Legislature Passes Insurance Reform Bill

On Monday, January 22, the Legislature passed a bi-partisan insurance reform bill, CS/HB 1A. Here is information on the bill:


Florida Hurricane Catastrophe Fund

• The bill raises the level of backup coverage insurers can purchase by creating the Temporary Increase in Coverage Limit options (TICL) for the 2007, 2008, and 2009 hurricane seasons. Through this program, insurers can buy additional reinsurance of up to $12 billion above the Florida Hurricane Catastrophe Fund industry limit of $16 billion (estimated for 2007), allowing them to lower rates.

• The bill creates Temporary Emergency Additional Coverage Options (TEACO) within the Florida Hurricane Catastrophe Fund (FHCF), which offers insurers additional FHCF coverage by selecting their share of industry retention level of $3 billion, $4 billion or $5 billion (compared to the $6 billion retention estimated for 2007) for 2007, 2008, and 2009.

• The bill provides an additional amount of FHCF coverage of up to $10 million dollars that insurers may purchase at a premium of 50 percent of the additional reimbursement coverage provided (i.e. $5 million premium for $10 million coverage). The ability to purchase the coverage option expires May 31, 2008.

• The bill repeals the 25 percent rapid cash buildup factor for FHCF premiums, which will translate into immediate rate savings for Florida property owners.

• The bill requires all residential property insurers make a rate filing with the Office of Insurance Regulation which shows how the expanded FHCF coverage results in savings or reduction in loss exposure to the insurer.

Citizens Property Insurance Corporation (“Citizens”)

• The legislation reverses the rate increase that took effect January 1, 2007. It requires Citizens to provide full rebates to homeowners who have paid this rate.

• The legislation deletes the requirement that Citizens charge rates sufficient to purchase reinsurance for each of its three accounts. This is important because Citizens Property Insurance is not required to purchase reinsurance, but had been charging as though it did purchase reinsurance, and was passing those fictitious costs along to Floridians.

• The bill deletes the requirement that Citizens’ rates be non-competitive and no lower than the top 20 insurers. However, rates charged by citizens must still not be excessive, inadequate, or unfairly discriminatory.

• The bill delays until 2008 the requirement that Citizens impose up to a 10 percent premium assessment on all nonhomestead policyholders.

• The legislation requires Citizens to exempt policies from the 10-day waiting period for a real estate closing.

• As of January 1, 2009, to qualify for Citizens, properties over 500 to 2,500 feet landward of the Coastal Construction Control Line must be built to “Code-Plus” building standards developed by the Florida Building Commission, ensuring that those homes will be better prepared for damaging storms.

• The bill deletes provisions making nonhomestead policyholders ineligible for Citizens coverage effective March 1, 2007.

• The bill provides that if a policyholder is offered coverage from an insurer at the insurer’s approved rate, then that policyholder is not eligible for a Citizens’ policy, unless the insurer’s premium is more than 25 percent greater than the premium for comparable coverage provided by Citizens.

• It also authorizes Citizens to provide commercial (business) coverage statewide.

• In addition, the bill authorizes Citizens to write multiperil policies (as well as wind-only policies) in the areas eligible for coverage in the High Risk Account. If approved by the Financial Services Commission and the Legislative Budget Commission.

Coverage Exclusions; Deductibles; Payment of Premium

• The legislation requires insurers to make available to policyholders the option to exclude windstorm coverage, if the policyholder personally writes a statement that he/she does not want such coverage and provides documentation of approval by any mortgage or lien holder. This will reduce the risk for insurers, enabling them to offer lower rates.

• It eliminates maximum allowable deductibles, but requires a written statement by the policyholder and approval by a mortgage or lien holder.

• The bill prohibits property insurers from denying coverage based solely on the age of the structure and requires consideration of the structure’s wind resistance.

• It also requires insurers to offer the option to exclude coverage for contents, if the policyholder personally writes a statement that he or she does not want such coverage.

• The bill requires insurers to allow personal lines residential and commercial policyholders to pay premiums on a quarterly or semiannual installment plan.

Premium Notice

• The bill requires insurers to specify on the renewal premium notice:
o The amount of an assessment by the Florida Hurricane Catastrophe Fund, Citizens Property Insurance Corporation, and the Florida Insurance Guaranty Association, and the full name of the assessing authority; and,
o The amount a premium has changed due to a change in rate or coverage.

Hurricane Mitigation

• The bill requires the Financial Services Commission to develop by rule a uniform mitigation verification inspection form that must be used by all insurers to factor discounts for wind insurance.

• The bill makes the following changes to grant programs within the Florida Comprehensive Hurricane Damage Mitigation Program:
o Low income homeowners are exempt from the requirement to have a dwelling with an “insured value” of $500,000 or less (in other words, the home does not have to be insured).
o Grants may be used on previously inspected existing structures or a site built single family dwelling that is under construction to replace a homestead damaged or destroyed by a hurricane.
o Low-income homeowners may use grant funding to repair existing structures if the repairs are mitigation improvements.

• The bill requires the Financial Services Commission to develop a uniform home grading scale to grade a home’s ability to withstand the wind-load from a hurricane.

• The bill requires every licensed general lines insurance agent and consumer representative to complete one hour of continuing education every two years regarding premium discounts available on property insurance policies based on hurricane mitigation options and how to obtain discounts.

• It requires insurers to provide notice of combinations of discounts, credits, rate differentials, or reductions in deductibles, for windstorm mitigation.

• It requires insurers to offer deductible reductions for mitigation measures.

Florida Building Code

• It eliminates the “Panhandle exemption,” under which homes in the Florida Panhandle were held to fewer safeguards against storms.

• It requires the Florida Building Commission to develop voluntary “Code-Plus” guidelines for homeowners who wish to build their homes at a higher standard.

Insurance Consumer Advocate

• It requires the Insurance Consumer Advocate to provide an annual report card on insurance companies using a letter grade scale established by the Financial Services Commission.

Self-Insurance Funds; Bonding Authority

• The legislation allows hospitals, local governments and Community Associations to form risk pools and self-insurance funds.

Catastrophic Ground Cover Collapse Coverage; Sinkholes

• The bill requires property insurers to provide coverage for sinkholes.

• Under this legislation insurers must continue to make sinkhole coverage available for an appropriate additional premium. If Insurers offer policies that exclude coverage for sinkhole losses, the company must provide written notice to the policyholder in 14-point type.

“Cherry Picking”

• Under this bill, if a company provides private passenger automobile insurance in Florida and offers homeowners policies in other states, they will be required to offer homeowner’s coverage in Florida.