Major Insurance Bills That Failed To Pass During 2008: SB 2156/HB 7021 and HB 1001/SB 1422

Two major insurance initiatives and their respective companion bills failed to pass during the final hours of the 2008 Regular Legislative Session.

• HB 7021 and SB 2156 related to the Florida Hurricane Catastrophe Fund (“FHCF”).  This bill also was endorsed by Florida Chief Financial Officer Alex Sink.

• HB 1001 and SB 1422 related to Commercial Property Insurance

The provisions contained in these bills did not pass in any other bill

CS/HB 7021 Florida Hurricane Catastrophe Fund

HB 7021 – Relating to Florida Hurricane Catastrophe Fund, sponsored by Jobs & Entrepreneurship Council, Representative Ron Reagan and co-sponsors Representatives Ausley, Chestnut, Gibbons, Kriseman, Long, Richardson, Sands, Scionti, Seiler, Soto, with Committee Substitute Sponsor, the House Policy and Budget Council

Last/Final Action: Amendments Adopted (019163, 196579) on second reading in the House; ordered engrossed; Engrossed Text (E1) Filed

Related Bill: SB 2156–Last action: April 10, Third Committee Substitute (C3) Filed; Placed on Senate Calendar for second reading.

Bill Summary: General Florida Hurricane Catastrophe Fund: Creates Division of the Florida Hurricane Catastrophe Fund within Florida State Board of Administration (“SBA”); transfers powers, duties, and responsibilities of administration of fund from SBA to division; requires SBA to appoint director; extends for additional year offer of reimbursement coverage for specified insurers; revises qualifying criteria for such insurers; provides penalties & interest for failing to collect and remit specified assessments; increases membership of board of directors of Florida Hurricane Catastrophe Fund Finance Corporation; revises methodology for calculating Temporary Increase in Coverage Limits (“TICL”) coverage multiples for purposes of reducing insurer’s fund coverage limit; increases percentage of reimbursement of insurer’s TICL coverage under TICL options addendum; assigns Florida Commission on Hurricane Loss Projection Methodology to Division.

Overview

This bill changes the oversight of the FHCF. Previously, the FHCF was administered by the SBA and headed by a senior officer who reported directly to the Executive Director of the SBA. This bill makes the FHCF a Division of the SBA, headed by an executive director, who reports directly to the Governor and Cabinet, rather than to the SBA Executive Director. Most of the SBA’s functions in administering the FHCF are now transferred to the new Division of the FHCF.

House Bill 1A, which was enacted during the January 2007 Special Session, allowed insurers to purchase additional coverage from the FHCF above the maximum limits of the mandatory coverage. This option is known as the TICL option, and was originally available only until May 31, 2010. The TICL option allowed an insurer to purchase additional coverage for its share of up to $12 billion, in $1 billion increments, above the mandatory coverage limits.

The bill reduces the TICL option additional coverage from $12 billion to $9 billion. The bill also sets the FHCF’s reimbursement at 70 percent of the insurer’s losses. Previously, the law allowed the FHCF to reimburse insurers for 45, 75 or 90 percent of their losses.

The bill allows limited apportionment companies and other specified insurance companies to purchase an additional $10 million in coverage from the FHCF below the statutory retention for another year.

Section 1

Creation of the Division of the FHCF; Authority; Ability to Sue and Be Sued

Section 1 of the bill amends section 215.555, Florida Statutes, to create the Division of the Florida Hurricane Catastrophe Fund (“Division”) within the SBA and places the administration of the FHCF under the direction and control of the Division. The SBA is mandated to appoint a director of the Division, who shall be responsible for the FHCF. The appointment of the Division director shall be subject to approval by a majority vote of the governing board of the Division. The bill also includes a provision that the Division may sue and be sued in the name of the Division.

Definitions

“Board” is now defined to mean “the governing board of the [D]ivision, which shall be composed of the Governor and Cabinet.” The Governor is the chair of the governing board of the Division, the Attorney General is the secretary, and the Chief Financial Officer is the treasurer.

“Director” is defined as “the chief administrator of the [D]ivision, who shall act on behalf of the [D]ivision as authorized by the board.”

“Division” is defined as “the Division of the Florida Hurricane Catastrophe Fund.”

Supplemental $10 Million FHCF Coverage for Qualified Insurance Companies

The bill extends for one additional year the option of an additional $10 million in coverage to insurers qualifying as limited apportionment companies under section 627.351(6)(c), Florida Statutes, and insurers that have been approved to participate in the Insurance Capital Build-Up Incentive Program pursuant to section 215.5595, Florida Statutes.

Failure to Collect Assessments of Surplus Lines Premiums

The bill provides that the failure to collect and remit assessments of surplus lines premiums is a violation of the statute subjecting the surplus lines agent and insureds procuring coverage to penalties and interest as provided in section 626.936(2), Florida Statutes.

FHCF Finance Corporation

The bill expands the FHCF Finance Corporation’s board of directors from five members to six members. The board of directors now includes the Governor or a designee, the Chief Financial Officer or a designee, the Attorney General or a designee, the Commissioner of Agriculture or a designee, the director of the Division of Bond Finance of the SBA, and the director of the Division of the FHCF.

Temporary Increase in Coverage Limit Options

The bill provides that the Division, rather that the board, shall calculate and report to each Temporary Increase in Coverage Limit (“TICL”) insurer the TICL coverage multiples based on 9 (instead of 12) options for increasing the insurer’s FHCF coverage limit. The TICL option additional coverage is now limited to $9 million (instead of $12 million).

