to provide a general overview of the issues contained herein and are not intended nor should they be construed to provide specific legal or regulatory guidance or advice.  If you have any questions or issues of a specific nature you should consult with appropriate legal or regulatory counsel to review the specific circumstances involved.

 

Colodny Fass’ comprehensive insurance regulatory practice includes the representation of insurance companies, reinsurers, managing general agencies, agents, reinsurance intermediaries, claims companies, third party administrations, premium finance companies and other insurance entities covering all lines of business, such as property and casualty, life and health, annuities, title, workers’ compensation, and others.  In addition, the Firm practices in the areas of governmental consulting, insurance administrative and transactional law and sophisticated insurance litigation matters at both the trial and appellate levels.

For two consecutive years, Colodny Fass has been ranked among the top two firms in the United States for its legal expertise and ability in insurance regulatory law by Reactions Magazine, an international publication that covers insurance and reinsurance issues.