United States: Florida Insurance Legislation 2010 (Updated): Ambitious Goals, Limited Success, and Gubernatorial Vetoes

When the Florida Legislature began its 2010 regular session on March 2, 2010, the insurance industry and its supporters hoped to achieve several ambitious goals. By the time the session ended on April 30, 2010, the industry was forced to settle for a few minor successes.

After Florida Governor Charlie Crist vetoed 2009 legislation that would have deregulated residential property insurance ratemaking for certain highly capitalized companies, proponents of deregulation hoped that in 2010 they would be able to pass a rate deregulation plan that addressed some of the governor's objections. Other insurers sought legislation to address the state's dramatic increase in auto insurance claims fraud. A legislative task force recommended a complete rewrite of the laws regulating title insurance. None of these initiatives succeeded.

The Legislature did, however, enact measures affecting solvency, regulatory authority over affiliates, property insurance claims, rate deregulation for commercial insurance, guaranty funds, and other important matters. Gov. Crist, who recently left the Republican Party and is running for election to the U.S. Senate as an unaffiliated candidate, vetoed two of these bills along with several other bills that were top priorities for the leaders of the Legislature's Republican majority.

This article describes the highlights of these and other insurance-related enactments.

Property Insurance

SB 2044 (http://tinyurl.com/38lzr6t ) was vetoed by the governor on June 1, 2010, even though Insurance Commissioner Kevin M. McCarty had urged Gov. Crist to sign the bill. The bill was the product of negotiations between property insurers and the Florida Office of Insurance Regulation (OIR). Had it become law, it would have addressed several issues that were sought by the OIR, including increased surplus requirements and increased regulatory authority over managing general agents and other affiliates. The bill also contains provisions sought by insurers, including restrictions on public adjusters. The major changes proposed in the bill included:

• Minimum surplus: The bill required new residential property insurers to maintain at least $15 million in surplus as to policyholders. For existing residential property insurers, the minimum surplus was raised to $5 million through July 1, 2015, $10 million from that date through July 1, 2020, and $15 million thereafter. Under current law, residential property insurers must maintain minimum surplus of $4 million.
• Affiliates and managing general agents: When a residential property insurer sustains a loss of surplus of 15 percent or more in a year, it would have been required to provide the regulator with detailed financial information about all affiliates. The bill also would have expanded regulatory authority by allowing the regulator to examine any managing general agent as if it were an insurer and requires any insurer to change the accounting firm used to prepare its annual report once every five years.
• Claims: The bill required all claims for residential windstorm or hurricane losses to be filed within three years after the date the windstorm caused the loss or the hurricane made landfall. The bill also provided that under replacement cost coverage, the insurer may hold back a portion of the payment for dwelling losses, but it did not change the current prohibition on hold-backs for replacement cost coverage of personal property.
• Public adjusters: SB 2044 imposed several new restrictions on public adjusters, who assist claimants in the settlement of claims. The bill prohibited public adjusters from making certain statements in the course of soliciting business. Public adjusters also were prohibited from preventing insurers' access to an insured person or property. The bill required public adjuster contracts to include specified information and limits commissions on supplemental or reopened claims to 20 percent of the additional claims payment.
• Ratemaking: The bill continued the prohibition against property insurer implementing a rate change before it is approved by the regulator ("use-and-file" rates) through December 31, 2011. It also revised provisions for expedited rate review to allow expedited review of filings that reflect only adjustments in reinsurance costs, financing products used in lieu of reinsurance, and inflation trend factors. The bill also prohibited the regulator from using the ratemaking process to directly or indirectly affect an insurer's decisions regarding agent compensation or appointment.
• CEO/CFO/chief actuary certification: The requirement that an insurer's CEO or CFO and the insurer's chief actuary attest to the truthfulness of a rate filing was modified to provide that the certification is not rendered false if the insurer later submits additional information to the regulator, provided the additional information is submitted in response to a request from the regulator.
• Hurricane loss mitigation: In response to controversies about the size of mandatory hurricane loss mitigation discounts and the quality of mitigation inspections, the bill provided that a rate increase may be justified when the aggregate value of the discounts exceeds the reduction in expected losses from mitigation. The bill also added restrictions on who may conduct mitigation inspections, required that the authorized inspector personally inspect the property, and provided that violations may result in disciplinary actions by the appropriate licensing agencies.
• Citizens Property Insurance Corporation (Citizens): The bill would have delayed for two years a mandated reduction in the size of the area in which Citizens writes windstorm-only policies and other insurers are allowed to write homeowners' policies that exclude windstorm coverage.
• Notice of cancellation or nonrenewal: The bill changed the notice periods for cancellations and nonrenewals to allow a Citizens policy to be replaced with a policy issued by another insurer upon 45 days' advance notice and to allow any property insurer to cancel or nonrenew a policy after 45 days' notice, if the regulator found that the action is necessary to protect other policyholders or the public. The bill also provided that an insurer may renew a residential policy with a change in policy terms after appropriate notice; currently, a change in policy terms may require the nonrenewal and replacement of the policy.

