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Insurer Accountability Bill Increases Regulatory Requirements

Insurer Accountability Bill Increases Regulatory Requirements

The 2023 Florida Legislature passed SB 7052, commonly referred to as the insurer accountability bill. The bill came as a surprise to some after the legislature adopted meaningful property insurance reforms in a December 2022 special session and enhanced those reforms earlier in the 2023 session. Some observers commented that SB 7052 will reduce the effectiveness of the earlier reforms and moderate capital providers’ interest in returning to the Florida property market. The bill’s supporters, on the other hand, argue that it is necessary to retain balance between increasing the Florida market’s attractiveness to capital providers and ensuring insurers’ compliance with the insurance code. In sum, the bill’s supporters believe increased regulatory scrutiny and penalties are needed to make up for the reduced role of civil actions in compelling insurers’ compliance (due to the elimination of the statutory right to attorneys’ fees and other reforms).

On balance, the prior reforms should result in an improved market over the next 18-24 months. The extent to which these benefits are mitigated by counterbalancing measures such as the insurer accountability bill remains to be seen.

As of this publication, the bill has been presented to Governor Ron DeSantis and remains in its 15-day window in which the bill may become law or is subject to veto. If the bill becomes law, its provisions generally will take effect July 1, 2023. The following takes a closer look at key changes in the bill:

OIR Report of Actions Against Insurers—  The bill requires the Office of Insurance Regulation to publish a report of insurer violations on its website and provide the report to the Financial Services Commission, the President of the Senate, the Speaker of the House of Representatives, and the relevant legislative committees overseeing insurance. The Financial Services Commission consists of the Governor, Chief Financial Officer, Attorney General, and Commissioner of Agriculture. The report must identify regulatory actions taken against insurers such as license revocations and suspensions, license denials, consent orders, examination results, and fines. The reports must be published at quarterly and annual intervals.

Examinations Based on Risk Assessment—  Under existing law, OIR must examine insurers at least once every five years (and may examine insurers more frequently in its discretion). SB 7052 retains the five-year requirement for insurers deemed to present average or low risk, but reduces the interval to every three years for insurers deemed to present high risk. The bill identifies 11 factors for the OIR to consider in determining the risk presented by an insurer. Among these factors, the OIR must consider the insurer’s level of capitalization, negative trends in profitability, certain ratios commonly used in regulatory analyses, and the results of examinations or regulatory actions. The bill also gives OIR discretion to consider circumstances other than the specifically-identified factors.

Mandated Examinations After Hurricanes—  The legislature has updated existing post-hurricane examination criteria and made them mandatory. Under the bill, the OIR must examine an insurer after a hurricane if it is among the top 20% in its ratio of hurricane claim-related complaints to its hurricane claims. Likewise, the OIR must examine an insurer if it is in the top 20% in ratio of hurricane claims closed without payment to total hurricane claims, if it has made significant payments to an MGA after a hurricane, or if the OIR otherwise believes there are factors warranting examination. The bill tasks the OIR will adopting a rule related to scheduling examinations. The rule also dictates circumstances in which the OIR must review the claims-handling practices of liability insurers.

Increased Penalties for Non-Compliance—  SB 7052 significantly increases the monetary penalties for violations of the insurance code. Penalties for nonwillful violations increase from up to $5,000 per occurrence and $20,000 for all violations arising from the same action, to $12,500 per occurrence and $50,000 for all violations arising from the same action. For nonwillful violations arising from covered losses or claims related to a declared emergency, the penalties will increase up to $25,000 per occurrence and $100,000 for all violations arising from the same action.

As under current law, the penalties for willful violations are much higher than those for nonwillful violations. SB 7052 provides that the penalties for willful violations related to declared emergencies will be up to $200,000 ($1,000,000 aggregate) and for other circumstances will up to $100,000 ($500,000 aggregate).

Required Notice for Temporary Suspension of Writing New Residential Property Policies—  With limited exceptions, the bill requires an insurer to notify the Office of Insurance Regulation “before temporarily suspending writing new residential property insurance policies in this state.” The notice must specify the insurer’s reasons for the suspension, the effective dates of the suspension, and the proposed communication to agents. The notice must be provided on a form to be adopted by OIR rule.

Determination of Hazardous Condition—  SB 7052 establishes standards by which the OIR may determine that an insurer is in hazardous condition. The bill includes 30 standards for the OIR in making this determination, including a broad discretionary standard. Some of the statutory standards include adverse findings in examinations, the sufficiency of an insurer’s reinsurance program, the magnitude of operating losses, and the insurer’s reliance on debt or capital infusions. The bill then allows the OIR to issue an order addressing the identified concerns, including among other things reducing writings, filing additional reports, correcting governance deficiencies, and adjusting rates.

Altering Adjuster’s Reports—  The bill defines as an unfair trade practice altering an insurance adjuster’s report without (i) providing an explanation of changes reducing the estimate of loss, (ii) including a list of changes to the report and the identity of persons making them, and (iii) retaining all versions of the report.

Identification of Discounts—  By October 1, 2023, a residential property insurer must provide information on its website describing the mitigation discounts available to policyholders. The information must be accessible on, or through a link located on, the website’s home page or the primary page for policyholders or applicants for property insurance coverage in Florida. The bill also requires the Office of Insurance Regulation by January 1, 2025, and every five years thereafter, to reevaluate the discounts.

Regulatory Filing of Claims Manuals—  Each authorized residential property insurer will be required to file its claims manual by August 1, 2023, and annually thereafter by May 1. At a minimum, the claims manual must address eight areas listed in the bill including the process for receiving and acknowledging initial claims, making estimates of covered damages, paying or denying claims, and complying with applicable laws pertaining to claims-handling.

Limitation on Cancelling or Nonrenewing Damaged Property—  SB 7052 amends an existing law that limits cancellation or nonrenewal of policies covering property damaged in a hurricane or wind loss. As revised, the law would preclude a residential property insurer from cancelling or nonrenewing a policy for a period of 90 days after the property has been repaired for property damaged as a result of a declared emergency that also is subject to an order filed by OIR, and until the earlier of the repairs or one year after the insurer’s final payment for property damaged by any other hurricane or wind loss. The revised law would encompass property damaged in Hurricane Ian and Hurricane Nicole.

Reduced Time to Response to Service Requests—  The bill reduces the time for insurers to respond to service requests (typically received from the Department of Financial Services) from 20 days to 14 days. The bill also increases the penalty for a late response from $2,500 to $5,000.

Consideration of Law Changes in Rate Filings—  On and after July 1, 2023, every residential property insurer and motor vehicle insurer will be required in its rate filings to reflect the projected savings associated with reductions in claims frequency, severity and loss adjustment expenses due to 2021, 2022 and 2023 law changes. The bill authorizes the OIR to contract with a vendor to assist in evaluating the combined effect of the recent law changes. The bill is not intended to create a mandatory minimum rate decrease for insurers, but instead to ensure that filed rates are not excessive, inadequate or unfairly discriminatory while allowing insurers a reasonable rate of return. This law change does not apply to reinsurance cost filings submitted pursuant to Section 627.062(2)(k), Florida Statutes.