Fla. Insurance Council Describes Pending Legislation

April 27, 2006

The Florida House Insurance Committee and the House Fiscal Council have approved CS/CS/HB 7225, and according to the Florida Insurance Council, the next stop is the full House. FIC released a side-by-side comparison of insurance legislation now in the House and Senate.

There is an accompanying fill to HB 7225, CS/HB 7227, creating the trust fund for mitigation loans. The main Senate package is CS/CS/SB 1980. It was approved by the Banking & Insurance Committee on April 7 and the Senate Ways & Means Committee on April 17 and is ready for the full Senate.

Citizens Property Insurance Corp. (the primary focus of both bills)

High-valued homes removed from Citizens

House bill: Effective Jan. 1, 2007, a personal lines residential structure with a dwelling replacement cost of $1 million or more or condominium unit with combined dwelling and content replacement cost of $1 million or more would not be eligible for coverage in the Citizens High Risk Account.

Senate bill: $1 million-plus structures would become ineligible for the HRA on July 1, 2011. Effective Jan. 1, 2007, these structures would be subject to a 25 percent surcharge. Homes valued at $1 million or more already are ineligible for coverage in the Citizens Personal Lines Account.

Homestead/Non-Homestead distinction

Both bills attempt to focus subsidized insurance coverage in Citizens on primary residences. The House bill requires three rejections from admitted carriers and three rejections from surplus lines companies before a seasonal or vacation home would be eligible for Citizens coverage. Coverage on these homes from the regular insurance market could be at unregulated rates (unregulated for excessiveness) if a regular insurer were willing to undertake the risk, as it would be under current law for coverage from the surplus lines industry, which has expressed interest in taking over seasonal and high-valued homes in the HRA.

The House package creates a fourth account in Citizens for seasonal property that does qualify for coverage and moves to guarantee higher rates in that account. Rates would be based on losses in a 250-year hurricane season, not a 100-year season, as is the case in Citizens’ other accounts. In addition, if there were deficits in this new seasonal dwelling account, assessments would be limited to policyholders in this new account. Assessments could be up to 100 percent of the premium. The transfer to homestead and non-homestead accounts would begin by Oct. 1.

The Senate package takes a different approach to reducing the subsidy paid by homeowners on vacation homes. It creates a 25 percent premium surcharge for non-homestead property and, in the event of a deficit and statewide assessments, an additional 25 percent surcharge on seasonal or vacation property owned by non-Florida residents.

Definitions of Homestead property

Both bills have a broader definition of homestead property than qualifying for a property tax homestead exemption. The House bill: “Homestead” includes properties that qualify for the homestead tax exemption, owner-occupied mobile homes, rental property, nonprofit hospitals and commercial-residential property. The Senate bill: properties that qualify for the homestead tax exemption, certain owner-occupied mobile homes, rental property valued at $200,000 or less and commercial residential property.

Sales tax appropriations

The Senate bill appropriates $750 million toward the looming $1.7 billion Citizens Property deficit and assessment. The House package appropriates $920 million toward the Citizens’ deficit. The money in the two bills would apply toward the pending 10 percent regular assessment and a 1 percent regular assessment from the Personal Lines Account/Commercial Lines Account on most property & casualty insurance policies throughout the state. The regular assessments would be offset totally under the House package, and would be almost offset in the Senate bill. Unless the $1.7 billion overall deficit is fully funded, Citizens apparently would still impose an 8 percent emergency assessment. According to legislative bill summaries, this could be spread out over several years so the annual surcharge on policyholders would be minimal.

Future sales tax appropriations

It is not addressed in the big hurricane packages, but the House Insurance Committee and Senate Banking & Insurance Committee have passed bills (HB 551, SB 1012) providing for future sales tax revenue appropriations for the insurance system. The State Board of Administration would administer a program dedicating windfall sales tax revenues to Citizens Property Insurance Corporation, the Florida Hurricane Catastrophe Fund and hurricane loss mitigation programs on a recurring basis, under certain circumstances.

