The Florida property and casualty insurance market is a dynamic one faced with many public policy issues due to this state's unique geography and population diversity. This ensures that the Florida legislature takes up a range of property and casualty insurance issues each year, and the recently concluded 2013 legislative session was no exception. The session began with policymakers discussing proposals to dramatically reduce the Florida government's involvement in the insurance market, whether in the role of a primary insurer as with Citizens Property Insurance Corporation or as a reinsurer in the form of the Florida Hurricane Catastrophe Fund. However, by the time the session ended, the most aggressive proposals had been neutralized and some had fallen by the wayside. The end result is a session that will be remembered both for the measures that passed and those that did not.
Citizens Property Insurance Corporation
The legislature adopted Senate Bill 1770 in the session's final days. The bill primarily relates to the role of Citizens Property Insurance Corporation and the extent to which it is a residual insurance market or a market that competes with authorized insurers. In an effort to reduce the number of applicants coming into Citizens, the legislature authorized it to establish a 'clearinghouse' in which personal residential applications will be posted for authorized insurers to review for at least two business days before Citizens will write the policy. The clearinghouse process will render an applicant ineligible if he or she receives an offer of coverage that is within 15% of Citizens' rates for new business. For existing Citizens business, the legislature has determined that policyholders will be ineligible if they receive offers of coverage at or below the Citizens rates.
Lawmakers also became concerned with the substantial coverage limits Citizens writes for its personal residential policies. The legislature decided in SB 1770 to gradually reduce the maximum personal residential dwelling limits that Citizens may write. The maximum limit will decline from $2 million to $1 million as of January 1, 2014. Thereafter, it will be reduced by $100,000 per year until it reaches $700,000 as of January 1, 2017. The limit will remain at $1 million, however, in any area for which the Office of Insurance Regulation determines there is not a reasonable degree of competition. The legislature also will prohibit new construction seaward of the coastal construction control line from being eligible for a Citizens policy if permitted on or after July 1, 2014. The reforms set forth in SB 1770 now will be presented to Governor Rick Scott, who may sign the bill into law, allow it to become law without signature or veto it.
Notably absent from SB 1770 is a provision that would require Citizens to charge actuarially sound rates for new business. Under current law, Citizens must limit its rate increases from year to year such that no policyholder receives an increase of more than ten percent.1 Some lawmakers believe Citizens should retain this so-called glide path toward actuarial soundness for existing policyholders, but that Citizens should not compound its exposure problem by continuing to accept new business at artificially low rates. Over the course of the session, however, proposals to increase Citizens' rates for new business fell victim to compromises and were not included in the final bill. The legislature also did not authorize Citizens to loan part of its surplus to insurers in the form of surplus notes in exchange for their removing substantial numbers of policies from Citizens. Proposals to make Citizens subject to bad faith lawsuits also were not included in the final bill.
Florida Hurricane Catastrophe Fund
During the last two legislative sessions, the Florida Hurricane Catastrophe Fund ('FHCF') has advocated reducing its maximum reimbursement obligations to participating insurers. Current law requires the FHCF to make $17 billion in single-season reimbursement capacity available to participating insurers.2 The FHCF has become concerned, however, that it might have difficulty issuing enough bonds to fully meet these reimbursement obligations. The 2013 legislature considered proposals to reduce the FHCF's single-season capacity to $14 billion over a three-year period. However, some lawmakers were concerned that reducing the size of the FHCF would cause upward pressure on participating insurers' rates. In addition, insurers actively writing personal residential insurance in Florida expressed concern that shrinking the FHCF would reduce their capacity to write new business, which increases the state's overall exposure to assessments through increased writings in Citizens. Ultimately, these positions produced a stalemate and the legislature did not make any changes to the size or retention of the FHCF.
Salary Tax Credit
A longstanding provision of Florida law allows insurers to apply a credit of 15% of the compensation paid to Florida employees against their premium tax obligations.3 This salary tax credit encourages insurers to employ Floridians to administer their business and has been helpful in attracting a number of insurance service centers to Florida. A proposal originating in the Florida Senate this year threatened to repeal this salary tax credit and provide a corresponding benefit to consumers in the form of reduced motor vehicle registration fees. Repealing the credit reportedly would have generated about $220 million in revenue, which would have resulted in a reduction of $12 for each vehicle registration.