SB 1460 (http://tinyurl.com/35olts2 ) revises the Florida Hurricane Catastrophe Fund contract year. The 2010 bill was enacted in response to the unintended consequences of 2009 legislation that changed the start date of the fund's contract year from June 1 to January 1 and provided for a contract period of seven months, beginning on June 1, 2010 and ending on December 31, 2010, to provide for a transitional period. The accounting consequences of the transitional contract "year" resulted in a reduction to insurers' surplus. SB 1460 restores the June 1 – May 31 contract year and does away with the transitional period.

The bill also provides that insurers must execute their contracts with the Catastrophe Fund three months before the contracts' June 1 effective date (and before the start of the annual legislative session). The purpose of this change is to enhance stability and improve insurers' ability to procure reinsurance economically by providing insurers with early notice of the terms and conditions of their Catastrophe Fund contracts.

The bill limits the size of the "basic" layer of the fund to $17 billion for the contract year until the State Board of Administration determines that the fund has sufficient claims-paying capacity to cover two $17 billion contract years. This provision replaces a provision that tied growth in the fund to growth in exposure.

SB 1460 was approved by the governor on April 15, 2010 and took effect on that date.

HB 7217 (http://tinyurl.com/32hv9zx ) amends a provision relating to Florida Hurricane Catastrophe Fund emergency assessments. Under current law, medical malpractice insurance premiums are exempt from assessment, but the exemption expires on May 31, 2010. HB 7127 extends the exemption for an additional three years. SB 2044 also includes this three-year extension of the exemption.

HB 7127 was signed by the governor on May 27, 2010 and took effect on that date.

Commercial Insurance Ratemaking and Warranty Associations

SB 2176 (http://tinyurl.com/38uyorj ) deregulates ratemaking for most forms of commercial insurance other than workers' compensation. The bill also includes provisions addressing several other areas, including warranty associations, workers' compensation, health insurance, and life insurance. The workers' compensation, health insurance, and life insurance aspects of the bill are discussed below under those respective headings.

The bill allows an insurer to implement rates for most forms of commercial insurance without the approval of the Office of Insurance Regulation, provided that the insurer notifies the regulator of any rate changes no later than 30 days after the effective date of the change. The regulator may subsequently review the rates to determine whether they are excessive, inadequate, or unfairly discriminatory. The affected lines of insurance include commercial motor vehicle insurance covering a fleet of 20 or more self-propelled vehicles, excess or umbrella coverage, surety and fidelity, boiler and machinery, errors and omissions, directors and officers, intellectual property liability, advertising and Internet liability, property risks rated under a highly protected risks rating plan, and other similar commercial lines as determined by the Office of Insurance Regulation.

SB 2176 also substantially revises laws governing motor vehicle service agreement companies, home warranty associations, and service warranty associations. Among other things, the bill eliminates required rate and form filings for all three types of warranty associations, excludes non-consumer commercial motor vehicle service agreements from regulation, provides misdemeanor penalties for unlicensed activities, reduces the number of required financial reports, and makes examinations of warranty associations discretionary rather than mandatory.

SB 2176 was signed by the governor on June 1, 2010, and the provisions relating to warranty associations took effect on that date. The provisions relating to commercial insurance rates will take effect January 1, 2011.

Workers' Compensation

HB 5603 (http://tinyurl.com/39ew9nm ) was vetoed by the governor on May 28, 2010. The bill was a top priority for workers' compensation carriers and also had the support of state CFO Alex Sink, the leading Democratic candidate for governor. Among other things, it addressed an issue that some workers' compensation carriers had identified as a major cost driver. According to the carriers, some pharmaceutical providers repackage or relabel drugs in an effort to avoid fee schedules. HB 5603 provided that statutory limitations on reimbursement for prescription drugs apply regardless of the location or provider from which the claimant receives the medication. The bill specifies a formula for calculating the reimbursement amount for a drug that has been repackaged or relabeled and provides that the maximum price for relabeled or repackaged drugs is the amount that would have been otherwise payable had the drugs not been repackaged or relabeled.

SB 2176 includes several provisions relating to workers' compensation coverage of law enforcement officers. It makes correctional probation officers eligible for the same in-the-line-of-duty presumption relating to tuberculosis, heart disease, and hypertension that currently apply to law enforcement officers, correctional officers, and firefighters. The bill also revises the presumption to provide that the employee is presumed not to have incurred these diseases in the line of duty, if he or she materially departed from the prescribed course of treatment, and to provide that law enforcement officers, correctional officers, and correctional probation officers are not entitled to the presumption regarding that tuberculosis, heart disease, or hypertension were incurred in the line of duty unless a claim for benefits is made no later than 180 days after leaving employment.

These provisions will take effect January 1, 2011.

