Reduced Regulation for Florida Service Contracts
The Governor’s recent approval of SB 2176 might be best known for its provisions streamlining commercial insurance rate filings, or perhaps for its “Safeguard or Seniors” annuity provisions that have been championed by Chief Financial Officer Alex Sink. However, for Florida’s service agreement industry, the most significant changes appear in a series of amendments to Chapter 634, Florida Statutes. Those provisions reduce regulation of auto warranties, home warranties and consumer product warranties in key areas.
Motor Vehicle Service Agreements:
The bill specifies that motor vehicle service agreement regulations do not apply to agreements covering commercial vehicles.
To offset the reduction in certain areas of regulatory oversight contained in the bill, the bill adds criminal penalties for persons engaged in unlicensed service agreement activity.
The bill adds to the list of actions considered to be deceptive, including advertising that (i) improperly suggests an affiliation with a manufacturer, (ii) improperly indicates that the provider has information about a consumer’s original factory warranty or the expiration of that warranty, or (iii) indicates that the consumer must purchase a new warranty to maintain coverage under an existing warranty. The bill also prohibits the remitting of premiums received under service agreements to any person other than the provider if the agreement between the provider and the salesperson requires that premiums be submitted directly to the provider.
The requirement for service agreement companies to submit their forms to the Office of Insurance Regulation for approval has been eliminated. However, the law continues to specify that companies are responsible for ensuring their forms meet legal requirements.
The bill also clarifies that when returning unearned premiums upon cancellation, service agreement companies may deduct the amounts of any claims paid.
By July 1, 2011, service agreement companies must incorporate into their agreements or provide separately a disclosure informing consumers that the rates are not subject to regulation by the Office of Insurance Regulation.
Service agreement companies will be required to submit financial statements annually by March 1 and will no longer be required to submit quarterly financial statements.
Examinations by the Office of Insurance Regulation will no longer be mandatory, but instead will be conducted as the OIR deems appropriate taking into account providers’ history of compliance, financial condition and other factors.
Salespersons will be required to obtain approval of the service agreement companies they represent before offering rebates of their commissions to consumers.
Current law prevents a service agreement company from charging more or less than its filed rate for any service contract. The bill allows a company to rectify any errors in the rate charged by returning an excess charge within 45 days of receipt of the contract or by deducting any undercharge from the commissions otherwise payable to the salesperson.
The unfair trade practices statute is updated to require a service agreement company, upon the request of a consumer, to provide a sample copy of its contract prior to sale. This can be done by furnishing a copy of the contract or directing the consumer to a website.
The bill also would eliminate an existing recordkeeping requirement relating to maintaining registers of contracts distributed to salespersons and dealers.
Home Warranty Companies:
Historically, home warranties in Florida have included only contracts issued in connection with the sale of residential property, home inspections, loans on property, or significant home improvements. This restriction is being eliminated, allowing providers to offer home warranty contracts in broader contexts.
The bill adds criminal penalties for violations of the licensing requirement.
Under the bill, the cost of a renewal contract may exceed the price in effect for a new contract if the increase is supported by claims history or claims cost data.
The bill eliminates the form filing requirement.
The bill clarifies that a provider may deduct the amount of any claims paid from the pro rata refund to be made upon cancellation.
By July 1, 2011, providers will be required to add a disclosure to their agreements, or provide a separate disclosure, indicating that the rates are not subject to regulation by OIR.
The Office of Insurance Regulation will not be required by examine service agreement companies, but instead will have the discretion to do so based on assessment of their compliance history, financial condition and other factors.
Salespersons will be required to obtain approval of their service agreement companies before offering rebates on their commissions.
Upon a consumer’s request, a service agreement company prior to sale will be required to provide a sample copy of the contract or direct the consumer to a website where a sample may be found.
The concept of “indemnity” is expanded to include not only repairs or replacement, but also payments by cash, check, store credit or similar means.
Consumer Product Warranties:
As with the other types of service agreements, the consumer product warranty provisions have been updated with criminal penalties for unlicensed activity. The statutes also are being revised to eliminate the form filing requirement and to specify that paid claims may be deducted from pro rata premium returns.
By July 1, 2011, service agreement companies will be required to notify consumers that their rates are not regulated by the Florida Office of Insurance Regulation.
Providers also will be required to file only an annual financial statement, with quarterly reports no longer necessary. The Office of Insurance Regulation will not be required to examine companies, but instead will be able to exercise discretion in determining whether to do so taking into account factors such as prior compliance history.
Salespersons will be prohibited from rebating commissions without the approval of the service agreement companies they represent.
Upon request, a service agreement company will be required to provide a copy of its contract, or direct a consumer to a website containing its contract, prior to sale.