Omnibus Property Insurance Legislation, Amendments Reviewed by the Florida Senate Committee on Banking and Insurance

 

At its March 3, 2010 meeting, the Florida Senate Committee on Banking and Insurance (“Committee”) considered a strike-everything proposed committee substitute that would amend an omnibus property insurance package onto a “shell” bill, Senate Bill 2044.  Representing a collaboration between the Senate President’s Office and Senator Garrett Richter, the Committee Chairman, the strike-everything amendment is a companion to House Bill 1341 by State Representative Bryan Nelson, although it is not identical. 

The amendment was introduced by Committee Chairman Garrett Richter, who explained that it is balanced by both consumer and insurer provisions.

During the discussion on the strike-everything amendment, Senator Mike Fasano expressed some concern in regard to allowing an insurer to adjust its base rate if a mitigation discount does not yield an acceptable rate result.  Senator Richter explained that, if the premium losses exceed the reduction in exposure by the mitigation features as realized through the discounts, an insurer would be able to adjust its rates.

The Committee then considered amendments filed to the strike-everything amendment.

The first, filed by Senator Mike Bennett, would allow the Florida Insurance Consumer Advocate to intervene in rate filings.  After a brief description of this amendment, Senator Bennett explained that he wished to work out details of the proposal with Chairman Richter in a separate bill, after which he moved to withdraw the amendment.  However, Senator Fasano volunteered to offer the amendment instead.

Florida Insurance Consumer Advocate Sean Shaw testified in support of the Insurance Consumer Advocate amendment, saying he would like to have meaningful input on rate filings on behalf of consumers. 

After significant debate, Senator Bennett clarified that the Senate rules would allow this proposal to be amended on a different bill if the amendment to this particular bill is defeated by the Committee.  Thus, he requested that the Committee vote down the Insurance Consumer Advocate amendment until he has had time to work out the details of it with Chairman Richter.  After a voice vote that defeated the amendment, Senator Fasano requested a roll call vote.  The amendment failed on a tie vote. Senator Richter assured Senator Fasano that the Committee would discuss the proposal at a later time. 

Another amendment (784780) by Senator Fasano was adopted that would delete a provision of the strike-everything amendment prohibiting the Florida Office of Insurance Regulation (“OIR”) from disapproving a rate filing based on the reasonableness of expenses for acquisition costs paid for advertising or agent compensation.

An amendment by Senator Joe Negron that would extend the exemption for medical malpractice insurers from the Florida Hurricane Catastrophe Fund (“FHCF”) assessment base was adopted to the strike-all amendment, although FHCF Chief Operating Officer Jack Nicholson testified that this could impose a hardship on an already-strained FHCF.

Senator Chris Smith withdrew an amendment he also had filed, but offered substitute amendment 729684 relating to the Florida Insurance Consumer Advocate’s annual report card in its place. Similar to amendment 263552 by Senator Jeremy Ring, Senator Smith’s amendment specifies the use of an “objective” grading scale based partially on “valid” consumer complaints and “measurable and objective” factors identified as “capable” of assisting homeowners in making informed choices about residential property insurance

Insurance Consumer Advocate Sean Shaw spoke against 263552, citing concerns with its provisions for the extension of time, the exclusion of invalid complaints and some terms used in the amendment.

Senator Negron expressed concern that any invalid complaint might be given weight in the annual report card grading scale, while Senator Ronda Storms stated that there should be a way to capture complaints that may not fit in certain categories.  

Senator Smith responded that many of the terms in the amendment are “terms of art,” and that every complaint may not have a legitimate base.   In stating his support for the amendment, Senator Richter said that the report card is intended to help consumers determine an insurer’s performance, rather than merely give an idea of how many times consumers may complain about any issue.

Senator Storms encouraged Senator Smith to develop the definitions contained in the amendment, to which Senator Smith agreed.  Senator Smith’s amendment was adopted, with only Senator Storms voting against it.

A technical amendment by Senator Richter was adopted, with Senators Fasano and Storms voting against it.

Senator Storms then offered a handwritten amendment that would remove the portion of the strike-everything amendment, providing that an insurer can offer actual cash value for roofs over 20 years of age.  Senator Storms and Senator Alex Villalobos expressed significant concern that, under the provisions of the strike-everything amendment, consumers would not have an incentive to purchase a high quality roof that would last over 20 years if they only receive actual cash value for their roofs in the event of an insurance claim.  Senator Richter offered to continue evaluating the issue as the bill progresses. 

Senator Storms insisted that limiting roof reimbursement to a replacement cost value of 20 years would encourage people to put “lousy” roofs on their houses that are only expected to last 20 years.  Senator Storms’ amendment that removed this portion of the strike-everything amendment was adopted.

Senator Storms also offered a second handwritten amendment deleting the provisions of the strike-everything amendment that would allow an insurer to hold back portions of replacement costs coverage for dwellings and personal property until certain conditions were met.  Plaintiffs’ attorney Chip Merlin testified in favor of Senator Storms’ second amendment and used examples of cases in which insurers assessed excessive depreciation on condominium associations’ buildings he has represented.

Insurance industry representatives began testifying against the amendment; however, the committee ran out of time during the debate and had to adjourn.

Although the amendments that were adopted during the meeting have been adopted to the strike-everything amendment, because no vote actually was taken on the strike-everything amendment, their ultimate passage onto SB 2044 depends on a favorable vote on the strike-everything amendment.

 

Strike-Everything Summary Points

The strike-everything amendment would make the following primary changes to laws relating to residential property insurance:

Consumer Education – Contingent on an appropriation, would direct the OIR to develop a comprehensive insurance Web site for consumers to provide the necessary information to make informed purchases of homeowners’ insurance.  It would contain price comparisons, filed complaints, financial strength, underwriting and receivership information and other useful consumer data.  The OIR will consider whether insurers should be required to populate the data for the Web site and, if so, how often they will be required to do so.