Reduction of Citizens High-Risk Account territories

Under legislation creating Citizens Property Insurance Corporation several years ago, a so-called “choke-down” provision takes effect next year. The Citizens board will be required to reduce territories in the wind-only High-Risk Account to achieve a 25 percent reduction in the PML in 2007 and reduce boundaries again to achieve a combined 50 percent reduction in the PML in 2012. The House bill moves the 2007 deadline to 2013 and the 2012 deadline to 2018. The postponements in the Senate bill are until 2009 and 2014.

The House bill also creates the Citizens High Risk Eligibility Panel to make annual reports to the Legislature on areas that should be declared eligible or ineligible for HRA coverage. The first report is due Nov. 1. so it is conceivable that based on this group’s recommendations, the Legislature could revise the HRA boundaries in 2007.

Ex-Wind insurers servicing Citizens High-Risk Account policies

The Senate bill requires underlying peril carriers on High Risk Account policies to contract with Citizens to adjust hurricane claims. This is not in the House bill. Both bills do require that Citizens report to the Legislature by Feb. 1, 2007 on the feasibility and cost benefits of requiring ex-wind carriers to service Citizens wind-only policies.

Citizens takeout bonuses

The House bill provides that takeout bonuses are limited to $100 effective January 1, 2008. The Senate bill requires that insurers must hold a risk for five years to qualify for a takeout bonus. It requires Citizens to track whether policies are winding up back in Citizens after the takeout bonus has been earned.

Citizens keep-out proposal

The Senate bill provides effective July 1, 2007, coverage in Citizens would not take effect until 10 days after the application, except for coverage in connection with a real estate closing and other exceptions to be established by the Citizens board. Information on the application would be available to any interested agent throughout the state, who would have an opportunity to place the risk with a private carrier. Consumer Choice, allowing an agent or policyholder to veto an offer from another carrier * generally a takeout company * would not apply during this 10-day window. Not in the House bill.

Citizens rate standards

The House bill requires rates in the three Citizens homestead accounts to cover a 100-year PML, using premiums, Cat Fund reinsurance, bonding, state revenues or long-term debt. For the new non-homestead account, Citizens must charge rates to cover a 250-year PML using the assets described above. The House bill requires Citizens to include a residual market risk load in its rates and include reinsurance costs even if Citizens does not purchase reinsurance.

The House bill allows Citizens to make a use and file filing and stipulates it is deemed approved unless OIR makes a decision within 90 days. It requires that the actuarially sound rates currently being created for Monroe County and the Florida Keys as part of the statewide actuarially sound Citizens rate filing be phased in over three years. Not in the Senate bill.

Under the Senate bill, rates for non-homestead property in Citizens must include a 25 percent surcharge. In the event of a Citizens deficit, rates for non-homestead property would face a second 25 percent surcharge. Rates for wind-only coverage from the HRA for property insured at $1 million or more must include a 25 percent surcharge.

The Senate bill makes the current requirement that Citizens rates not compete with private market rates inapplicable in a county where, according to OIR, no private carriers are writing windstorm coverage. It requires use of the public hurricane model as a benchmark for Citizens rates once it has been approved by the state modeling commission.

Citizens ethics

Both bills establish a code of ethics for Citizens officers and employees, including a financial disclosure requirement, much of which has already been implemented by the Citizens Board of Directors. One bill or another – and perhaps both – requires that Citizens lobbyists be full-time employees, the case now, and strongly encourages that the general counsel be a full-time employee, which just became the case.

Citizens oversight

The Senate bill requires that Citizens Plan of Operations be approved by the Financial Services Commission, not the Office of Insurance Regulation and requires Senate confirmation of the executive director of Citizens. Not in the House bill.

Other important provisions

Both hurricane insurance bills also:

* Require Citizens policyholders to be included in the deficit calculation and division to spread the deficit assessment over more policyholders and reduce the amount of any deficit.

