In a legislative session in which the House and Senate found few areas of agreement, one thing Florida's senators and representatives shared was a limited appetite for insurance issues. With the 2010 legislative session entering its final days, the two chambers have not been able to achieve consensus on any major issues of interest to insurers and agents. While outcomes are uncertain, the outlines of the major issues are clear. Property insurance remains the biggest insurance issue before the legislature. No major auto or workers' compensation bills were taken up in 2010. Many insurers supported efforts to provide some form of deregulation, in spite of Gov. Charlie Crist's veto of a 2009 bill that would have allowed certain residential property insurers to offer "consumer choice" policies whose rates could not be rejected as excessive by the Office of Insurance Regulation (OIR). Insurers also formed a broad consensus in favor of other statutory changes that were intended to reduce underwriting losses. Rate Deregulation Rate regulation remains a key issue for insurers and agents. In an effort to address some of the governor's concerns, proponents of the 2009 consumer choice bill offered a more limited plan in 2010. House Bill 447, sponsored by Rep. Bill Proctor (R-St. Augustine), would allow any residential property insurer to offer a consumer choice policy with rates no more than 10 percent higher than their fully regulated policy in the first year, and would have allowed rate increases of up to 10 percent a year in later years. The bill also included provisions addressing Citizens Property Insurance Corp. deficit assessments that were of particular interest to insurance agents. Under the bill, a Citizens policyholder would not be able to avoid assessment liability by dropping his or her Citizens coverage, and all Citizens policyholders would sign forms acknowledging their liability for assessments. HB 447 reached the House floor for discussion on April 20. By the time it was taken up by the full House, it also included a number of other issues, including solvency, sinkholes, and mitigation. A final House vote was scheduled for April 21, but the House postponed action on the bill. A similar bill, SB 876 by Sen. Mike Bennett (R-Bradenton), was scheduled for a hearing in the Senate Ways and Means Committee on April 20, but consideration was postponed at Sen. Bennett's request. With the committee not scheduled to meet again for the remainder of the session, the postponement may killed the bill in the Senate. Sen. Bennett, however, said that the bill was still alive, noting that "it's still early in the game." If a bill providing for rate flexibility passes both houses, a veto is a strong possibility. Earlier in the session, Gov. Crist promised to veto any bill that allowed an increase in property insurance rates. Solvency and Affiliate Regulation Even though Florida has not experienced any hurricanes since 2005, the financial situation of many domestic property insurers has become more difficult in recent years. Many insurers have reported underwriting losses in spite of the lack of catastrophes, and several new domestic property insurers have become impaired or insolvent. In an effort to cope with these problems, legislators and regulators proposed increased solvency standards and increased regulatory authority over managing general agents and other affiliates of insurers. Under provisions in HB 447, a newly licensed domestic residential property insurer will need $15 million in surplus for issuance of a certificate of authority and will need to maintain at least $12 million in surplus once it starts issuing policies. Senate Bill 2044 by Banking & Insurance Chairman Garrett Richter (R-Naples) takes a slightly different approach, requiring new domestic property insurers to maintain at least $15 million in surplus and requiring existing domestic residential property insurers to maintain at least $5 million in surplus until July 1, 2015, and at least $15 million after that date. Current law requires a new property insurer to have at least $5 million in surplus to receive a certificate of authority and requires the insurer to maintain at least $4 million in surplus once it starts issuing policies. The Senate bill also includes restrictions on affiliates and managing general agents. When a property insurer's surplus drops by 15 percent or more in one year, the insurer could be required to provide the OIR with detailed financial information on all of its affiliates and to formulate a corrective action plan. The bill also requires domestic property insurers to give advance notice of management agreements, service contracts, and cost-sharing arrangements with affiliates. Property Claims: Replacement Cost Coverage; Sinkholes Both HB 447 and SB 2044 revise statutory provisions that affect payment of claims under replacement cost coverage. The current law, which was enacted in the wake of the 2004 hurricane season, requires