SB 2046 (http://tinyurl.com/3y8bvbf ) revises provisions governing licensure of employee-leasing companies to remove certain restrictions on change of ownership. Prior approval for the acquisition of a company is no longer required if a controlling person of the company being acquired also is a controlling person of the acquiring company. Existing stockholders or partners no longer need board approval to acquire control from other stockholders or partners, and the Department of Business and Professional Regulation is no longer authorized to conduct an investigation prior to the acquisition of control. SB 2046 also changes the sanctions for failure to pay late fees for license renewals. The failure to pay the late fee will now be grounds for disciplinary action, rather than automatically voiding the license.

SB 2046 was signed by the governor on May 27, 2010 and will take effect July 1, 2010.

Guaranty Funds

HB 159 (http://tinyurl.com/3y8bvbf ) revises various provisions relating to the Florida Insurance Guaranty Association (FIGA), the Florida Life & Health Insurance Guaranty Association (FLAHIGA), and the Florida Workers' Compensation Insurance Guaranty Association (FWCIGA). Several provisions of the bill are intended to make Florida's guaranty fund laws more closely conform to NAIC model laws.

The bill revises the process by which insurers may pass their FIGA assessment costs through to their policyholders. Current law prevents insurers from recouping FIGA assessments until their FIGA costs are included in an approved rate filing. Under HB 159, an insurer may apply a recoupment factor to its premium invoices after providing an informational notice to the regulator. The bill also streamlines FIGA by consolidating two auto insurance accounts into a single account.

HB 159 increases several FLAHIGA coverage limits for deferred annuities while in the accumulation phase to $250,000, removes a prohibition that prevents agents and insurers from mentioning FLAHIGA protections to prospective policyholders, provides circumstances under which FLAHIGA may protect persons who are not Florida residents, and excludes Medicare Advantage policies and several forms of indexed products from FLAHIGA coverage.

The bill also excludes coverage under employer's liability policies from FIGA and covers those claims under FWCIGA, up to the lesser of $300,000 or policy limits.

HB 159 was approved by the governor on May 11, 2010 and will take effect July 1, 2010.

Health Insurance

House Joint Resolution 37 (http://tinyurl.com/333lqwo ) proposes an amendment to the Florida Constitution that would add a section on health care services to the Declaration of Rights if approved by 60 percent of the voters in the 2010 general election.

The constitutional amendment provides that a law or rule may not directly or indirectly compel any person, employer, or health care provider to participate in any health care system. It also provides that a person has the right to pay directly for health care services and that a health care provider has the right to accept direct payment for health care services. It further provides that, subject to "reasonable and necessary rules that do not substantially limit a person's options," the purchase or sale of private health insurance may not be prohibited. These provisions may be superseded by a law passed by two-thirds of the membership of each house of the Legislature.

If approved by the voters, the amendment will take effect January 4, 2011.

SB 2176 includes provisions allowing Medicare-supplement insurers to use inpatient facility networks. Under the bill, a Medicare-supplement insurer may grant a premium credit to insureds who use an inpatient facility within the insurer's network. The bill also authorizes insurers to enter into network agreements with facilities that agree to waive the Medicare Part A deductible. Both the premium credit and the deductible waiver must be factored into the insurer's loss-ratio calculation and policy premium.

These provisions will take effect January 1, 2011.

Life Insurance

HB 885 (http://tinyurl.com/2ws4xom ) amends several life insurance provisions. The bill exempts certain transactions from the requirement that the current insurer be notified of the replacement of a policy. The notice requirement will not apply in transactions involving an application to the current insurer when a contractual change or conversion privilege is being exercised, when a current contract is being replaced by the same insurer with regulatory approval, or when a term-conversion privilege is being exercised among corporate affiliates.

The bill also allows coverage of spouses and dependent children under a group life insurance policy up to the full amount for which the employee is insured, prohibits creation of a class of employees for purposes of a group life policy that consists solely of employees covered under the employer's group health plan, and prohibits the sale or transfer to third parties of annuities that were obtained as part of a settlement to satisfy Medicare secondary payer requirements.

HB 885 was approved by the governor on May 11, 2010 and took effect on that date.

SB 2176 also included a series of life insurance provisions known as the Safeguard Our Seniors Act. The bill revises disclosure requirements for the sale of fixed or variable annuities and provides a 21-day "free look" period for buyers who are 65 years of age or older, instead of the 14-day period applicable to other buyers. It also prohibits surrender or deferred sales charges in excess of 10 percent for annuity contracts sold to senior consumers, subject to some exceptions, and allows the Department of Financial Services to order an insurance agent to pay restitution to a senior consumer who is the victim of misappropriation by the agent. In a provision not limited to senior consumers, the bill increases the penalties for willful violations of the prohibitions against "twisting" and "churning" to $75,000 and removes the requirement that criminal penalties may be imposed only if the conduct was fraudulent.

These provisions will take effect January 1, 2011.

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