Senator Atwater’s Amendment to Insurance Legislation Considered in the Senate Today

The Senate Banking and Insurance Committee is meeting this morning, March 25, 2008, from 9:00 a.m. through 11:00 a.m.

Senator Jeff Atwater has released a strike-all amendment to Senate Bill 2860 regarding the Insurance Capital Build-Up Incentive Program.  To view a copy of the amendment, click here.

Below is a detailed analysis and summary of Senator Atwater’s amendment:

Proposed Amendment to Insurance Legislation Considered in the Senate Today

Today, March 25, 2008, the Senate Banking and Insurance Committee considers a strike-all amendment to Senate Bill 2860 proposed by Senator Atwater that would build upon the insurance legislation passed last year.

Specifically, the amendment provides for insurance issues as follows:

Section 1: Insurance Capital Build-Up Incentive Program

• Makes the program permanent
• Insurers must either commit to increasing their residential property writings, including wind, at a minimum writing ratio of net written premium to surplus of at least 1-to-1 for the first year, 1.5-to-1 for the second year, and 2-to1 for the remaining term of the surplus note; or they must meet a minimum gross written premium-to-surplus ratio, phased in at minimum 3-to-1 and increasing to 6-to-1 over the term of the note.
• Insurers must commit that at least one-third of their premium for new policies is attributable to policies taken out of Citizens Property Insurance Corporation (“Citizens”).
• Surplus notes that were approved prior to January 1, 2008 are not affected; however, the State Board of Administration (“Board”) may renegotiate the terms of any notes approved prior to January 1, 2008, upon the agreement of the insurer and the Board, consistent with the requirements of the 2008 legislative amendments.

Section 2: Antitrust

• Applies the state antitrust laws to “the business of insurance.”
• Does not apply antitrust laws to the collection of claims, loss, or expense data by rating organizations or advisory organizations, or to the filing of rates or advisory rates by rating organizations or advisory organizations.

Section 3: Market conduct examinations

• Allows the Office of Insurance Regulation (“OIR”) to require an insurer to file its claims-handling practices and procedures, based on the findings of a market conduct exam
• Claims handling practices and procedures filed with OIR are public records and are not trade secrets.

Section 4: Suspension, revocation of a certificate of authority (“COA”) for violations and special grounds

• The failure of an insurer to provide documents and information subpoenaed by OIR “constitutes an immediate and serious danger to the public health, safety, and welfare.”
• The OIR may, at its discretion, without prior notice or the opportunity for a hearing, immediately suspend the COA of an insurer that fails to provide such documents or information.

Section 5: Administrative fines in lieu of suspension or revocation

• Nonwillful violations: increases the maximum fine to $25,000 per violation (instead of $2,500), and removes the $10,000 aggregate cap on all fines for all nonwillful violations arising out of the same action.
• Knowing and willful violations: increases the maximum fine to $100,000 per violation (instead of $20,000), and removes the $100,000 aggregate cap on all such violations arising out of the same action.
• Allows the OIR to impose an administrative fine of up to $25,000 for each day that an insurer is not in compliance with the Florida Insurance Code, and provides criteria for the OIR to consider in determining the amount of the fine, specifically:

o The degree of consumer harm  caused or potentially caused by such violation;
o Whether the violation constitutes an immediate danger to the public
o Whether the violation is a repeat violation or similar to past violations by the insurer
o The effect on the solvency of the insurer
o The premium volume of the insurer
o The effect that fining the insurer will have on the insurer’s compliance with the Florida Insurance Code.

Section 6: Trade secret documents

• If any person who is required to submit documents or information to the OIR claims trade secret protection, the person must file a notice of trade secret or the trade secret protection is waived.
• Each page or specific portion of the document or information must be marked “trade secret,” and all trade secret information must be separated from non-trade-secret information.
• The submission must be accompanied by an affidavit under oath attesting to the truth of the claim of trade secret protection stating, among other things, that the owner of the information has taken steps to protect the trade secret, that the information is not reasonably available without the owner’s consent by legitimate means, and that the information is not publicly available elsewhere.
• If a court or administrative tribunal finds that the document or information is not a trade secret, the court may award attorney’s fees to the third party seeking access to the document or information.
• False claims of trade secret protection are violations of the Florida Insurance Code if the OIR or Department of Financial Services (“DFS”) later finds that the person submitting the document or information knew or should have known that trade secret protections did not apply.

