Florida Legislature 2010: Miles Apart

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.