Florida Insurers Fight Emergency Rule

February 14, 2007

Insurance companies are seeking to invalidate an emergency rule adopted last month by the Florida Financial Services Commission that restricts their right to price and drop homeowners policies.

The rule, 690ER07-01, prohibits all insurance company rate increases, even if lawfully filed, and it retroactively prohibits insurers from canceling or non-renewing homeowner insurance policies.

Attorneys representing the insurers’ Florida Insurance Council has filed petitions for an expedited administrative determination with the state Division of Administrative Hearings and for judicial review by the First District Court of Appeal. They lawyers are also seeking an emergency motion for immediate relief pending a judicial review of the rule.

“We are asking the court to stay the effectiveness of the emergency rule pending a judicial review of the rule,” said Guy Marvin, president of FIC. “We firmly believe that this rule is invalid, and concurrently we have filed a petition with DOAH to invalidate the rule.”

In an affidavit filed along with the petitions, Marvin said the rule “disrupts insurer operations and creates unnecessary havoc and confusion for insurers and policyholders.”

The petitions to DOAH and to the 1st DCA maintain that FIC members are “substantially and adversely affected” by the rule and complain that the rule was issued without proof that an emergency existed.

“There has been no sudden or unforeseeable event to justify emergency rulemaking,” Marvin said.

The insurers are worried that the restrictions on rates and nonrenewals could harm their financial condition.

“Many of our members have high exposures to hurricane risk in the state of Florida. Many of our members have sought to reduce their exposure by nonrenewing policies. In some cases these companies have entered into agreements with other insurers to offer coverage to the policyholders they are nonrenewing. These programs have been in existence for more than a year, and have been often undertaken with the OIR’s knowledge and approval,” the affidavit states.

Insurers say that if they are not able to proceed with these plans, they could face difficulties with rating agancies.

“To stop these exposure reductions in some cases would expose insurers to solvency and rating agency concerns. Strong ratings by ratings agencies are important for insurers to continue to attract capital from investors,” they agrue in their court filing.

Also, if they are forced to stay on a book of business longer than expected, they could experience higher underwriting losses, negative cash flow and a decline in capital.

Insurers argue that their projected probable maximum hurricane loss could be higher for the 2007 and 2008 seasons as a result of the nonrenewal prohibitions, requiring them to purchase more reinsurance than planned for or alternatively leading to a rating agency valuation drop, they maintain.

Insurers further maintain that the emergency rule will create confusion in the marketplace. “At best insurers are forced to track down thousands of policyholders and advise them their nonrenewals have been rescinded. At worst it leaves insurers unable to determine which insurer is responsible for paying losses if the policyholder has found new coverage. It will be difficult in most cases to determine whether a policyholder desires to continue coverage or has found replacement coverage. Many, if not the majority of policyholders, will have secured alternative coverage, will not respond to insurer inquiries, will not pay for coverage and will ultimately be canceled for non-payment,” they argue.

The dockets in both actions can be viewed on each court’s website by going to the following links: www.1dca.org and click on Online Docket then in the window for case number type 754 to complete the case number. For the DOAH docket, go to www.doah.state.fl.us and type in case number 07-000746RE.

Source: Florida Insurance Council

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