We are Here, There and Everywhere These Days
Yes we are…..and the last few weeks, we have been about everywhere except Tallahassee. Our travels covered Orlando, Tampa, Islamorada and Winter Park, where we attended the Florida Insurance Fraud Education Conference (FIFEC), the Florida Association of Insurance Agents’ Annual Convention (FAIA), the Florida Association of Counties Conference (FAC), and the Monroe County Construction Standards Familiarization Conference (FAM Tour), as well as lots of side visits here, there and everywhere in and around those cities. We saw lots of you, had the opportunity to chat about numerous topics and we thank you for taking time to visit with us. This is what we do during the summer months as you know and we take full advantage of this time of the year when we don’t have to eat, sleep and live in the Capitol Rotunda and hallways. So as we travel about, we’ll be sharing the good information we gather and look forward to hearing from you about any questions you have and information you are hearing in your local areas. So, here’s some of the info from the last two weeks. Enjoy and let us hear from you if you want to chat further about any of the topics covered.
Citizens Property Insurance Corporation – Committees and Board of Governors Meeting – June 24-25
On Tuesday and Wednesday, June 24 and 25, Citizens held its quarterly Board of Governors and committee meetings. Below is a recap of the committee meetings:
Market Accountability and Advisory Committee
1.) Sinkholes
Board Chairman Brian Squire opened the meeting to discuss Citizens’ January 2014 decision to allow commercial residential policyholders the option to reject sinkhole activity coverage. The concern was raised by agents and insurers, who are seeing rates for Citizens commercial residential policies, in some cases, fall well below the private market when sinkhole activity coverage is dropped. In some cases the sinkhole portion of the premium is 90 percent so when a policyholder drops the coverage…well, you can see what can happen! Citizens’ underwriting staff indicated that a 2010 Office of Insurance Regulation Order, in conjunction with Florida Law, requires insurers to offer commercial and personal sinkhole options and Citizens has no choice but to allow the option to reject the coverage. Citizens has had 249 commercial residential policyholders reject sinkhole activity coverage out of their approximate 8,000 commercial residential multi-peril policies. However, the premium reduction for Citizens is in the millions causing these policies to be competitive with the private market. The primary counties where commercial residential policyholders are rejecting the coverage are Broward, Dade and Palm Beach, with less than 20 of the 249 commercial residential policyholders rejecting sinkhole activity coverage in sinkhole alley (Pasco, Hernando, Pinellas, and Hillsborough). Citizens’ staff stated that during the 2014/15 round of rate filings, they would explore adjusting rating factors to provide some relief to the “lopsided” rate situation, however, it would most likely take around six months for a decision when OIR opines on Citizens rates with 2015 effective dates.
2.) Clearinghouse
The committee received an update on the Clearinghouse activity as of June 2014. Click on the following link to view staff’s report/data regarding the clearinghouse: HERE. The Clearinghouse report indicated that there were 3,500 policies deemed ineligible for coverage with Citizens and Florida Peninsula acquired 1,440 such policies. Eleven insurers are now quoting HO-3 business through the clearinghouse with two additional insurers targeted to join the eleven in September 2014. There are five insurers slated to quote on Clearinghouse renewals (Citizens will start with policies with a November 1 renewal date) with the sixth one coming online in September. However, around 80 percent of the policies coming through the clearinghouse at this time are not receiving a private market offer and Citizens is looking closely into the cause for this high percentage. There have been 78,000 policies submitted to the clearinghouse but the data suggests that often agents will submit a policy several times, so this number could be inflated. With respect to renewals, Citizens will look at an agents entire book renewing as of November 1, run that book through the clearinghouse, and send the agent a report that shows: 1) whether a policy receives an offer of coverage and none are equal to or less than Citizens, 2) whether the policies are deemed ineligible and have private market offers but still renewed with citizens, and 3) policies that have no offers. The agent has seven days to act on the policies that the insurers are interested in and to study the policies that are of interest to private carriers, whether or not the policy is eligible. Citizens staff reminded the committee that the difference between the clearinghouse and depopulation programs is that consumers cannot opt out of the clearinghouse vs. being able to with the depopulation program. To work toward convincing more policyholders to NOT opt out, ie., accept the private offer of coverage, Barry Gilway intends to continue messaging the strength of the Florida based insurers. Gilway discussed that he was working with CEO Joe Petrelli of Demotech and reviewed Demotech’s assessment of the marketplace. Demotech-rated companies are operating at a 90.2 combined ratio, a one in 125 for 1st storm, and a one in 63 for 2nd storm. Gilway cited this statistic proves the private Florida insurance market is stronger than ever.