* Continue Consumer Choice allowing an agent or policyholder in Citizens to veto a takeoff offer from another carrier. The Senate bill does provide that Consumer Choice would not apply during a 10-day “keep-out” provision established in the Senate proposal under certain circumstances.

* Prohibit Citizens from filing for voluntary Chapter 9 bankruptcy as long as it has outstanding bonds.

One bill or another also:

* Requires Citizens to offer semiannual and quarterly premium payment plans (Senate).

* Requires Citizens to report to the Legislature on the feasibility of consolidating its three existing accounts and actions being taken to minimize the cost of carrying debt (Senate).

* Establishes immunity for agents in the event of the insolvency of a takeout company (House).

* Provides that a false declaration of homestead status to obtain Citizens coverage is insurance fraud (House).

Florida Hurricane Catastrophe Fund

Rapid cash buildup

Both bills mandate a 25 percent rapid cash buildup factor in Cat Fund premiums. This would be a surcharge in addition to the premium calculated for insurers each year under a formula administered by the State Board of Administration. The SBA Trustees (Governor Jeb Bush, Chief Financial Officer Tom Gallagher and Attorney General Charlie Crist), have always had the discretion to impose a rapid cash buildup surcharge, but used it for the first time this spring. They approved a 25 percent factor that will generate an additional $200 million for a total Cat Fund premium of $1 billion. The goal of the surcharge, which would become mandatory under both the House and Senate bills, is to expedite the rebuilding of significant Cat Fund cash reserves, reducing the amount of money the fund might have to borrow through bonding.

Bonding procedure revisions

The two bills also include language recommended by the Cat Fund to expedite bonding to cover the anticipated $1.35 billion deficit from the 2005 hurricane season. The language clarifies that the Cat Fund no longer needs to go through a bond validation process that includes Florida Supreme Court review. It also clarifies that premiums are subject to assessments for funding bond obligations and the procedures for insurers to collect and transmit these assessments. There are other Cat Fund clarifications in the packages as well.

Medical malpractice exemption

Both bills continue until June 1, 2010, the exemption from Cat Fund assessments for medical malpractice insurance premium. The exemption currently expires on June 1, 2007. There is no extension of the medical malpractice insurance exemption in the House package.

Reduced retention

The latest House bill allows limited apportionment companies to buy additional layers of Cat Fund coverage kicking in after losses exceed one-third of their surplus for the 2006 hurricane season. Here is the limited apportionment company proposal: The Florida Hurricane Catastrophe Fund “shall make available to those insurers qualifying as limited apportionment companies under s. 627.351(2)(b)3, a contract which cedes to the Fund, after retention, an amount equal to or up to 50 percent of surplus reported by such company as of June 1, 2006. The rate to be charged for this coverage shall be 50 percent rate-on-line which includes one prepaid reinstatement. The minimum retention level that a carrier must retain is 30 percent of surplus as of June 1, 2006.

The House bill also eliminates the $50 million cap on Citizens Property Insurance Corporation assessments for limited apportionment companies, subjecting LACs to a full share of Citizens assessments like other insurers. It would allow limited apportionment companies up to 12 months to remit their assessments.

There is nothing comparable in the Senate bill, but the issue remains under serious consideration. Senate Banking & Insurance Chairman Rudy Garcia, R-Hialeah, continues to work on various options to reduce the deductible paid by carriers before Cat Fund payments begin. Garcia has been considering two approaches – one similar to the House approach on limited apportionment companies;” and another plan allowing all carriers the option of buying down their proportionate share of the current $5.3 billion retention to their share of $3 billion.

Without legislative change, the primary retention for 2006 would be $5.3 billion, with insurers paying their proportionate share of that amount as a deductible for the two largest storms. The so-called drop-down retention, after the two biggest hurricanes if there are three or more, would be $1.7 billion, with each insurer paying its proportionate share of that.

