Senate Banking & Insurance Interim Committee Meeting Report: December 9

The Florida Senate Banking and Insurance Committee (“Committee”) met on December 9, 2008, as part of the first Interim Committee Week in advance of the 2009 Regular Legislative Session. Committee Chairman Garrett Richter provided brief introductory remarks, followed by Committee member self-introductions. Committee members include: Senator Chris Smith, Vice Chairman; Senators J.D. Alexander, Mike Bennett, Mike Fasano, Al Lawson, Jeremy Ring, Ronda Storms, and Alex Villalobos.

It was announced that Steve Burgess, formerly with the Florida Office of the Insurance Consumer Advocate and the Office of the Public Counsel, will be the new Committee Staff Director.

Status of the Florida Hurricane Catastrophe Fund

Committee Staff gave a presentation on the Status of the Florida Hurricane Catastrophe Fund (“FHCF”), which included information on the FHCF layers of coverage and liquidity sources. Coverage for 2009 is estimated at $17 billion above the industry retention rate of approximately $7.2 billion in the mandatory layer. It also was noted that the FHCF uses the State-approved models; however, private reinsurance providers may use models not approved by the State.

The FHCF’s Temporary Increase in Coverage Limits (“TICL”) layer was reviewed ($12 billion in additional coverage), as well as the Temporary Emergency Additional Coverage Option (“TEACO”) layer (which no company has purchased). Also reviewed was the limited apportionment coverage, which is $10 million in reinsurance below the retention to small insurers.

The Committee considered FHCF liquidity and it was noted that the FHCF lacks the liquidity to meets its potential obligations because it is approximately $19 billion short of funding for 2009.

During the FHCF presentation, Senate Committee Members asked various related questions, including whether TICL “sold out,” the impacts of Hurricane Wilma, and when it is estimated that the FHCF will become sustainable.

Banking and Insurance Committee Staff described any move to reduce the FHCF exposure as a “dilemma” because this would trigger homeowners rate increases. A chart was presented showing the average rate change for several insurers following the FHCF expansion in January 2007. The chart indicated that the average rate for homeowners multi-peril insurance among the top 10 private carriers dropped from 9.9 percent to as much as 24.9 percent. Rate filings for mobile homeowners dropped 2.7 percent to 27.9 percent.

Committee Staff presented the possible actions that lawmakers could take, including reducing the amount of coverage sold by the FHCF, to purchasing other financial products that could either transfer risk to outside parties, or at least guarantee access to needed additional money. This past summer, FHCF Trustees spent nearly $250 million to acquire a loan guarantee from Berkshire Hathaway.

Seeking funding from the federal government was mentioned as an option that previously had been discussed; however, it was cautioned during the discussion that there is no way to reduce risk without increasing front-end cost. Senator Storms expressed her confidence that the federal government would “bail out” Florida if necessary.
It was not discussed in detail what actions the Legislature should take regarding the FHCF. If legislators do not act, one layer of the expanded FHCF will sunset in 2010.

Accident Response Fees

A Senate Interim Project Report on the practice of municipalities charging Accident Response Fees (user fees charged to an accident victim and/or his or her insurance company for the provision of police and fire services) was reviewed.

The report raised questions as to the legality of the fees, including whether they constitute an impairment of insurance contracts or a regulation of insurance which is preempted to the state. The report also noted that a court upheld a fee that was charged to a Miami pawnshop.

The report noted that some auto insurers refuse to pay the response fees, while others pay based on the circumstances of the accident and the wording of the local ordinance. Drivers in some cases may have their credit impaired or a lien placed on their property if they refuse to pay.

Private vendors collect such fees for an intermediary charge, which is generally 10 percent. Senator Villalobos asked whether charging fees to non-residents, but not to residents, was constitutional and whether the practice could be considered an equal protection violation. It was generally agreed among Committee members that a disparate charge likely is a violation, but that the practice of charging fees is relatively new.

Senator Villalobos also noted that police and fire services are paid for by property taxes. He further suggested that if the practice is left unchecked, municipalities may want to charge someone who calls the police when their house is burgalarized.

Committee Members inquired whether any study existed that tracked the number of first responders that arrived to an accident scene in locations where the fee structure is in place as opposed to jurisdictions where it is not. Evidence from the State of Ohio was cited that indicated more police or accident response activity occurred in locations where a fee system is in place than locations where there was no fee established.

Accident Response Fee systems are being promoted by firefighters, police, local governments and collection companies (known as “cost recoveries”).

Senator Richter commented that it sounded like in some states, cities and counties that people “needed to have their credit card ready when calling 911.”

It was noted that there are few collections on non-residents in municipalities with Accident Response Fee systems because no corresponding enforcement mechanism exists.

Discussion took place regarding the existing 17 states that have imposed these fees to date. Conversely, five states have banned this practice.

To view the Committee meeting packet, click here.

To view the complete Committee Interim Project Reports referenced above, click here.

 

Should you have any questions or comments, please do not hesitate to contact Colodny Fass.

 

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