3.) Insufficient Competition
Lastly, the Office of Insurance Regulation reported they are taking the lead to evaluate whether a county has insufficient competition so it can be excluded from SB 1770’s (passed during 2013 regular session) requirements that limit a policyholder’s eligibility for homes valued on a step down basis to a maximum coverage amount of $700,000. OIR is sending surveys to agents and insurance companies to determine what markets are available for structures valued at $700,000 or more. We would love to help you with this OIR exercise, so please contact us for further information. Click HERE to view the company survey document.
Actuarial and Underwriting Committee
Chief Risk Officer (CRO) John Rollins announced that 7 in 10 Citizens policyholders will receive a slight rate decrease. In his discussion, he outlined the five major cost factors that were used in the 2015 Citizens rate analysis:
•Non-catastrophic Losses other than Sinkhole
•Sinkhole Losses
•Modeled Catastrophic Hurricane Losses
•Administrative Expenses
•Risk Transfer Costs
The total statewide indication for all personal lines of business is 1.6%. The premium impact after the application of the policy level glide-path cap is -2.9%. The total statewide indication for all commercial lines is 27.8%. The premium impact after the application of the statutory policy level glide-path cap is 6.3%. Citizens board member Aubuchon asked “if Citizens has the ability to increase rates up to 10%, why did Citizens only choose to increase rates less than that?” CRO Rollins responded that the glide-path allows for a rate to go to 10% on an individual policy but when there is a range/group of policyholders and no one receives more than 10%, the overall rate won’t reach 10% as a group because of the varied book of business. Rollins further commented that wind-only condo policies (HO6) are the most inadequate of all lines of coverage. See the 15 page rating exhibit HERE and take a look at Exhibit 1 and Exhibit 15 (which shows what the rate inadequacy is IF Citizens bought 1 in 100 year levels of risk transfer). They currently buy reinsurance to cover a 1 in 70 storm size. Rollins explained the process of ratemaking at Citizens is that once the year- end results are released, the actuaries begin their rate indication analysis which takes about five months. Once the Citizens Board of Governors authorizes the 14 filings, they are submitted to the OIR who has 45 days to review them. OIR typically hosts a public hearing (this year’s will be in Tallahassee) and then a consent order is issued outlining any exceptions OIR takes to the initial rate filing. The filing will typically affect January 1 new multi-peril business and February 1 wind-only business.
Consumer Services Committee
Chairman Freddie Schinz convened the meeting where there was a discussion of what Citizens might look like in the next five years. Committee member Tom Lynch, a proponent of returning Citizens to a wind only insurance product provider asked why Citizens can’t return to this original mission. President Barry Gilway responded that there is no way to tell what Citizens will look like in the future and they intentionally stay away from one single focus such as being a wind only provider. He commented that there are differing opinions about Citizens role and as such, Citizens has elected to be “nebulous” since they feel that it is the Legislature’s responsibility to determine what role Citizens should play in the market. Mr. Lynch said he has been talking about this for five years and, for example, Citizens has “lost their shirt” in those five years with sinkhole losses (obviously a non-wind coverage) and it makes sense for Citizens to not be in that business! However, Lynch stated that he understood there are political implications about how to proceed in the future. Other topics in this meeting included an overview of 2014 legislation affecting the insurance industry. For example, there was a discussion regarding the new requirement that commercial residential properties will no longer be eligible for Citizens coverage if 50 percent or more of its units are rented more than eight times in a calendar year for periods less than 30 days, i.e., “transient rentals.” This change brings Citizens more in line with the CAT fund. This change was a part of HB 1089 which creates a new definition for transient rentals to take effect July 1, 2014. See agenda items 4 and 4a for more discussion on an excellent handout from Citizens that explains other legislative changes. See link HERE. The Consumer Services committee received a report from Citizens’ catastrophe claims director on Citizens preparedness in the event of a storm. Questions from committee members included how Citizens handles its IT needs in a catastrophe response situation. Citizens have a satellite for its use and while they have redundancies when systems go down, the satellite allows Citizens to continue operations if the redundancies are eliminated and they need to operate out of their parking lot and run their systems via satellite. The staff of Citizens that handles First Notice of Loss (FNOLs) calls explained that they can take up to 47,000 calls a day if needed if the 1 in 100 storm hits. They have over 160 volunteer employees who are not claims adjusters but are trained to go into the field within 48 to 72 hours to take FNOLs. Committee member and realtor Greg Rokeh said, “There is a little bit of nervousness and we want to make sure if and when the big one happens that Citizens does a great job for its customers and the State.” Chair Freddie Schinz wanted to be sure that telephone services will continue since cell service would be down and Citizens staff said they have the satellite for that purpose. The committee also heard from Citizens call center leader who reported the 2013 stats and they have decreased call volume over 20% since 2012, answering calls mostly within 15 seconds of the call. The first quarter of 2014, Citizens has received over 30,000 calls, with agent volume taking up around 70% of that.