Cat Fund protection amendment

While it is not in the major hurricane insurance packages, insurance committees in both chambers have passed proposed constitutional amendments requiring a three-fourth’s majority vote if more than $10 million a year is appropriated by the Legislature from the Cat Fund for spending for mitigation or other purposes in the state budget.

Hurricane loss mitigation

Mitigation appropriations

The House package appropriates $100 million to a mitigation endowment program, $392.5 million to the Department of Financial Services for a comprehensive mitigation program and $7.5 million to the Department of Community Affairs for mobile home mitigation. The Senate package appropriates $50 million to DCA for home retrofitting and $5.5 million to DCA for certification and inspection programs.

Mitigation endowment

The House bill creates the Florida Hurricane Damage Prevention Endowment within DFS as a permanent funding source for mitigation, primarily through home improvement loans.

The House bill appropriates $100 million for the Florida Hurricane Damage Prevention Endowment to provide through the Department of Financial Services and participating private lending institutions no-interest loans for hurricane damage mitigation and prevention.

Priorities would be 1) single-family dwellings covered by Citizens High Risk Account areas; 2) single-family homes covered by Citizens in its Personal Lines Account; 3) privately-insured, single family homes more than 40 years old; 4), all other single-family homes; and 5) all other residential properties. Loans would be available only on properties insured at $500,000 or less. Homeowners participating in the program would have to obtain a hurricane mitigation inspection, which could be funded in the loan. There is nothing comparable in the Senate bill.

Mitigation grants

The Senate package appropriates $50 million to DCA to establish the Home Retrofit Hardening Program as a competitive grant program administered by local governments, regional planning councils or private nonprofit agencies.

Grants of up to $10,000 would be available, with priority given to: 1) low income homeowners living in windborne debris regions as defined in the Florida Building Code; 2) dwellings insured at $500,000 or less and located in Citizens High Risk Account areas; and 3) all other homestead dwellings insured at $500,000 or less. The program would include an inspection to determine appropriate mitigation measures and procedures to ensure that the money was used for retrofitting.

The House bill creates the Florida Comprehensive Hurricane Damage Mitigation Program with a $392.5 million state appropriation. The program includes four major areas – hurricane mitigation inspections, hurricane mitigation grants, hurricane mitigation loans and education and consumer awareness.

DFS would develop a program providing cost-free hurricane mitigation inspections to single-family homes; a process for contractors to be reimbursed for installation of hurricane mitigation measures on qualified homes; and multi-media consumer education initiatives, including a referral program.

Mitigation inspection programs

The Senate bill appropriates to DCA $5.5 million to contract with private firms to provide wind certification and hurricane mitigation inspections to homeowners at no cost. The reports could be made available to potential buyers who, hopefully, would be educated to ask for them. The House bill provides for inspections through the hurricane damage mitigation plan described above.

Mitigation discounts, deductible options

The House plan requires the Office of Insurance Regulation, in conjunction with the Florida Insurance Council and many other parties, to develop objective rating standards for wind resistance, including enhanced new construction and retrofitting.

Once the rating standards are developed, insurers will be required to provide policyholders who complete designated mitigation steps the option of selecting an appropriate reduction in the policy’s hurricane deductible or selecting the appropriate discount credit or other rate differential. The insurer must provide the policyholder with notice of the options available under this subsection on a form approved by the office (OIR).” Not in the Senate bill.

Stronger building code

This is another related issue. The Senate and House are considering bills (CS/SB 1336, HB 1187) repealing the Panhandle exemption from true implementation of the windborne debris regions in ASCE 7-98, adopted as part of Florida’s Uniform Statewide Building Code. The effect of the repeal would be to require storm shutters or impact-resistant glass on new construction in Franklin through Escambia counties wherever recommended by the American Society of Civil Engineers, probably an average of five miles from the coast. The current “Panhandle carve-out” limits shutter requirements to one mile from the coast in these counties, regardless of the ASCE recommendations.

