Florida Insurance Commissioner Reviews Insurance Market Cost Drivers at Cabinet Meeting; Florida Hurricane Catastrophe Fund Rulemaking Updated
May 11, 2010
The Florida Cabinet held a regularly scheduled meeting today, May 11, 2010, during which various insurance-related matters considered as part of several agency agendas. Following is a summary of related discussions and actions:
In response to Florida Chief Financial Officer Alex Sink, who asked whether the financial crisis in Greece would impact the ability of the Florida Hurricane Catastrophe Fund (“FHCF”) to issue $700 million worth of bonds, Florida State Board of Administration Executive Director and Chief Investment Officer Ash Williams indicated that it would not negatively impact the FHCF’s ability to bond, or its bond pricing.
Florida Insurance Commissioner Kevin McCarty reported on Florida’s property insurance market, during which he also addressed the OIR’s regulatory framework. To view Commissioner McCarty’s complete written remarks, click here.
Commissioner McCarty explained that, traditionally, because their claims have “short tails,” unlike workers’ compensation, property insurers maintain cash reserves in liquid investments.
He also addressed the issues of surplus and reinsurance. Generally, insurers are in a good position to withstand a large event. However, their planning should factor in the need for solvency, especially when multiple, smaller events occur, which are more likely in Florida.
Commissioner McCarty refuted the claim that the OIR is allowing financially impaired companies to write new policies. Admitting that Northern Capital was allowed to renew some of its policies even though it was impaired, he also distinguished between an impaired company and an insolvent company. He also noted the OIR’s actions regarding Magnolia Insurance.
In recognizing what he called a “successful” 2010 Florida Legislative Session, Commissioner McCarty discussed the Legislature’s passage of SB 2044 by Senator Garrett Richter, noting that the bill is not a “deregulation bill” as reported by some media outlets. Rather, under the provisions of SB 2044, the OIR has full authority to review rate filings.
If SB 2044 is signed into law, some of resulting changes will be:
- A change in replacement cost methodology for the evaluation and payment of claims for damage to the structure of homes, so that homeowners are incentivized to make repairs and insurers are incentivized to make rapid claims payments to effectuate repairs;
- A limitation on the first filing of a claim or re-filed claim, so that homeowners must report the claims to insurers within three years of a hurricane. Along with the change in replacement cost methodology, this is expected to reduce the costs for all policyholders that would otherwise result from excessive or opportunistic claims paid to some policyholders.
- An increase in the capital requirements for new property insurers to $15 million, and time for existing insurers to reach this goal;
- An important tool for the OIR to prevent insolvencies by allowing cancellation of policies if a property insurer is financially troubled;
- Another important tool to address the issue of Managing General Agent fees. Under SB 2044, a company would have to have a written agreement before it could transfer money between affiliates, and that agreement would have to be disclosed to the OIR prior to its use. If the OIR objects, the company could not use the agreement. For companies that experience significant losses in surplus, which is defined as 15 percent within a quarter or calendar year-to-date, additional reporting would enable the OIR to have an earlier, more comprehensive view of affiliated company transactions than it currently has.
- Reasonable limitations on the public adjuster solicitations and disclosure of public adjuster fee arrangements. It is acknowledged that public adjusters serve an important role to enable policyholders to have their claims settled by minimizing the time and aggravation that the insured must invest in the claims process.
To view Commissioner McCarty’s complete slide presentation from today’s meeting, click here.
CFO Sink expressed concerns that many Florida domestic insurers are losing money despite no recent hurricanes having made landfall in the State. Commissioner Mccarty agreed that national and domestic insurers are losing money, but noted that SB 2044 addresses some of the cost drivers that are causing these losses. Looking forward, the big issue is expected to be reinsurance costs.
Florida Attorney General Bill McCollum related that, to his knowledge, there is at least one insurer that dedicates 80 percent of its premium revenue towards the payment of reinsurance. Commissioner McCarty agreed that this amount was high, and that 50 percent would be a more reasonable number.
Florida Commissioner of Agriculture and Consumer Services Charlie Bronson expressed concerns with Citizens Property Insurance Corporation being “stuck” with the greatest risks in the State, without the ability to pay its claims from a large event. He also asked about the impacts of the Tennessee floods on the Florida market. Commissioner McCarty suggested that an “All-Perils” policy should be evaluated.
CFO Sink asked a series of questions about the 1-in-100 year standard, in addition to asking the OIR to be more transparent in any policy shifts away from this standard.
Commissioner McCarty said that, although the OIR is not discouraging companies from purchasing reinsurance for a 1-in-100 year event, the agency is asking insurers to be cognizant of other reinsurance options, because an accumulation of smaller, more frequent storms can pose a greater risk to solvency
Attorney General McCollum expressed his support of the creation of a federal backstop for catastrophe insurance, adding that, although U.S. Representative Ron Klein’s “Homeowners’ Defense Act” addresses this issue, it has little hope of passing the U.S. Senate.
State Board of Administration (“SBA”)
The SBA agenda included Rule-related requests for action related to the FHCF Reimbursement Contract and Premium Formula.
A request to authorize the SBA to promulgate five emergency rules implementing the provisions of CS/SB 1460, which amended the FHCF Contract date and became law on April 15, 2010, was approved with limited discussion.
The five Emergency Rules are:
- 19ER10-1 (19-8.010) Reimbursement Contract
- 19ER10-2 (19-8.012) Procedures to Determine Ineligibility for Participation in the Florida Hurricane Catastrophe Fund and to Determine Exemption from Participation in the Florida Hurricane Catastrophe Fund due to Limited Exposure
- 19ER10-3 (19-8.013) Revenue Bonds Issued Pursuant to Section 215.555(6), F.S.
- 19ER10-4 (19-8.029) Insurer Reporting Requirements
- 19ER10-5 (19-8.030) Insurer Responsibilities
The second item, which also was approved, authorizes the SBA to file a Notice of Proposed Rulemaking for proposed Rule 19-8.028, F.A.C., Reimbursement Premium Formula.
Although this Rule was approved on April 13, CS/SB 1460 became law before the corresponding Notice of Proposed Rulemaking was filed. Therefore, changes to the Rulemaking Notice, the Rule, itself, and the Incorporated Forms now require an additional request for approval of, and authority to file another Notice of Proposed Rulemaking for Rule 19-8.028.
Special Session Possible on Gulf Oil Drilling Ban, Alternative Energy
Prior to today’s Cabinet meeting, Florida Governor Charlie Crist addressed the media, during which he announced a Task Force related to the current Gulf oil spill crisis.
In response to media questions, he said it will be important to hold a Special Session in order to pass a Constitutional amendment banning offshore drilling, as well as to address ways to maximize the use of alternative energy. Following a conversation with President Atwater, Governor Crist noted that the Legislature is inclined to have a Special Session and this could transpire within two weeks.
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