Mobile Homes
Mobile homes are written on an actual cash value (ACV) basis and Citizens is working to update Coverage A values for mobile homes. In 2006, Citizens worked on changing replacement cost value (RCV) to ACV based on a 2006 law that any homes built prior to 1994 had to be written on ACV for coverage A. Citizens has been sending out letters to mobile home owners asking them to please provide updated information to Citizens so they can accurately evaluate the Coverage A values. Please see agenda item 9 and associated items at the following link HERE.
Audit Committee
The most interesting part about this committee agenda was the audit report that found that about a dozen law firms out of the almost 100 doing business with Citizens were overcharging Citizens. Please see agenda item 2D at the following link HERE.
LMA would love to consult with insurance companies who would like to avoid this situation as experienced by Citizens.
Governor Scott signs the last of 255 legislative bills in 2014 Session
This week, Florida Governor Rick Scott signed the last of 255 legislative bills passed during the 2014 regular legislative session. This year’s total number of bills passed was the lowest number since at least 2009. Those of us at LMA have had spirited debates, discussing whether it s a good thing or a bad thing to have a smaller number of bills pass versus the trend in past years to have more than the 2014 session. On one hand, some feel that the more bills that pass, the more government is in your business, but it has also been our experience that bills pass which repeal laws, remove regulation or streamline government. We work very hard to advocate for the bills that will do the latter and fight against the bills that do the former. If you would like to talk through some of the bills that passed – any of them from education to Medicaid to transportation – please send us a note! We will be right back to you.
Elimination of CAT Fund Assessment
Its good news for Florida property/casualty policyholders as the Florida Hurricane Catastrophe Fund’s (FHCF) 1.3% surcharge on their policies comes to an end. The Florida Cabinet voted last week to end the assessment that begun in 2008 and was expected to continue until 2016. The surcharge will be discontinued on policies renewed or issued on or after January 1, 2015. The COO of the FHCF, Jack Nicholson, said this is “good news” for Florida policyholders and consumers. It was expected that the assessments would be needed until July 2016, however, due to settlements on the outstanding claims being less than anticipated and the policyholder base against which the assessment was levied growing in recent years; the cabinet was able to make this good decision for our consumers and we are happy to share the news with you.