Section 7: Nonrenewals of residential property insurance policies

• An insurer planning to nonrenew more than 10,000 residential policies must give 90 days’ notice to the OIR, including its reasons for the nonrenewals, effective dates, and arrangements to offer other coverage to affected policyholders.
• The insurer may not issue a notice of nonrenewal to any of these policyholders unless OIR approves the nonrenewal plan. The plan is deemed approved after 90 days if not disapproved by OIR.
• OIR may not approve a plan unless the nonrenewals are staggered over a reasonable period of time, or the insurer has arranged for replacement coverage, “such that the actions are not hazardous to policyholders or the public.”

Section 8: Unfair insurance trade practices; fines

• Nonwillful violations: increases the maximum fine to $25,000 per violation (instead of $2,500), and removes the $10,000 aggregate cap on all fines for all nonwillful violations arising out of the same action.
• Willful violations: increases the maximum fine to $100,000 per violation (instead of $20,000), and removes the $100,000 aggregate cap on all fines for all nonwillful violations arising out of the same action.

Section 9: Unfair insurance trade practices; violations. Prohibits an insurer from committing, with such frequency as to indicate a general business practice:

• Failure to promptly provide to insureds estimates of damage and a good faith explanation in writing of the insurer’s evaluation of benefits and the basis for the evaluation;
• Consideration to age, race, income level, education, credit score, or any other personal characteristic of a policyholder in evaluating, adjusting, settling, or attempting to settle a property claim.
• Failure to pay undisputed amounts of partial or full benefits under property policies within 30 days after determining the amount of benefits and agreeing to coverage.

Sections 10: Rate Standards

• Permanently repeals use-and-file for property insurance (except for filings requesting rate decreases).
• Restricts the extent to which the cost of reinsurance may be considered in ratemaking.
• Costs are presumed excessive if annual expected recoveries are less than 20 percent of the reinsurance premium (40 percent if the reinsurance is purchased from affiliated reinsurers). The insurer may overcome this presumption based on a threat to its financial soundness.
• Costs may not include broker fees, when the reinsurance is purchased from an affiliated reinsurer.
• Costs of catastrophe reinsurance are presumed excessive when reinsurance needs were based on probable maximum loss calculations that exceed probable maximum loss calculations established according to a commission-approved model.
• Projected hurricane losses must be estimated using a commission-approved model.
• Repeals the reasonable rate of return commensurate with risk for companies that expose their surplus to catastrophic losses in lieu of reinsurance.
• Allows an immediate review of an approved rate based on the insurer’s nonrenewal activity.
• Amends the certifications under oath applicable to rate filings to:
o Require an acknowledgment that the actuary who prepared the filing reviewed the OIR’s rate indications from the previous rate filing, and has identified the factors used in the current filing that conflict with OIR’s factors.
o Require the number and type of intended nonrenewals, and that the filing reflects the reduced risk of loss.
o These certifications should be based on the signing officer and the actuary’s knowledge.
• No information is admissible in a DOAH or judicial review of OIR action on a rate filing, other than the information that was in OIR’s possession as of the issuance of the Notice of Intent to Disapprove, except for expert opinion.

Section 11: Repeals Subsection (6) of Section 627.062, Florida Statutes, regarding arbitration

Section 12: Consumer Advocate

• This is a conforming change consistent with the repeal of arbitration.

Section 13: Hurricane Loss Projection Methodology Commission

• Requires insurers to use, without modification, commission-approved models in determining hurricane loss factors and probable maximum loss levels. (Current law allows, but does not require, use of commission-approved models and does not address calculation of probable maximum loss levels.)

Section 14: Residential property insurance; rate filings

• Requires OIR to develop a methodology for mitigation discounts and credits correlated to the numerical mitigation score on the uniform home grading scale by February 1, 2009. .
• Requires rulemaking to require insurers to apply the uniform methodology by October 1, 2009.

