Personal Residential Property Insurer Annual Report Card Rule Workshop Report

The Florida Department of Financial Services, Office of Insurance Regulation (“OIR”) held a workshop on August 6, 2009 regarding proposed Rule 690-236.001 that would create a standard report card for personal residential property insurers to be used by the Florida Office of Insurance Consumer Advocate as required by Florida law.

The proposed Rule is attached for review.

Florida Insurance Consumer Advocate Sean Shaw stated that he welcomed comments and suggestions to the draft Rule and would leave the record open to receive written comments for the next 10 days.

While Mr. Shaw stated his willingness to look at potential changes to the proposed Rule, he did not make any commitments during the workshop to do so.  In addition to Mr. Shaw, Consumer Advocate Office officials Steve Alexander and Terry Butler were in attendance, as well as OIR Assistant General Counsel Bob Prentiss.

Mr. Shaw explained that the purpose of the workshop was to create a scoring system to compare insurers fairly.  He reminded that he recognized the different types of risk assumed by various companies and that, while it does not provide much guidance, Florida law mandates the creation of a report card.

Insurance industry representatives in attendance raised the following concerns:

• The inclusion of invalid claims in the report card is unfair.

Mr. Alexander stated that, if consumers have reached the point where they are calling his office to file a complaint, it is a manifestation of the relationship between the consumer and the insurer that requires acknowledgement.  Invalid claims represents only 10 percent of the overall grade, as opposed to valid complaints, which totals 50 percent of the overall grade.  It is hoped that using this percentage ratio to qualify the grading scale would provide an incentive for companies to be more abreast of these issues.

• The bell curve created by basing grades on an insurer’s performance in comparison to other insurance companies (rather than an objective standard) ensures failure for a certain percentage of companies.

It was suggested that a benchmark determine the grade instead.  Mr. Shaw stated that, while he understood this point, the law does not provide direction on how the Consumer Advocate’s office should proceed in creating the report card.  The grades needed to be relative in nature during the first year, so his office could develop a benchmark.  Mr. Shaw expressed hope that a benchmark would be set by next year.  Any suggestions will be considered.  Mr. Alexander said that, from approximately 75 companies that were graded, there was a natural bell curve in which breaking points clearly showed those companies who were superior and those who scored poorly.

In addition to the bell curve, concern was expressed regarding the use of letter grades and the negative perception that could be associated with a grade of C or below.  Mr. Shaw said that it was his opinion that companies with poor scores should have a grade that reflects a negative connotation.

Several insurer representatives also expressed concern over the lack of an appeals process in the Rule.  At this point, no appeals process exists for companies that are unhappy with their scores.

Additionally, some issues were raised regarding parameters in the Rule that would establish when a claim is paid or otherwise resolved.  The Consumer Advocate’s Office will review suggestions to improve this portion of the proposed Rule.

An additional public hearing on the proposed Rule is planned.

Should you wish to submit comments, please forward them to Katie Webb: kwebb@cftlaw.com.

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