Legislative Committees Explore Broad Slate of 2013 Florida Insurance Issues
Jan 25, 2013
Various insurance-related issues were taken up during interim meetings of legislative committees in both chambers of the Florida Legislature this week. Following are summaries of each meeting:
House Government Operations Appropriations Subcommittee
During the House of Representatives’ Government Operations Appropriations Subcommittee meeting on January 23, 2013, Florida Office of Insurance Regulation (“OIR”) Chief of Staff Audrey Brown presented an overview of the OIR and its priorities. The agency was created in 2003 by Florida Governor Jeb Bush, who had also appointed the current Florida Insurance Commissioner, Kevin McCarty. Currently funded by the Insurance Regulatory Trust Fund, the OIR is responsible for providing oversight and service to over 4,000 insurance-related entities, among which include property and casualty, and life and health insurers.
The OIR’s mission, Ms. Brown explained, is to guarantee that these licensed insurance companies are financially viable, that they operate within the laws and regulations governing the insurance industry, and that they offer insurance products at fair and adequate rates that do not unfairly discriminate against consumers.
She also said that federal health care reform will drastically affect health care rate filings. The OIR is currently working with the Office of Florida Governor Rick Scott to ensure it is as prepared as possible for the expected filing influx.
Programs such as “I-Apply” and “I-File” were created to enable the OIR to become more efficient and create a quicker turnaround for insurers. Florida does not charge companies for filing rates, it was noted.
Housed at Florida International University, the Florida Public Hurricane Loss Projection Model is a work product of the state university system, Ms. Brown also noted. It is copyrighted and owned by the State of Florida. However, the Florida Legislature has provided for private insurers to use the Public Model for a fee.
State Representative Gwyndolen Clarke-Reed asked Ms. Brown how the OIR plans to regulate Citizens Property Insurance Corporation (“Citizens”). Ms. Brown explained that the OIR has a responsibility to review and approve Citizens’ rates. The Legislature, however, sets parameters for Citizens’ rates.
Representative Clarke-Reed also discussed her concern about media reports of Citizens’ employees’ “unethical” spending habits using taxpayers’ dollars. Ms. Brown explained that the OIR doesn’t have specific control over Citizens. Rather, Citizens’ Board is appointed by the Governor, and currently the Governor’s Office is reviewing the issue.
State Representative Bryan Nelson discussed a bill that has been filed relating to the partial deregulation of forms filings. Ms. Brown explained that the bill is a codification of an order from the Insurance Commissioner, which would allow companies to use certain forms that they have certified to the OIR as complying with applicable law. She said this would be an option for insurers to speed up the form review process.
State Representative Gayle Harrell asked Ms. Brown to give Subcommittee members an estimate of the workload impact that the Patient Protection and Affordable Care Act will have on the OIR. According to Ms. Brown, the OIR has been trying to assess this need for lawmakers to evaluate since it expects there will be double the usual amount of health care filings, a demand to get the desired products to market quickly, and that the filings will be done all at once, after which they will finally be forwarded to federal government. This leaves the OIR with a very short turnaround time, Ms. Brown explained, and it is not currently set up to accommodate the process.
Representative Harrell also asked whether there was any estimate of cost impact. The OIR will have to gather the numbers, but currently it is seeking to hire 20 or more full-time employees who would focus solely on getting forms reviewed and approved. This is expected to cost approximately $1 million.
To view the Subcommittee Action Packet, click here.
House Insurance and Banking Subcommittee
At its meeting, also on January 23, the House Insurance and Banking Subcommittee discussed Florida’s insurance rate filing process. OIR Actuary Ken Ritzenthaler outlined the process and explained various components of the evaluation that regulators conduct when examining filings.
Guided by Florida’s Rating Law, the philosophy of the homeowners’ rate review process includes the application of actuarial standards and principles that require the OIR to accept any rate filings that comply with the law and are actuarially sound. The method an insurer uses to derive its proposed rates is neither approved nor disapproved by the OIR. However, the OIR does make a determination of whether the rates are excessive, inadequate or unfairly discriminatory.
The evaluation criteria used during the OIR’s rate review process includes a review of a company’s actuarial justification for a proposed rate increase or decrease. This also includes an analysis of the company’s book of business, as well as its anticipated future expenses. In order for an insurer to submit a rate request, it must submit relevant supporting documents.
Mr. Ritzenthaler explained that the OIR compiles data through a system known as QUASR (Quarterly Supplemental Reporting). Florida law mandates private insurers doing business in Florida to provide statistical information to the OIR on a quarterly basis. The QUASR software is accessible via the Internet and is formatted in a manner that can be edited by insurers and analyzed by the OIR. The OIR also has the ability to compare an insurer’s previous rates to ensure validity.
State Representative Tom Lee asked why the OIR doesn’t want to have a dialogue with insurers regarding their filings. Mr. Ritzenthaler explained that it is unnecessary to discuss components in filings, because once they are filed, they should be complete and certified. If the OIR has any further questions or needs further information, he explained, it will contact the insurer for clarification. Thus, engaging in such dialogue would unnecessarily add to the review time.