More on the Post Session -Revenue Estimating Conference
You will recall that we shared some information in our June 16, 2014 newsletter about the above titled Post Session Impact Conference we attended on May 30. In this edition, we are including some “details” on the conference for you and invite you to take a look at the agenda and other docs you may find interesting HERE. But before we share the details of a few bills reviewed by this group, we wanted to tell you little bit about the Florida Office of Economic and Demographic Research (EDR) and these conferences. The EDR is a research arm of the Florida Legislature dedicated towards economic, demographic, and sociological research that affects the economic and fiscal outlook of the State of Florida. EDR is led by a Coordinator who oversees a 16 person staff under their direction. Most specifically the group is charged with the responsibility of producing fiscal impact assessments on all changes to Florida law. Most of the statements are produced for tax proposals and spending bills. Another responsibility of the EDR is forecasting and it has the capability to provide independent forecasts for all estimating conferences. Also, the EDR has voting rights to approve or deny estimating conferences on Florida’s revenues and economic impact. Legislative forecasts are provided in the following areas:
•Florida economy
•Revenue
•State population
•General revenue
•Transportation revenue
•Lottery revenue
•Gross Receipts Tax revenue
•Ad valorem property tax base
•PECO Funds
•Education enrollment
•Medicaid and ADFC (Aid for Families with Dependent Children) caseload
•Florida Medical Assistance Trust Fund
•Child Welfare Programs
•Juvenile Justice Programs
•Prison population
The EDR further act as a support staff for standing legislative committees and is responsible for survey research, database management, financial consulting, statistical analysis and demographic information. And, lastly, EDR is required under Florida law to develop a fiscal impact statement to any proposed constitutional amendment on the ballot in Florida.
So, when we told you in the June 16th newsletter that this was a room of folks who engaged in “detailed conversations”, we weren’t kidding. Twenty-nine tax sources were discussed at the May 30 meeting, relating to 22 specific bills. Due to limitations of our newsletter, we can’t tell you about everything interesting that was “blessed” by EDR, but did want to share some info on three issues: 1) surplus lines, 2) the workers’ compensation special disability trust fund, and 3) title insurers.
1) Surplus Lines: Insurance coverage unavailable through companies authorized and licensed to write insurance in Florida may be purchased through licensed surplus lines agents. Premiums on surplus lines insurance contracts are subject to a 5% premium tax, which traditionally has been shared between General Revenue and the Insurance Regulatory Trust Fund. To address budget constraints during the most recent recession, the Legislature increased the General Revenue portion and took funds away from the Insurance Regulatory Trust Fund that is used to regulate insurers, agents, agencies and adjusters in Florida. Effective July 1, 2014, the General Revenue share reverts to providing that 91.2% of the revenues associated with surplus lines insurance are to be deposited into General Revenue to run many functions in Florida government and the remaining 8.8% into the Insurance Regulatory Trust Fund for Department of Financial Services and Office of Insurance Regulation operations.
2) Workers’ Compensation Special Disability Trust Fund: The Special Disabilities Trust Fund is maintained by annual assessments upon the insurance companies writing compensation insurance in the state, commercial self-insurers, assessable mutuals and self-insurers. The assessment rate is calculated using a complicated calculation that HB 271 corrected, primarily replacing it with a calculation that is more reasonably based upon the net premiums written by carriers and self-insurers, the amount of premiums calculated by the Department for self-insured employers, the sum of the anticipated reimbursements and the expenses of the Special Disabilities Trust Fund and the expected fund balance for the next calendar year. Additionally, the cap on this rate will now be reduced to 2.5%.
3) Title Insurers: Under current law, the gross amount of title insurance premium received by title insurers and their agents is subject to premium tax. Florida Statute 627.782 (1), for policies issued through agents or agencies, the percentage of such premium required to be retained by the title insurer which shall not be less than 30 percent. On September 20, 2013 Leon County Chief Judge Charles A. Francis issued a Final Summary Judgment for Defendant, Department of Revenue, in Fidelity Nat’l Title Co. v. Dept. of Revenue, Case No. 09 CA 001708 (Fla. 2d Cir. 2013); the gross amount of title insurance premium received by title insurers and their agents is subject to insurance premium tax. The new law amends section 624.509 and clarifies that the tax isn’t imposed on any portion of premium retained by a title insurance agent or agency. It is the intent of the Legislature that the continuation of this exemption be contingent on title insurers adding employees to their payroll! This bill is about job creation! Between July 1, 2014 and July 1, 2016, title insurers currently holding a valid certificate of authority from this state shall, in the aggregate, add a minimum of 600 Florida-based employees to their payroll, as verified by the Department of Economic Opportunity. This paragraph expires December 31, 2017.
We will continue to follow the work of this busy group and if there are items on the agenda we think will be of interest to you, we’ll be there so we can pass it on.
Note to Meghan: Please be sure the blue link embedded at the beginning of this article is functional. Thanks!