Insurance ratemaking

Flex rating

The House package implements flex rating for residential property insurance, effective Jan. 1, 2007. Carriers could raise or lower residential insurance rates up to 5 percent statewide and 10 percent in a single rating territory without OIR approval, except that disapproval would be allowed on the grounds the rate was inadequate or unfairly discriminatory. Insurers would have to make the flex rating filing 30 days before implementing it to allow time for the OIR review and could use flex rating only once a year. There is no flex rating plan in the Senate bill.

Relaxed regulation on $1 million-plus homes

The House package also allows regular market insurers to compete with the surplus lines industry and cover $1 million-plus dwellings and seasonal property no longer eligible for Citizens without Office of Insurance Regulation rate regulation for excessiveness. This is not in the Senate plan, although the Senate proposal does place the burden on OIR to establish that a rate is excessive for personal lines residential coverage with insured value of $1 million or more.

Ratemaking in Citizens HRA areas

The House plan provides for automatic approval of private insurer rates for risks in Citizens’ High Risk Account if they are lower than the Citizens rates approved by OIR. This is not in the Senate bill.

Ratemaking/Non-Homestead property

The House bill allows an insurer to provide coverage for non-homestead property as defined for the purpose of Citizens eligibility on an individual risk rate basis. Not in the Senate bill.

Reinsurance costs

Both bills allow full recoupment of reinsurance costs “consistent with prudent business practices and actuarial principles.” The burden is on OIR to establish that reinsurance costs presented by a company are excessive and inappropriate.

Sworn statements by insurance company CEO’s

The Senate bill requires the chief executive officer and the chief financial officer of a property insurer or the CPA acting on their behalf, to sign a sworn statement of certification to accompany a rate filing “on the appropriateness of the information and the rating factors specified in the rating law.” This is not in the House bill.

Dual-interest claims checks

Both bills require insurers to issue checks for emergency living expenses and contents damage directly to policyholders and not through a dual endorsement check. There is another provision in the Senate bill, but not the House plan. Insurers would be required to issue a separate check to the policyholder for the lesser of $20,000 or the first 20 percent of the estimated total covered claim amount for the replacement or repair of dual interest (mortgaged) property.

Emergency rule “Playbook”

Both bills have language based on a concept developed by FIC to require the Cabinet to adopt, through the regular rule-making process, standards for emergency rules to be imposed following a hurricane.

The Financial Services Commission would be required to adopt rules standardizing requirements that may be applied to insurers after a hurricane, addressing claims reporting requirements, grace periods for payment of premiums and temporary postponement of cancellations and non-renewals. The House bill provides that emergency rules issued during hurricane season cannot conflict with the templates in the permanent rules. This is not in the Senate bill, causing some insurers to question the effectiveness of the “playbook” in the Senate bill.

The Senate bill authorizes Office of Insurance Regulation Commissioner Kevin McCarty to issue emergency rules following a hurricane, rather than requiring emergency rules to be adopted by the Cabinet, sitting as the Financial Services Commission, which is current law. This is not in the House bill, so emergency rules would continue to be the purview of the Cabinet.

Hurricane loss projection models

Public model review by Modeling Commission

Under the House bill, OIR cannot use the public hurricane loss projection model developed by Florida International University to test rate filings based on private models until it has been submitted to and approved by the state hurricane loss projection modeling commission. The Senate package allows OIR to continue to use the public model until and unless it is disapproved by the state modeling commission.

OIR Ability to challenge carriers’ use of models

Under the House bill, models approved by the state commission may be used by insurers in rate filings only if OIR and the insurance consumer advocate have a reasonable opportunity to review the basic assumptions (instead of having access to all assumptions and factors under current law.) OIR and the consumer advocate may not pose questions to insurers that duplicate or compromise the conclusions of the state modeling commission after it certified the private model or models. Not in the Senate bill.

Florida Insurance Guaranty Association

Both bills provide FIGA an additional 2 percent assessment authority and authorize FIGA to contract with local governments to issue tax-exempt bonds without the necessity for a special legislative session. They increase FIGA benefits from $300,000 to $500,000.