OIR General Counsel Belinda Miller discussed solvency and reinsurance, explaining that the OIR evaluates how much surplus (defined as cash) an insurer has, how much reinsurance it is purchasing, and its hurricane risk coverage. The OIR conducts an annual data call to compare how companies are covering their risks. Insurers use different forms of coverage. Some buy a large amount of reinsurance; others purchase a smaller amount. Some self-insure, while others rely on the Florida Hurricane Catastrophe Fund (“FHCF”).
Ms. Miller explained that insurers are constrained by the OIR and other rating agencies. Also, owners of insurance companies have the ability to use discretion in purchasing reinsurance. Although reinsurance is not regulated by the State of Florida, the OIR has an approval process for eligible reinsurers.
To view the Subcommittee action packet, click here.
Senate Committee on Banking and Insurance
The Senate Committee on Banking and Insurance also met yesterday and continued its discussion on Florida’s homeowners’ insurance marketplace.
The first presenter, Florida Insurance Consumer Advocate Robin Westcott, emphasized the importance of windstorm mitigation and advocated centralizing all of its regulatory components. She added that she thinks oversight of the Florida Public Hurricane Loss Projection Model should be moved from the OIR to the Florida Division of Emergency Management.
In his presentation, American Consumer Institute President Steve Pociask focused on insurance affordability and related subsidies. He provided data highlighting that many of the residences covered by Citizens Property Insurance are second homes used for seasonal occupancy, and that many of these types of homeowners have higher incomes than others.
According to Mr. Pociask, 50 percent of owners of second homes live 500 miles away from their properties and many are foreign owners. His recommendations included implementing a “keep-out” program that includes increasing Citizens’ “Glide Path” for second homes, applying the “Louisiana Model” for Citizens rates, increasing pricing flexibility for private insurers, shrinking the FHCF, and having regulators focus on insurer solvency, rather than market rates.
The Committee then heard from Florida Association for Insurance Reform Executive Director Jay Neal, who outlined his organization’s recommendations to shrink Citizens. These recommendations included improving Citizens’ current depopulation program, making Citizens’ policyholders aware of their additional exposure to assessments, reducing the growth rate of new Citizens policies by implementing the “Clearinghouse Concept,” and lowering private insurers’ rates through enhanced wind mitigation provisions. Mr. Neal also advocated making changes to the FHCF.
Former State Representative Don Brown addressed the Committee on behalf of Associated Industries of Florida (“AIF”) and presented the organization’s proposal for property insurance reform. AIF’s recommendations included shrinking the FHCF by lowering its top layer to $12 billion over five years, increasing insurers’ FHCF co-payment, and increasing insurer retention. AIF also recommended adopting a different rate standard for Citizens, increasing Citizens’ “Glide Path,” allowing Citizens’ Board of Governors to set rates, repealing the provision that allows a Citizens policyholder to refuse an offer of coverage from a private insurer, and improving the functions of the Florida Market Assistance Program. Mr. Brown also noted that AIF supports making changes to the way the Florida Insurance Guaranty Association collects assessments.
Senator Jeff Brandes (R-St. Petersburg) broadly outlined his draft proposal that would give Citizens the opportunity to enter into risk-sharing agreements with private insurers. He said that his proposal would remove risk from Citizens.
FHCF Chief Operating Officer Dr. Jack Nicholson then addressed the Committee and outlined the FHCF’s functions and duties. Dr. Nicholson noted that the FHCF is funded through bonding and premiums collected from insurers. He added that the FHCF’s projected claims-paying capacity for the 2013 Hurricane Season is $9.88 billion.
The FHCF had received approval from the Florida Cabinet today to secure $2 billion in pre-event financing, bringing its total claims-paying capacity to over $11 billion. Dr. Nicholson indicated that the FHCF is the backbone of Florida’s property insurance market. To strengthen the FHCF, he said, its mandatory layer should be reduced.
The Committee also heard testimony from David Christian on behalf of the Florida Chamber of Commerce. His solutions included reducing the risk of Citizens’ assessments, returning Citizens to its former status as Florida’s “insurer of last resort,” “right-sizing” the FHCF, and attracting new capital to Florida.
The Committee then allowed time for questions and comments from its members. Senator Jeremy Ring asked what would have happened if a large storm had struck Florida during the years in which the FHCF was expanded. Dr. Nicholson opined that a large number of companies might have been unable to pay claims and would have become insolvent. Perhaps at that point, he said, the State could have asked the federal government for assistance.
Senator Nancy Detert questioned how Florida’s insurance rates compared with those in other states, including neighboring states and California. Chairman David Simmons noted that the Committee staff would have to collect that information.
Senator Lee questioned whether there was a way for the FHCF to cede risk. Dr. Nicholson noted that was difficult to do, and added that insurers rely on the FHCF’s stability. Thus, ceding its risk may be too costly.
Senator Garrett Richter stated that, if the goal is to lower premiums, Florida needs to share risk, mitigate homes, combat fraud, expand the market, and bring in new companies. He noted that Florida cannot fail to take action on these issues.
Chairman Simmons closed the meeting by saying that Committee staff would be drafting a proposal for members to review.
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