Texts Can Now be protected under Florida’s DO-NOT-CALL List
Ever wonder how businesses get your cell number? Well, now you don’t have to worry. As of tomorrow (July 1, 2014) this past session’s Senate Bill 450 by Sen. Jeff Clemons, (D-Palm Beach) which expands Florida’s Do-Not-Call Program becomes effective. The state’s Do-Not-Call program was put into law back in the mid-80’s and at that time prohibited unsolicited telephone calls, i.e., businesses couldn’t call Floridians if a consumer took the time to register with the Department of Agriculture (yes, the Department of Agriculture) as a “Do-Not-Call” participant. SB 450 amends Chapter 501, Florida Statutes, to prohibit organizations from sending unsolicited text messages to Florida residents. The bill was approved by the Governor on June 13, 2014 and as noted above, becomes effective on July 1st. You may sign up for the valuable protection by clicking on the following link HERE.
Federal Court Judge Dismisses Florida Auto Body Shops’ Suit
A lawsuit initiated by more than 20 collision repair shops in Florida against 39 insurers in U.S. District Court has been dismissed without prejudice by a U.S. District judge. A dismissal without prejudice means that the plaintiffs are not barred from again filing the suit at a later date. Judge Gregory Presnell requested that the collision repair shop plaintiffs provide more specific information about their complaints. Judge Presnell denied a request from the insurers to completely dismiss the suit, and gave the plaintiffs a June 27 cut-off date to refile the complaint. Currently, the suit alleges that State Farm is at the center of an effort by many insurers to suppress labor rates and force repair shops to accept lower payments for materials. It also alleges that insurance agencies participated in steering. In his response, Presnell asked auto body shops to clarify which shops and insurers had direct repair program agreements. It also asked for the complaints to be reported specific to the affected shop, rather than a broad overview. As many of our readers know, a small number of Florida domestic homeowners insurers have formal repair programs in place. All P&C companies, especially those with formal repair programs, will want to keep a close eye on this case, especially if the suit is refiled. Although uncertain, the ultimate outcome of this case could have legal implications for property insurers with formal repair programs. We too will closely monitor the future of this litigation and bring you detailed updates as they occur.
2015 Federal Health Plan Filings Shy Away from Rate Increases, Thus far anyway
An interesting development appears to be taking place in Florida’s ACA individual health insurance market. None of the nine health insurers that have filed their 2015 rate requests have thus far requested rate increases. Further, two such insurers, Molina Healthcare of Florida and Sunshine Health have actually filed for rate decreases. The insurers that have completed their filings are not talking they say until their rates are officially approved. Consumer Advocates are, however, optimistic that the recent filings constitute evidence that the Affordable Care Act (ACA) is holding down premium costs for individuals who do not obtain coverage through group plans. When commenting on the rate filings Greg Mellowe, policy director for the consumer advocacy group Florida, “CHAIN” said, “The fact is, an overall pattern of insurers not seeking rate increases and even seeking rate decreases is unheard of”. The initial enrollment period for ACA coverage took place October 1, 2013 through mid-April 2014 with the majority of enrollments occurring after January 1 due to the early problems with the Fed’s computer system. Early on Florida officials elected not to establish a state-run enrollment exchange, which is an option under the ACA. In fact, the Legislature ordered the Office of Insurance Regulation to leave rate regulation to HHS until 2016. However, the insurers must still file their rate requests with OIR, and the Office has put the filings online. The requests do not include the rationale behind them, as that is considered a trade secret and not open to the public. Of the nine health-insurance filings for ACA-compliant plans (qualified health plans) thus far, five are HMOs and four are other products. The details on which counties will have which plans and at what price will not become available until after HHS completes its review, which is not expected before August or September. Open enrollment for 2015 is scheduled for November 15, 2014 to February 15, 2015.
As Was June…Comes July
This IS the traveling time of the year for the folks at LMA, and over the next two weeks we will be in Orlando, St. Petersburg and Fort Lauderdale, or that is the plan as of today’s newsletter. As is almost always the case, more will be added before we actually hit the road for these next two weeks. And as always, the other members of the LMA Team are in lots of other places while I travel about. We really, really work hard to cover all the issues all the time. It’s a blast and a challenge, but we love our work and always appreciate your encouragement and good ideas. Keep both of those coming!
Lisa and the Team
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