Suggested FHCF Hold-Back Rule, Other Reimbursement Amendments Draw Concern

On Wednesday, January 9, 2008, the Advisory Council (“Council”) of the Florida Hurricane Catastrophe Fund (“FHCF”) held a Rule Development Workshop to discuss proposed amendments regarding the following Rules related to the FHCF:

Rule Number: Rule Title

19-8.010 Reimbursement Contract
19-8.012 Procedures to Determine Ineligibility for Participation in the Florida Hurricane Catastrophe Fund and to Determine Exemption from Participation in the Florida Hurricane Catastrophe Fund
19-8.013 Bonds Issued Pursuant to Section 215.555(6), F.S
19-8.028 Reimbursement Premium Formula
19-8.029 Insurer Reporting Requirements
19-8.030 Insurer Responsibilities

To view the Workshop Notice, click here.  (Please note there is a pre-existing typographical error in this Notice.  The originating agency of this Notice should indicated as the Florida State Board of Administration).

To view FHCF Reimbursement Contract amendments for 2007, click here.

In addition to hearing comments and concerns from interested parties, the Council reviewed changes to the Reimbursement Contract requirements for the 2008-2009 contract year; exemption and ineligibility; bonding; premium formula requirements; insurer reporting requirements for the 2008-2009 contract year; and insurer responsibilities.

Senior FHCF Officer Jack Nicholson discussed his concerns regarding projected FHCF solvency issues in the event that hurricane losses total more than $50-100 billion and a timely bond issue is necessary.  A large catastrophic event or series of small catastrophic events could fully extend the FHCF capacity.  He stressed the need for insurance companies to organize their finances accordingly. 

Mr. Nicholson also stressed that preferential treatment would not be given to Citizens’ Property Insurance Corporation (“Citizens”) or limited apportionment companies in such a scenario.

The following are some of the points raised during the Workshop:

Proposed changes to Rule 19-8.010  (Reimbursement Contract) include:

•           Clarification of the definition of “residential structure.”  Certain exclusions regarding additional structures would apply.

•           Clarification of the definition of “transient occupancy.”  Prior exclusions would be expanded.

•           Elimination of disparity among companies undergoing an SBA multi-year loss examination by eliminating the five percent surcharge.

•           Provisions for the SBA to require self-insurers to submit contractor receipts to support paid losses, and for authorization of the SBA to hire an independent consultant to confirm losses prior to issuing reimbursements

•           The SBA may choose not to accept a resubmission for loss reimbursement if it would result in additional reimbursements to the submitting company.

•           The SBA will require additional examination or extension of an ongoing examination if records are not produced supporting reported losses after an examiner has left a worksite.  The company being examined will be responsible for any additional costs incurred.

•           An administrative fee of $1,000 for resubmissions that are not the result of an examination by the SBA would be charged.  If a resubmission is necessary as the result of an SBA examination report, the proposed fee would be $2,000 for each resubmission.

•           No loss payments otherwise covered will be made to an insolvent insurer until the FHCF has completed and closed its examination of that company’s losses, unless an agreement is entered by the court-appointed receiver specifying all data and computer systems required to complete the FHCF’s examinations will be maintained. 

•           In order to account for potential erroneous reporting, the SBA may hold back 25 percent of requested loss payments until its examinations are complete.  Otherwise, in the event an insurer becomes insolvent, there would be no way for the SBA to recover overpaid losses.

•           All companies must meet the requirements of the FHCF in order to receive any reimbursement, even if they are in receivership.

Extensive discussion ensued in opposition to the proposed 25 percent hold-back Rule, which was considered by some to be excessive and not accountable to the needs of insurers.  It was suggested that certain exceptions to this hold-back rule should apply to prevent potential problems such as companies deliberately submitting claims for 25 percent more than they deserve.  It was mentioned that thus far, adjustments on claims have not exceeded four percent. 

Proposed changes to Rule 19-8.012  (Procedures to Determine Ineligibility for Participation in the Florida Hurricane Catastrophe Fund and to Determine Exemption from Participation in the Florida Hurricane Catastrophe Fund) include:

•           Any company issued ineligibility status which fails to execute and return the reimbursement contract to the FHCF within 30 days of writing its first covered policy following issuance of that status shall not be eligible for reimbursement on any covered losses occurring prior to the receipt by the FHCF of the executed reimbursement contract.

Changes proposed to Rule 19-8.028  (Reimbursement Premium Formula) include:

•           Comments related to the 2008-2009 premium formula which is to be completed in March of this year.  Attendees expressed concern about the formula in regards to possible payouts for early hurricane activity.

Proposed changes to Rule 19-8.029  (Insurer Reporting Requirements) include:

•           An amendment stating that for the 2008/2009 contract year, reporting shall be in accordance with Form FHCF-D1A, (“Florida Hurricane Catastrophe Fund 2008 Data Call”). The FHCF shall have the right to rely upon information provided on this form until receipt by the FHCF of a new properly completed and notarized form.  Any new participant writing covered policies on or after June 1 but prior to December 1 shall report its actual exposure as of December 31 of the contract year.  Companies must also submit their contact information (Form FHCF C-1) by June 1 of each contract year.

•           Minor changes to the 2008 Data Call include specific building construction reporting requirements that will be considered as rating factors for premium, retention and maximum FCHF coverage.  Reporting errors within these fields could now result in a required resubmission of information, with the aforementioned proposed $2,000 fee. 

Following the discussion of these Rule proposals, the meeting concluded.  We will provide a report on the Friday, January 11 SBA meeting, at which further consideration will be given to these Proposed Rule changes and their respective related comments.

 

Should you have any questions or comments, please do not hesitate to contact this office. 

 

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