Holdbacks in replacement cost coverage

The House bill partially repeals the ban on holdbacks in replacement cost coverage included in the 2005 Legislature’s big hurricane package. The new language limits the ban on holdbacks to dwelling coverage and does not apply it to contents coverage. This is not in the House bill.

Calculation of replacement costs

The House bill clarifies that the insurer retains the right to determine whether an item can be repaired or whether it should be replaced. The insurer may provide that replacement cost is the lesser of the limit of liability on the declarations page, the reasonable and necessary cost to repair or the reasonable and necessary cost to replace. Not in the Senate bill.

Surplus lines insurers

Both bills allow the use of irrevocable letters of credit from a U.S. financial institution to fund the trust fund required to be maintained by alien insurers.

Mobile homes

Mobile Home Task Force

The House bill creates a Task Force on Hurricane Mitigation and Hurricane Insurance for Mobile Homes and Manufactured Homes to be appointed by the governor, chief financial officer, House speaker, Senate president and others and make recommendations by Jan. 1, 2007.

The task force is charged with making “recommendations to the Legislative and executive branches of this state’s government relating to the creation and maintenance of insurance capacity in the private sector and public sector which is sufficient to ensure that all mobile and manufactured home owners*are able to obtain appropriate insurance coverage for hurricane losses, and relating to the effectiveness of hurricane mitigation measures for mobile or manufactured homes.” This study is not in the Senate bill.


The House bill appropriates $7.5 million to the Department of Community Affairs for mobile home mitigation. There is no mitigation program specifically for mobile homes in the Senate bill.

Attached or free-standing structures

The House bill requires the Office of Insurance Regulation to report by Jan. 1, 2007 on “the insurability of attached or free-standing structures to residential homes, mobile or manufactured homes, such as carports or pool enclosures.” This is not in the Senate bill.


Sen. Mike Fasano, R-New Port Richey, and Rep. John Legg, R-Port Richey, are developing key sinkhole bills (CS/SB 286, CS/HB 217) supported by FIC. This is an important issue to Citizens because sinkhole litigation problems have turned Citizens Personal Lines Account into a leading writer in Tampa Bay, especially in Pasco and Hernando counties.

This has increased Citizens overall wind exposure in the region dramatically and probably unnecessarily. The sinkhole legislation was passed by Senate Banking & Insurance as part of the big hurricane insurance package and also as a separate bill. It is riding as a separate bill in the House.

The Fasano/Legg package allows insurers to offer sinkhole deductibles of 1, 2, 5 & 10 percent of dwelling limits; allows insurers to pay a contractor directly for sinkhole repairs; and requires insurers to report sinkhole claims to the county clerk.

One of the most significant provisions in the package creates a mediation program operated by “neutral evaluators” appointed by the Department of Financial Services that can be requested by either the insurer or policyholder. If the evaluator finds basis for denial of a sinkhole claim and the policyholder goes to court anyway, the insurer would not be liable for attorneys’ fees, even if they prevailed. The insurer would be required to pay the claim. This remains in the sinkhole section of the big Senate hurricane package. It was stricken from the stand alone SB 286 by the Senate Judiciary Committee April 25. It remains in the House companion, HB 217.

Other provisions

Both hurricane insurance bills also:

Allow insurers to make electronic payment of insurance payments of insurance claims without written authorization, under certain circumstances.

Clarify that if an insurer does not obtain a written rejection from the policyholder for law and ordinance coverage, the policy is deemed to include the 25 percent coverage option and not the 50 percent coverage option.

One bill or another also:

Requires the Financial Services Commission to issue an annual report to the Legislature on probable maximum losses, funding options, potential assessments of Citizens and the Cat Fund and the assessment burden on Florida policyholders (Senate).

Exempts from the annual filing requirement companies with fewer than 500 homeowners or mobile homeowners policies (House).

Effective dates

House bill, July 1, except as otherwise provided. Senate bill, upon becoming law, except as otherwise provided.

Source: Florida Insurance Council

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