United States: Florida Enacts Legislation Substantially Amending Licensure and Regulation of Insurance Agencies and Third Party Administrators

The Florida Legislature recently enacted two bills which will substantially change the way insurance agencies and third party administrators ("TPAs") are licensed and regulated in Florida. The key provisions of those bills are summarized below.

Insurance Agencies

Under current Florida law, an insurance agency is required to be licensed by the Florida Department of Financial Services (the "DFS") only if its owner or another principal in the agency is convicted of a specific crime or has committed certain enumerated violations of law. However, all insurance agencies are required to file a form with the DFS designating a primary agent who is responsible for supervising the agents who work at a particular agency location.

Senate Bill 1912, enacted by the Florida Legislature on May 6, 2005 (the "Agency Act"), repeals the requirement of a designated primary agent and instead requires that insurance agencies be licensed or registered with the DFS. The Agency Act will become a law 15 days after it is presented to Governor Jeb Bush, unless he vetoes it during that 15-day period. Assuming the Agency Act becomes a law, effective October 1, 2006, an individual, firm, partnership, or association shall not act in its own name or trade name, directly or indirectly, as an insurance agency unless it files with the DFS an application for licensure or registration for each place of business at which it engages in any insurance activity. On its face, the Agency Act appears to require all branch offices transacting Florida business to be licensed separately, which may result in a substantial regulatory compliance burden for some large, multi-state agencies.

The Agency Act generally requires all insurance agencies to be licensed, but the following three categories of agencies may submit a registration application in lieu of a license application:

  1. an insurance agency engaged in business in Florida before January 1, 2003, which is wholly owned by licensed and appointed insurance agents;
  2. an incorporated agency whose voting shares are publicly traded; and
  3. an agency whose primary function is offering insurance as a service or member benefit to members of a nonprofit corporation.

A registered insurance agency is required to be licensed by the DFS if the agency ceases to qualify for registration or if an owner or another principal in the agency is convicted of a specific crime or has committed certain enumerated violations of law.

Beginning October 1, 2005, the DFS is required to accept the uniform application for nonresident agency licensure and may adopt appropriate rules. Existing agencies must submit an application to the DFS no later than October 1, 2006. The Agency Act specifies mandatory administrative penalties for an agency that fails to seek licensure (up to $10,000) or registration (up to $5,000). A license must be renewed every three years, but a registration does not appear to expire.

The Agency Act specifies that persons who are currently licensed and appointed do not need to file their fingerprints with the DFS in connection with an application for agency licensure or registration. Publicly traded corporations are exempt from the fingerprint requirements. The DFS is prohibited from requiring credit or character reports to be submitted for persons required to be listed on the agency application.

The Agency Act amends various other provisions of the Florida Insurance Code which will result in licensed insurance agencies being subject to roughly the same regulatory requirements currently applicable to individual licensees. The Agency Act also provides the DFS with the authority to disapprove agency names that are determined to be deceptive or misleading to the public.

Third Party Administrators

Senate Bill 1432, enacted by the Florida Legislature on May 4, 2005 (the "TPA Act"), makes several substantive changes to Part VII of Chapter 626, Florida Statutes, pursuant to which TPAs are required to be licensed as "administrators" by the Florida Office of Insurance Regulation (the "OIR"). According to a legislative staff analysis, the intent of the TPA Act is to amend Florida law to be more consistent with the National Association of Insurance Commissioners ("NAIC") Model Act 090, the NAIC Third Party Administrator Statute (the "NAIC Model Act").

The TPA Act will become a law 15 days after it is presented to Governor Jeb Bush, unless he vetoes it during that 15-day period. Assuming the TPA Act becomes a law, all sections of the TPA Act will take effect on October 1, 2005.

The TPA Act amends the definition of "administrator" to add exemptions from TPA licensure for:

  1. a wholly owned direct or indirect subsidiary of an employer that provides administrative services for the employer or the employer's subsidiaries or affiliated corporations (current law provides only an exemption for the employer, not its subsidiaries);
  2. an entity that is affiliated with an insurer and performs only contractual duties of an "administrator" for the direct and assumed insurance business of an affiliated insurer (except that the insurer is responsible for the acts of the affiliated TPA and for providing the affiliated TPA's books and records to the insurance commissioner upon request);
  3. a nonresident TPA licensed in its state of domicile that administers only a group plan with 100 or fewer Florida residents for all plans that it administers; and
  4. a Florida-licensed managing general agent ("MGA") whose activities are limited exclusively to activities covered under its MGA license.

The TPA Act requires a new TPA applicant to file independent audited financial statements for the two most recent fiscal years preceding the date of the application, and it requires a licensed TPA to file with the OIR independent audited financial statements annually. The TPA Act further requires (i) TPA business plans to provide for sufficient staffing levels in the areas of claims processing, recordkeeping, and underwriting; (ii) TPA agreements to specify the insurer's required procedures regarding benefits, premium rates, underwriting criteria, and claims payment; and (iii) semiannual audits by an insurer of a TPA handling over 100 insurance certificate holders, with one of each semiannual audit being conducted onsite.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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