the insurer to pay the full replacement cost without any holdback or reservation. Ever since the no-holdback law was passed, insurers have maintained that the requirement to pay full replacement cost without proof that property was actually repaired or replaced has produced many inflated claims. With respect to dwelling coverage, the bills require the insurer to initially pay the actual cash value and then make additional payments as repair work is performed. For contents coverage, the insurer would be required initially to pay 50 percent of the replacement cost value of personal property and then pay additional amounts based on receipts provided by the policyholder. These changes proved to be highly controversial when the bill came up for discussion on the House floor, with many legislators arguing that payment of anything less than full replacement cost deprived the consumer of the full benefit of the insurance contract. Both bills also substantially revise the treatment of sinkhole claims. The major changes from current law include requirements to speed up repair work, strengthening presumptions in favor of the findings of the insurer's engineer or geologist, new standards for tests performed by the engineer or geologist, new requirements for the mediation ("neutral evaluation") process, and a provision that the neutral evaluation process does not supersede the appraisal clause of a property insurance policy. All of these changes were intended to reduce the impact of inflated or questionable sinkhole claims, which many insurers cite as a leading cause of high underwriting losses in non-hurricane years. The bills also repeal a statutory provision that requires insurers to report detailed sinkhole claims information to a sinkhole database. Insurers that objected to the sinkhole database argued that it contained information that facilitated lawsuits and reopening of closed claims. Mitigation Discounts and Inspections Mandatory premium discounts for houses that meet hurricane loss mitigation standards have been cited by insurers as another significant cost driver. Insurers have argued that the required discounts are too high and that inaccurate or fraudulent mitigation inspections have forced companies to provide discounts to many consumers who do not deserve them.

Both HB 447 and SB 2044 address the calculation of mitigation discounts by providing that, in addition to discounts or credits for building features that reduce hurricane losses, an insurer may also impose debits or increases for a house that lacks mitigation features. Both bills also deal with the possibility that mitigation discount levels set by the OIR are too high. Under the bills, when an insurer demonstrates that the total value of mitigation discounts it has applied is greater than the total expected reduction in losses attributable to mitigation, the insurer may increase its base rates to make up the difference. This provision has generated some controversy with regulators and consumer interests, and it could be a target for a veto based on Gov. Crist's statements about vetoing any bill that allows for property insurance rate increases. Public Adjusters In recent years, Citizens Property Insurance Corp. and private sector insurers have identified public adjusters as another source of unanticipated underwriting losses. A study conducted for the legislature in 2009 found that the number of public adjusters, and the number of fraud complaints involving public adjusters, had grown dramatically from 2004 through 2009. A legislative analysis of Citizens' claims data also found that claims involving public adjusters took longer to reach settlement and settled for higher amounts than other claims. Two bills, SB 2264 by Sen. Mike Bennett (R-Bradenton), and its companion bill, HB 1181 by Rep. Janet Long (D-St. Petersburg), would strengthen state regulation of public adjusters. The bills would impose new restrictions on what are identified as deceptive statements by public adjusters, provide a 30 percent fee cap for reopened claims, prevent public adjusters from blocking attempts by an insurer to communicate with a policyholder, provide requirements for public adjusters' contracts with claimants, and add continuing education requirements. The Senate version of the bill was scheduled to be taken up by the full Senate on April 21, but as of that date the House version had not yet reached the House floor. Guaranty Associations Two bills would make a series of changes to provisions affecting guaranty funds for life and health, property and casualty, and workers' compensation insurance. Guaranty funds are nonprofit state-created associations that pay claims against insolvent insurers. House Bill 159 by Rep. John Legg (R-Port Richey) and SB 2232 by Sen. Garrett Richter (R-Naples) would increase Florida Life and Health Insurance Guaranty Association (FLAHIGA) coverage limits for deferred annuities to $250,000 from the current $100,000 limit and would