The Florida House of Representatives did not support repealing the salary tax credit. The House instead proposed to leave the credit intact while gradually reducing vehicle registration fees over a period of several years. The Senate attempted to force the House's hand on this issue by attaching the salary tax credit repeal to a House bill that primarily contained non-controversial insurance-related issues.4 However, the House maintained its opposition to the salary tax credit repeal and allowed the bill to die.
Holding Company Registration Requirements
Florida's holding company statutes and regulations have not been updated for many years, and after the 2013 session this will continue for at least another year. Current holding company laws adopt NAIC model acts and regulations as they existed on November 30, 2001.5 The Florida Administrative Procedure Act provides strict requirements relating to agencies' rulemaking. In general, an administrative agency in Florida may promulgate rules only when the legislature has provided a specific statutory grant of rulemaking authority.6 The Office of Insurance Regulation therefore has difficulty adopting the full scope of more recent model acts and regulations by administrative rule.
The OIR in the months leading up to the 2013 legislative session prepared draft legislation that would modify various statutes to conform to the NAIC model holding company act's provisions and allow for updates to OIR rules. This culminated in the introduction of Senate Bill 836 in the Florida Senate and identical House Bill 821 introduced in the Florida House of Representatives. The bills would have created a new section 624.085, Florida Statutes, setting forth several definitions to be used throughout the Florida Insurance Code such as definitions of 'affiliate' and 'control.' The bills also would have made certain changes to Florida's risk-based capital ('RBC') provisions at section 624.4085, Florida Statutes.
Additionally, the bills would have specified that in conjunction with their annual statement filings, insurers would need to provide their actuarial opinion summaries. Other changes would have altered provisions of Section 628.461, Florida Statutes, relating to acquisition statement filings to include, among other things, requirements relating to the evaluation of enterprise risk. The insurance holding company statutes likewise would have been amended to require groups to file enterprise risk reports with the lead state office of the holding company system as determined in accordance with the NAIC's Financial Analysis Handbook. These revisions progressed through the Senate but were not taken up by the House. The existing holding company registration and acquisition statutes therefore remain intact.
Product Certifications and Filings
The Florida Office of Insurance Regulation issued orders in 2012, most recently including Order 130176-12, exempting all property and casualty insurance forms (other than those for workers' compensation insurance) from the review and approval process of Section 627.410, Florida Statutes. Pursuant to the orders, an insurer may certify that its forms comply with applicable laws and use them 30 days after filing the forms with the OIR for informational purposes.
In the 2013 legislative session, the legislature in SB 468 codified the forms certification process, but only for commercial property and casualty insurance. Personal lines and workers' compensation are specifically carved out of the statutory change and therefore will be subject to the forms review and approval process. The new statute is effective July 1, 2013, assuming the bill becomes law. The legislature also expanded the lines of commercial insurance that are not subject to prior rate review and approval under Section 627.062, Florida Statutes. Newly exempted lines include medical malpractice insurance for facilities that are not hospitals, nursing homes or assisted living facilities, and medical malpractice insurance for health care practitioners who are not dentists, physicians, osteopathic physicians, chiropractic physicians, podiatric physicians, pharmacists or pharmacy technicians.
All of the bills that passed in the recently concluded legislative session will be presented to Governor Rick Scott, who then may sign them into law, allow them to become law without signature or veto them. For additional details regarding the 2013 legislative session and to update the Governor's action on these bills, please see the legislative updates provided at www.radeylaw.com.
1. §627.351(6)(n), Fla. Stat.
2. §215.555, Fla. Stat.
3. §624.509, Fla. Stat.
4. HB 635 (2013). The bill addressed topics such as allowing drivers to provide proof of insurance in electronic format, allowing third party administrators to file financial reports on a fiscal year basis, and revising agency licensing and registration provisions.
5. Section 628.801, Fla. Stat.
6. See generally Section 120.536, Fla. Stat.