Office of Insurance Regulation Conference Call re Florida Commercial JUA 8/22/06

A conference call was held by the Florida Office of Insurance Regulation (OIR) on Monday, August 21, 2006, to discuss Rules 69P-2.001 and 2.002, Fla. Admin. Code (the Emergency Rule triggering the Florida Commercial Joint Underwriting Association).

Last week at a meeting of the Florida Cabinet the Governor approved an emergency rule establishing a Property and Casualty Joint Underwriting Association (PCJUA) as provided for in Section 627.351(5), Fla. Stat. The goal of the PCJUA is to make commercial property insurance available to Florida businesses that are unable to find coverage in either the admitted or surplus lines insurance markets.

The emergency rule allows OIR to follow normal rule-making procedures. OIR announced that it intends to hold workshops and hearings regarding the PCJUA and to promulgate a Rule. It is anticipated by OIR that the final Rule adopted would be very similar to the current version of the Emergency Rule.

Several concerns were raised during the call:

(1) “Bombardment” – The participants in the call discussed the possibility that the PCJUA would be bombarded with applicants, resulting in a negative effect on the insurance industry and Florida’s overall economy. OIR acknowledged the participants’ concerns over the collection of data by the Florida Market Assistance Program (FMAP) and stated that FMAP will change its procedures of surveying the market for availability.

(2) Certification – In the same vein, OIR stated that the PCJUA will require agents who refer insureds to PCJUA to certify that the insured was denied coverage by at least three (3) insurance carriers and one (1) surplus lines carrier. OIR is undecided at this time whether the agents will be asked to provide written documentation of such denials as part of the certification.

(3) Authority – Participants expressed concern over the legal authority of OIR to write reinsurance. Those participants indicated that they did not intend to pursue a formal challenge to the emergency rule at this time, but they left open the possibility for future challenges. OIR responded that the PCJUA has the legal authority to write direct, excess and reinsurance but was open to industry concerns on the topic.

(4) Rates – Participants also discussed their concerns about the establishment of rates for the PCJUA. OIR indicated that it wants to use the best information available in formulating rates. Participants suggested that PCJUA base its rates on a combination of existing rates and a factor that renders PCJUA an insurer of last resort. OIR emphasized that commercial and homeowners’ rate differ significantly, and the rules that apply to homeowners rates may not transfer to commercial rates but that OIR recognized the issues regarding rate formulation for the PCJUA.

During the call, OIR repeatedly asked for suggestions and solutions from the industry. OIR also encouraged participants to sign up as service providers.

Important upcoming events include a Rule Workshop scheduled for 8/28/06 at 9:30 a.m. in the Larson Building in Tallahassee and Rule Hearings to be held on 10/1/06 or 10/2/06. This office will monitor these meetings and events and provide updates accordingly.

Regards,

Fred E. Karlinsky