Mediation Procedures for Property Insurance Claims – Would require the Florida Department of Financial Services to prepare consumer information relating to the State’s mediation program.  It also would mandate that, during a dispute, insurers and insureds provide documents specifying the costs to repair or replace damaged property.

Surplus Requirements for Insurers – Would increase the minimum surplus requirements for residential property insurers licensed after January 1, 2010 from $5 million to $15 million, as well as increase the minimum surplus requirements for “current” residential property insurers from $4 million to $5 million until July 1, 2015.  Thereafter, the requirement would be $15 million.

Insurance Rating Law – Would extend the current prohibition on “use and file” rate filings until December 31, 2012.  Would expand the current expedited rate filing procedure for property insurers to include a rate adjustment for reinsurance costs, financing products used to replace reinsurance and an applicable inflation trend factors published annually by the OIR.  All costs contained in the filing would be capped at 10 percent per policyholder.  An insurer could make only one filing under this provision in any 12-month period.  Would prohibit the OIR from directly or indirectly prohibiting, impeding or otherwise compromising an insurer’s right to include acquisition costs in a rate filing, or include agent’s commissions, advertising, or the right to acquire policyholders.   Also requires the OIR to issue an approval, rather than a notice of intent to approve, within 90 days of receipt of a filing.  Additionally, allows insurers to include expense or profit load into the costs of reinsurance to replace the coverage previously offered by the FHCF Temporary Increase in Coverage Limits layer, as long as the overall increase is not more than ten percent.

Replacement Cost Coverage – Revises replacement cost adjustment requirements for homeowners’ insurance policies for damages to dwellings and personal property.  For dwelling losses, an insurer must pay the actual cash value of the loss and subsequently pay the reservation or holdback of any depreciation in value if the insured executes a contract to replace or repair the dwelling or property.  For personal property losses, an insurer may pay the greater of the actual cash value or 50 percent of the replacement cost value and must subsequently pay the reservation or holdback upon replacement.

Mitigation Credits, Discounts and other Rate Differentials (Debits) – Provides that, if an insurer demonstrates that the aggregate of mitigation discounts results in a reduction of revenue that exceeds the reduction of the aggregate loss expected to result from mitigation, the insurer may recover the lost revenue through an increase in its base rates.  Additionally, provides that an insurer may use both mitigation credits and debits. 

Financial Condition of Insurers – Allows an insurer to cancel or non-renew a property insurance policy upon a minimum of 45 days’ notice if the OIR finds that the insurer lacks adequate reinsurance coverage for hurricane risk and other financial factors.

Insurer Rehabilitation and Liquidation – Clarifies that the Circuit Court of Leon County has exclusive, original jurisdiction over any insurer and its affiliates in a delinquency proceeding and also has jurisdiction to identify funds and property belonging to an entity in receivership.  The amendment expands the definition of an affiliate to include managing general agents and other administrators.

 

Amendments Filed to the Strike-Everything

At the time of the Committee meeting, five amendments had been filed to the strike-everything amendment to SB 2044. These include:

200586 by Senator Bennett gives the Florida Insurance Consumer Advocate authority to intervene as a party in any proceeding or action before the Florida Office of Insurance Regulation (“OIR”), the Florida Department of Financial Services, or the Florida Division of Administrative Hearings; authorizes the Insurance Consumer Advocate to submit a demand to an insurer for additional information concerning a rate filing within a specified period of time; requires Insurance Consumer Advocate to submit his or her recommendations relating to a filing with the OIR

263552 by Senator Ring delays the implementation of the annual report card for authorized Florida residential property insurers until 2012; specifies the use of an “objective” grading scale based partially on “valid” consumer complaints and “measurable and objective” factors identified as “capable” of assisting homeowners in making informed choices about homeowners’ insurance

614258 by Senator Negron delays the repeal of a provision exempting medical malpractice insurance premiums from emergency assessments to the FHCF; delays the date on, and after which medical malpractice insurance premiums become subject to emergency assessments

784780 by Senator Richter is a technical amendment.

784780 by Senator Fasano deletes a provision of the strike-everything amendment that would prohibit the OIR from disapproving a rate filing based on the reasonableness of expenses for acquisition costs paid for advertising or agent compensation.

 

Other Bills of Interest Considered on March 3

• A Proposed Committee Bill that would extend the public record exemption for the Insurance Claims Data Exchange until October 2, 2012 passed the House Government Affairs Policy Committee by a vote of 12-0.
• A Proposed Committee Bill relating to the Florida Self-Insurers Guaranty Association passed the House Government Affairs Policy Committee by a vote of 12-0.
• House Bill 909, which deletes obsolete provisions of the Florida Workers’ Compensation Joint Underwriting Association, passed the General Government Policy Council 16-0.
• House Bill 545, which repeals a law requiring disclosure of wind mitigation ratings to purchasers, passed the General Government Policy Council by a vote of 16-0.
• House Bill 1015, which abolishes the Workers’ Compensation Administrator passed the General Government Policy Council by a vote of 16-0.
• House Bill 561 relating to community associations and including insurance-related provisions for loss assessment coverages and deductibles passed the House Insurance, Business and Financial Affairs Policy Committee by a vote of 11-1.
• Senate Bill 1196 and 1222 were combined and passed the Senate Regulated Industries Committee by a vote of 8-0. The new bill relates to community associations and includes insurance provisions for loss assessment coverages and deductibles.

 

A summary of the strike-everything amendment to SB 2044 is attached for review.

 

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

 

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