Florida Senate Select Committee Makes Recommendations
By: David Yon
On January 10, 2008, Senate President Ken Pruitt announced the formation of the Senate Select Committee on Property Insurance Accountability and appointed the members. The committee is co-chaired by Senator Stephen Geller (minority leader) and Senator Jeff Atwater, the next President of the Senate. The committee met on February 4 and 5, 2008, taking testimony from a number of insurers, regulators and modeling companies. The Co-Chairs issued their recommendations for proposed legislation in a letter dated March 13, 2008. The recommendations included the following items.
RATE FILINGS
Use and File
Repeal the "use and file" option or extend the temporary prohibition on insurers making a "use and file" rate.
OIR Indications
Require insurers to certify in a rate filing that the insurer has reviewed the OIR internal indications used to approve the insurer’s last rate filing.
Require insurers to identify factors used in its current rate filing that are inconsistent with factors used by OIR in its internal indications for approving the insurer’s last rate filing.
Approved Models
Require that rates be based on hurricane loss models “approved” by the Commission on Hurricane Loss Projection Methodology, without any modifications to the model.
Require that approved models be used by an insurer in determining its probable maximum loss (PML).
Profit and Contingency Factor
Repeal the statutory provision that requires OIR approve a rating factor for surplus exposed to hurricane losses and not protected by reinsurance that provides the insurer a reasonable rate of return commensurate with the risk.
Require or authorize OIR (through the Financial Services Commission) to adopt rules establishing standards for allowable profit and contingency factors in rate filings.
Require or allow OIR to consider an insurer’s stock buy-back program in approving its profit and contingency factor.
Costs of Reinsurance
Establish a standard for allowable reinsurance expenses included in a rate filing, such as setting a minimum percentage of expected recoveries, unless the insurer demonstrates cause for higher expenses.
Prohibit reinsurance purchased from a parent or affiliated company from charging brokerage fees and from requiring a reinstatement premium after an event.
Prohibit rates from including reinsurance costs that duplicate coverage provided by the Florida Hurricane Catastrophe Fund (FHCF), regardless of the effective date of coverage (thereby requiring insurers to assure that reinsurance contracts allow for adjustment for subsequent changes in FHCF coverage).
Non-renewal of policies
Require insurers to certify in a rate filing the number of policies they intend to non-renew and that the reduced risk is calculated into their rates. Require the insurer to make a new rate filing if it non-renews more than a specified greater percentage of policies to demonstrate that its rate is not excessive.
Arbitration
Repeal the arbitration option, or extend the temporary prohibition on allowing insurers to arbitrate rate disputes.
Administrative Hearings
Prohibit insurance companies from introducing information in support of a rate filing at a DOAH hearing if the information has not been provided to the Office of Insurance Regulation.
COMPANY PRACTICES
Fines and Criminal Penalties for Violations
Increase maximum fines for an insurer that violates the Insurance Code, in order to provide meaningful sanctions that can be imposed by OIR as an alternative to suspension or revocation of the insurer’s authorization to sell insurance.
Provide that a company’s refusal to comply with a subpoena is a violation of health, safety, and welfare that allows OIR to issue an immediate final order to suspend or revoke the insurer’s certificate of authority.
Provide criminal penalties for insurance officials who knowingly, with intent to deceive, make false material statements or reports to OIR.
Provide criminal penalties for insurance officials, employees, or agents who corruptly obstruct or impede the proper administration of any investigation or proceeding by OIR, DFS, or contract examiner.
Trade Secrets
Establish procedures for insurers to identify documents as trade secrets that are required to be submitted to OIR, including a certification by the insurer that the document meets the statutory definition of a trade secret and that the insurer has taken specified measures consistent with this definition.
Make an insurer liable for attorney fees and costs or be subject to a fine if a court determines that a document identified by an insurer as a trade secret is not a trade secret and is a public record.
Authorize OIR to make a preliminary determination that a document labeled as a trade secret is not, in fact, a trade secret, and to make such information publicly available upon providing specified notice to the insurer and an opportunity to obtain an injunction or ruling from a court.
Allow OIR (and other state agencies) to share trade secret documents with other state agencies for matters within the scope of their authority.
Excess Profits Law
Strengthen the excess profits law (a 10-year test) by deleting the criterion that an insurer must have surplus equal or greater than its 250-year probable maximum loss. The remaining criteria would be that the insurer earned an underwriting profit over a 10-year period that was in excess of 10 percent of earned premium above the anticipated underwriting profit approved in the insurer’s rate filings.
Antitrust
Remove the exemption for insurance companies and for insurance rating and advisory bodies from state antitrust laws.
Claims Adjusting
Prohibit insurers from considering age, race, income level, education, credit score or any other personal characteristics of a policyholder in evaluating or adjusting a property insurance claim.
Auto Insurance
Specify stronger requirements or authorize OIR (through the Financial Services Commission) to adopt rules to strengthen the requirement that insurers writing auto insurance in Florida must write homeowners insurance, if the insurer or its affiliate is writing property insurance in other states.
Approval of Non-Renewal Plan
Require insurers to submit to OIR for approval their plans for non-renewal of a significant number of policies, to assure that non-renewals are staggered over a reasonable time period or that arrangements have been made for offering replacement coverage in the private market.
Moratorium on Cancellations
Establish a statutory moratorium on cancellations and non-renewals of residential property insurance policies following a hurricane, subject to exceptions necessary for preventing substantial impairment of an insurer’s financial condition.