Florida House of Representatives’ Insurance and Banking Subcommittee Reviews Surplus Lines, Sinkhole Claims, Biggert-Waters Flood Insurance Reform
Sep 26, 2013
The Florida House of Representatives’ Insurance and Banking Subcommittee met yesterday, September 25, 2013 during the first committee week of the 2014 Legislative Session. The meeting action packet is attached for review.
The agenda consisted solely of informational presentations on surplus lines regulation, the implementation and impact of 2011 revisions to Florida’s sinkhole-related insurance laws, and the recent reforms to the National Flood Insurance Program.
In his presentation, Rich Koon, Florida Office of Insurance Regulation (“OIR”) Deputy Commissioner of Property and Casualty, explained that surplus lines insurers are not regulated like other insurers. Notably, surplus lines insurance is not covered by the Florida Insurance Guaranty Association. While surplus lines insurers are not required to be licensed by the OIR, he said, they must have a letter of eligibility, $15 million in surplus and three years of successful operation in their home state. Surplus lines insurers are regulated for solvency in Florida and are only permitted to write coverage that is not otherwise available in the voluntary market. Their policy forms and rates are not reviewed or approved by the OIR, Mr. Koons added.
Gary Pullen, Executive Director of the Florida Surplus Lines Service Office (“FSLSO”) elaborated on the surplus lines market, its regulatory framework, and the role of the FSLSO. The surplus lines market, he said, is essentially a private sector market of last resort. Surplus lines policies are typically purchased by a sophisticated consumer with a distressed, unique or high-capacity risk. Surplus lines regulation includes agent licensing, eligibility, disclosure, documentation and taxation. The FSLSO does not have any enforcement authority over agents or insurers. It simply refers any complaints or concerns to the OIR, or its parent agency, the Florida Department of Financial Services, he said.
There are 202 eligible surplus lines insurers in Florida, 136 of which are foreign insurers and 66 are alien insurers, Mr. Pullen explained. Surplus lines insurers make up about 10 percent of Florida’s insurance market.
Citizens Property Insurance Corporation’s (“Citizens”) President and CEO Barry Gilway discussed the implementation and impact of 2011 changes in Florida’s insurance laws relating to sinkholes, explaining that SB 408 had a significant impact on the market.
Citizens writes a vast majority of homeowners insurance policies in sinkhole-prone areas, he explained. Although SB 408 has not completely solved the related challenges of this market, he emphasized that tremendous progress has been made, as evidenced by decreasing sinkhole claims volume and related loss ratios. He pointed out that there have only been seven claims for “catastrophic ground cover collapse” since SB 408 became effective.
An OIR representative discussed the Biggert-Waters Flood Insurance Reform Act of 2012 (“Biggert Waters”), which was explained to have been precipitated by recurring financial deficits from subsidized flood insurance policies–an unsustainable premium structure that otherwise should reflect the true cost of flood risk. Biggert-Waters included a five-year extension of the National Flood Insurance Program (“NFIP”) and comprehensive reform measures relating to flood hazard mapping and floodplain management.
It was explained that Florida has just over two million NFIP policies, equating to 37 percent of the total NFIP market. Of those policies, 87 percent are priced at nonsubsidized rates, while 13 percent policies are subsidized. Thus, Florida is considered to be an NFIP donor state.
Currently, nationwide efforts are being made to delay Biggert-Waters’ implementation.
The next Insurance and Banking Subcommittee meeting is scheduled for October 18, 2013.
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