Section 15: Insurance Risk Apportionment Plans

• Eliminates the distinctions between homestead and non-homestead property.
• Removes the restrictions on Citizens eligibility for properties valued at $1 million or more.
• Requires Citizens to offer multiperil policies and prohibits Citizens from writing new wind-only policies as of July 1, 2008 (but allows Citizens to renew wind-only policies that were in force on that date).
• Lowers the maximum percentage for regular assessments from 10 to 8 percent and leaves the aggregate amount of emergency assessments in any given year to the discretion of Citizens’ Board of Governors.
• Removes the immediate Citizens policyholder surcharge, but allows for surcharges upon renewal or issuance of policies to reduce the amount of any Citizens regular assessment.
• Freezes Citizens rates through December 31, 2009. In addition, Citizens’ annual rate filings for 2010, 2011, and 2012 may have rate increases no higher than 10 percent overall for all multiperil policies, and 10 percent for any given policyholder.
• Citizens’ annual rate filings for 2010, 2011, and 2012 may have rate increases no higher than 15 percent overall, and a 15 percent increase for any given policyholder, for the wind-only account.
• Repeals forced-purchase of Citizens bonds by assessable insurers.
• Citizens shall make its database of policies available to prospective takeout insurers upon their execution of a confidentiality agreement without categorically removing policies from eligibility for removal.
• Citizens may not instruct prospective take-out insurers to avoid the selection of policies for which the agent has disapproved policy renewals.
• Citizens must require agents to accept or decline appointment for any policy selected and, if declination, must notify the policyholder that an insurer, identified by name, selected the policy for a take-out offer, but that the policyholder’s agent refused to be appointed by the insurer.
• The notice must also provide the policyholder with the take-out insurer’s contact information so that the policyholder can contact the company directly and make his or her own determination of whether to seek coverage from the take-out insurer.

Section 16: Guaranteed renewability for mitigated homes

• Requires guaranteed renewability for at least three years for a personal lines residential policy covering a dwelling that meets the wind-borne debris protection requirements of the Florida Building Code that apply in the wind borne debris region.

Section 17: Disclosure of windstorm mitigation rating

• Requires the seller of residential property to disclose the property’s windstorm mitigation rating to the buyer of such property.

Section 18: Criminal penalties

• Provides third degree felony penalties for a person who willfully files with the OIR, or willfully signs for filing with OIR, a “materially false or materially misleading rate filing.”
• Provides felony penalties for “any person who attempts to corruptly influence, obstruct, or impede the lawful regulation of the business of insurance” by the DFS, the OIR, their agents or their examiners.

Section 19: Effective date

• Upon becoming a law, except as otherwise provided in the Act.

In contrast, the House Insurance Committee held a hearing on Monday, March 24 to consider changes to the legislative provisions passed last year, including a scaling back of the FHCF coverage, and not to extend the Citizens rate freeze beyond its current expiration date of January 1, 2009.

House leaders have indicated that the short-terms savings do not justify the longer-term financial risk of a major hurricane strike, which could deplete state funds and leave Floridians paying the bill.
 
We will keep you apprised of the Senate Banking and Insurance Committee vote and other related developments.

Other bills scheduled for discussion at this morning’s meeting include:

• SB 2860–Insurance by Senator Jeff Atwater
• SB 1564–Insurance Rate Standards by Senator Jeff Atwater
• SB 2156–Florida Hurricane Catastrophe Fund by the Senate Banking and Insurance Committee
• SB 1196–Insurance Rate Standards by Senator Steven Geller
• SB 2878–Citizens Property Insurance Corporation by Senator Jeff Atwater
• SB 2362–Florida Insurance Code/Violation/Administrative Fines by Senator Don Gaetz
• SB 2306–Residential Property Insurance/Mitigation Discount by Senator Don Gaetz
• SM 2452–National Catastrophe Insurance Program by Senator Bill Posey
• SM 2488–Future Property Insurance Claims/Escrow Reserves by Senator Bill Posey
• SB 1422–Commercial Property Insurance by Senator Mike Bennett
• CS/SB 0406–Commercial Parasailing by the Senate Environmental Conservation and Preservation Committee and Senator Gwen Margolis
• SB 1598–Health Insurance Coverage/Amino-acid-based Formula by Senator Durell Peaden

 

Should you have any questions or concerns regarding Senator Atwater’s proposed Amendment, please do not hesitate to contact this office.

 

To unsubscribe from this newsletter, please send an email to ccochran@cftlaw.com.