revise the method of calculating these limits. It would also exclude certain indexed products and Medicare advantage policies from FLAHIGA coverage, but would add coverage for structured settlement annuities. The bills also streamline the way that property and casualty insurers may recover Florida Insurance Guaranty Association (FIGA) deficit assessments from their policyholders and provides that the Florida Workers' Compensation Insurance Guaranty Association (FWCIGA), will cover employers' liability insurance claims that are currently covered by FIGA. The House version passed the House on April 20. The Senate version was scheduled to be taken up by the full Senate on April 21. Commercial Insurance Deregulation The Senate might take up a bill to deregulate rates for many forms of commercial insurance, SB 2176 by Sen. Durell Peaden (R-Crestview), before the end of the legislative session. The bill has passed all of the committees to which it was referred. However, the bill's House companion, HB 1563 by Rep. Brad Drake (R-DeFuniak Springs) appears to be stuck in committee. Under the bills, the types of commercial insurance that would be exempt from rate filing and review requirements include excess or umbrella, surety and fidelity, boiler and machinery, errors and omissions, directors and officers liability, and employment practices and management liability. Commercial motor vehicle policies covering a fleet of more than 20 self-propelled vehicles would also be exempt. While these forms of insurance would be exempt from rate filing and approval requirements, they would remain subject to prohibitions on excessive, inadequate or unfairly discriminatory rates. Safeguard Our Seniors Act A bill known as the "Safeguard Our Seniors Act," SB 844 by Sen. Mike Bennett (R-Bradenton), passed the Senate on April 16. The prospects for the bill, a priority of the Florida Department of Financial Services (DFS), are not good, however. The House companion bill, HB 825 by Rep. Maria Sachs (D-Delray Beach), has not had a committee hearing, which creates a procedural obstacle to the Senate-passed bill being heard in the House. The major changes from current law in SB 844 include prohibiting annuity sales agents from making their family members beneficiaries on life insurance policies sold to non-family members, strengthening the ability of the DFS to deny licensure to an agent who has a history of misconduct involving elderly persons, specifies the buyers' guide that must be provided to purchasers of annuities, and provides additional rights for annuity purchasers who are 65 or older, including a 21-day period in which the purchaser is entitled to an unconditional refund. The bill would also require payment of restitution to an elderly victim of misappropriation of funds or similar offenses by an agent. Life Insurance; Miscellaneous Provisions One bill that appears likely to pass both houses is HB 885 by Rep. John Tobia (R-Melbourne) or its companion bill, SB 1364 by Sen. John Thrasher (R-St. Augustine). The House version passed the full House by a unanimous vote on April 21 and the Senate version was scheduled to be taken up by the full Senate on the same day. The bills provide that a life insurer generally does not need to issue a replacement notice to an insured's current insurer when the replacement policy is being issued by the same insurer or an affiliate. This provision follows a National Association of Insurance Commissioners model law. The bills also remove a limit on the amount of insurance that can be provided for dependents under a group life policy. In addition, the House version exempting some life insurance agents from required hours of continuing education on the issue of suitability, prohibits the sale or transfer of annuities that were purchased as part of a settlement to satisfy Medicare secondary payer requirements to third parties that are not connected with the settlement and prohibits the creation of a class of employees under a group life insurance policy that consists solely of employees covered under the employer's group health plan. Miles to Go A British Prime Minister once said that in politics, a week is a lifetime. With any session of the Florida Legislature, little is certain until the last few days, and major insurance issues are usually not resolved until the last day. This pattern is likely to hold true for the 2010 session, even though the range of insurance issues considered by the legislature is much narrower than in a typical session. As longtime legislative practitioners, we can do little more than share this: Stay tuned. We certainly will. Thomas J. Maida is managing partner of the Tallahassee office of Foley & Lardner LLP and Leonard E. Schulte is a public affairs director with the firm. Both are members of the firm's insurance industry team and government & public policy practice. They can be reached at 850-222-6100 or by e-mail at [email protected] or [email protected]. www.foley.com.