The bill also provides that the TICL addendum shall contain a promise by the board to reimburse the TICL insurer for 70 percent of the TICL coverage based on the TICL option selected for the insurer’s losses (instead of the 45, 75, or 90 percent losses) from each covered event in excess of the insurer’s retention, plus 5 percent of the reimbursed losses to cover loss adjustment expenses.

Section 2

Section 2 of the bill amends section 215.557, Florida Statutes, to provide that the reports of insured values under covered policies by zip code now be submitted to the Division rather than the SBA.

Section 3

Section 3 amends section 215.5586(4)(h), Florida Statutes, to designate the director of the Division as a member of the Advisory Council to the Department of Financial Services regarding the administration of the My Safe Florida Home Program.

Section 4

Section 4 makes a conforming cross reference change to section 215.559, Florida Statutes, relating to the Hurricane Loss Mitigation Program.

Section 5

Section 5 makes conforming changes to section 215.5595, Florida Statutes, relating to the Insurance Capital Build-Up Program, to reflect the new Division’s role with respect to the FHCF. “Division” is defined in that statute as “the Division of the Florida Hurricane Catastrophe Fund of the State Board of Administration established in s. 215.555.”

Section 6

Section 6 makes conforming changes to section 627.0628, Florida Statutes, relating to the Florida Commission on Hurricane Loss Projection Methodology, to reflect the new Division’s role with respect to the FHCF. The new director of the Division is included as a member of the Florida Commission on Hurricane Loss Projection Methodology

Section 7

Section 7 makes a conforming cross-reference change to section 624.424, Florida Statutes.

Section 8

Section 8 makes a conforming cross-reference change to section 627.351, Florida Statutes.

Section 9

Section 9 provides an effective date of June 1, 2008.

CS/HB 1001 – Relating to Commercial Property Insurance

CS/HB 1001 – Relating to Commercial Property Insurance Sponsored by State Representative Garrett Richter, with co-sponsors: Representative Hays, Murzin, Williams, Zapata and Committee Substitute Sponsor House Jobs & Entrepreneurship Council

Bill Summary: Defines terms “assessable commercial property insurance” and “nonassessable commercial property insurance”; provides rate standards for nonassessable commercial property insurance; provides that nonassessable commercial property insurance is not subject to determination that rate is excessive or unfairly discriminatory; excludes nonassessable commercial property insurance from definition of “subject lines of business”; specifies that insurers issuing nonassessable commercial property insurance policies are not assessable for portions of assessments from which such policies are exempt; authorizes insurers offering assessable commercial property insurance policies to offer potential insureds nonassessable commercial property insurance policies; authorizes owners of commercial property to purchase nonassessable commercial property insurance policies for that property; requires application for nonassessable commercial property policy to contain specified disclaimer; requires declarations page of nonassessable commercial property policy to contain specified disclaimer.

Last/Final Action: April 30, 2008–The House passed on third reading (Vote: 111 Yeas / 2 Nays) with one amendment withdrawn. In Senate Messages as of April 30.

Related/Companion Bill: SB 2156 – Relating to Florida Hurricane Catastrophe Fund by Banking and Insurance. Last Action: April 10–Senate Committee Substitute (C3) filed; placed on Senate calendar for second reading

Overview:

CS/HB 1001 creates a new type of commercial property insurance, designated as non-assessable commercial insurance which will not be subject to Citizens’ Property Insurance Corporation (“Citizens”) assessments. Insurers may offer this policy to business owners, if the business owner chooses to purchase. The insurer must disclose in 12-point font on the declarations page that the policy is subject to limited rate regulation and is not subject to Citizens’ assessments. The disclosure must also state that a Citizens’ assessable policy subject to rate regulation is available for purchase.

Section 1

Section 1 amends Florida Statute section 627.041 by adding Subsections (10) and (11), which define “assessable commercial property insurance” and “nonassessable commercial property insurance.” This Section defines assessable commercial property insurance as insurance on commercial property “of every kind” against loss or damage subject to rate standards set forth in Florida Statute section 627.062 and assessments by Citizens. Section 1 defines nonassessable commercial property insurance as insurance on commercial property “of every kind” not subject to the rate standards of Florida Statute section 627.062 or assessments by Citizens.

Section 2

Section 2 amends Florida Statute section 627.062, adding Paragraph (k), specifying that nonassessable commercial property insurance is not subject to a determination that its rates are excessive or unfairly discriminatory. Section 2 further specifies that Paragraph (k) does not apply to filings for commercial lines residential insurance or assessable commercial property insurance. This Section further states that this change does not affect the Florida Office of Insurance Regulation’s power to disapprove rates as inadequate or for use of a filing factor.

Section 3

Section 3 amends Florida Statute section 627.351, to exclude nonassesable commercial property insurance from “subject lines of business” applicable to Citizens. Section 3 also states that “Insurers that issue nonassesable commercial property insurance policies are not assessable for the portion of the assessment from which the nonassessable commercial property insurance policy is exempt.”

Section 4

Section 4 creates Florida Statute section 627.703. This Section authorizes Insurers to offer nonassessable commercial property insurance policies and insureds to purchase these policies. Section 4 also requires all applications for nonassessable commercial property insurance policies to include a disclosure in 12-point font on the declarations page that the policy is subject to limited rate regulation and is not subject to Citizens’ assessments

Section 5

Section 5 provides an effective date of July 1, 2008.

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