FSLSO Budget Committee Approves 2012 Budget Proposal, Rejects Service Fee Increase

 

Opting to use reserve funds to cover a projected $2.6 million budget deficit instead of raising Florida’s surplus lines service fee, the Florida Surplus Lines Service Office (“FSLSO”) Board of Governors Budget Committee (“Committee”) approved a proposed 2012 budget of almost $6.9 million yesterday, September 20, 2011.

On September 29, 2011, the FSLSO Board of Governors (“Board”) will review the proposed 2012 budget, which includes nearly $2 million allocated for Non-Admitted Insurance Multi-State Agreement Clearinghouse (“NIMA”) operations.  Committee members also approved a proposed amendment to the 2011 budget that affords $750,000 to cover start-up costs associated with the NIMA Clearinghouse.  The final budget will be forwarded to the Florida Office of Insurance Regulation (“OIR”) for approval.

During a line-by-line review of the proposed 2012 budget, FSLSO Executive Director Gary Pullen pointed out a projected $2.3 million deficit in the 2012 operating budget and a $232,000 deficit in the Building budget.  Combined, the two equal an overall $2.6 million deficit, which could be covered by using reserve funds or by raising the money through a service fee increase, Mr. Pullen stated.

To fund the deficit through a service fee increase, the rate could be raised from its current rate of .1 percent to .175 percent, Mr. Pullen said,  explaining that this would generate a little over $6 million in revenue.

The other option would involve reserve funds.  As of August 31, 2011, the FSLSO had nearly $10,700,000 in reserve funds, Mr. Pullen noted.  That number would drop to about $8 million if reserves were used to balance the budget. 

“This is a tough decision.  On one side it’s probably a good idea [to raise the rate].  On the other side, our hurricane season isn’t over yet and we don’t know if any other assessments are down the line,” he said.  He pointed out that Florida policyholders will be paying .3 percent on Florida policies reported through the Clearinghouse if the FSLSO is selected as the NIMA Clearinghouse and the proposed Clearinghouse fee of .3 percent is agreed upon, on top of any increase the FSLSO approves. 

Committee member Lorna Palmer urged her fellow members to leave the rate unchanged.

“Next year we will better know how the Clearinghouse is operating and we will have a better idea how the market is working,” she stated. 

After brief discussion, the Committee voted unanimously to keep the rate as it is and use reserve funds to balance the FSLSO’s proposed 2012 budget.

“At some point something is going to have to give.  A decision is going to have to be made down the road,” said Committee member Dan O’Leary.

Some highlights of the budget follow: 

• No salary increases
• No changes in employee benefits
• A 550 percent increase in spending on software and computer network maintenance
• A four percent increase in education costs
• A 163 percent increase in the equipment replacement fund.

FSLSO Communications and Training will receive a 10 and 15 percent increase in funding, respectively.  Disaster preparedness will receive a 7.6 percent decrease in funding, as will the FSLSO’s remote data center.

The proposed budget includes $165,000 in revenue income, down 25 percent or $55,000 from what was previously estimated, Mr. Pullen stated, adding that about $3.5 billion in premium is projected to be reported, subject to the service fee for 2012.  That number reflects an approximate 14 percent decrease from the 2011 projections, much of which was estimated based on the fact that multi-state policies that have historically been reported to the FSLSO now will be reported to the Clearinghouse. 

The proposed $1,915,775 operations budget for the Clearinghouse itself includes $400,000 to fund five new positions, including two in accounting, two employees to handle calls from policyholders and brokers, and an assistant data base administrator.

“This is an initial budget and all income and investments included in this budget are assumptions,” Mr. Pullen pointed out.

An additional $825,000 is allocated for programming, and $75,000 for education, to name some highlights. 

With no further business before the Committee, the meeting was adjourned.

 

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