I think it was a “Twilight Zone” Week
May 2 came and went; the scarf dropped and sine die was announced. Was that ONLY a week and a couple of days ago? Last week was “kinda crazy” for us at LMA. Our cars kept trying to take us to the big white Capitol Building, when we really just needed to go grab a gallon of milk; our bill tracking ding, ding, ding of our computers seemed to struggle to pull us back into the screen where we have been for months; and then of course, our televisions and computers seemed intent to stay locked onto the Florida Channel for Live Coverage of all things 2014 Legislative Session. For a bit, we had moments of feeling we were in the “Twilight Zone,” trying hard to gain some control of our lives without living and breathing all things 2014 Legislative Session. For our “young” readers, you may be scratching your heads and thinking, “what ARE they talking about…Twilight Zone?” Some of our readers might be willing to expose their age by recalling memories of that iconic American television anthology series created by Rod Serling. For the young’uns, this was a series that told you up-front, “not to adjust your television set, you were merely entering the “Twilight Zone.” In the 1950’s (I know, lots of you weren’t even born yet), Mr. Serling created a television series of unrelated stories containing drama, psychological thrillers, fantasy, science fiction, suspense and even a little horror thrown in for a macabre or unexpected twist to the ending. It was quite intriguing for the “time” and you might want to “google” it. Since my confusion of last week made me stop and think about the series, I researched and discovered several very interesting points about the series and Mr. Serling and share a few with you today. One was that Mr. Serling aggressively sought topics with themes such as racism, government, war, society and human nature in writing the episodes. Believe me, these topics weren’t often addressed on television at that time and Mr. Serling was quite instrumental in fighting censorship for his television drama. And since we are talking “legislature,” you might find it notable that Mr. Serling was quoted to say, “I was not permitted to have my senators discuss any current or pressing problem,” he said of his 1957 production The Arena, intended to be an involving look into contemporary politics. “To talk of tariff was to align oneself with the Republicans; to talk of labor was to suggest control by the Democrats, to say a single thing germane to the current political scene was absolutely prohibited.”
Wow, that was in 1957 and here we are in 2014—57 years later. Does it give us a cause to pause and think about where we are and how far we have come (or not come) in 57 years? Anyway, all of that just because I had a few moments of, “was I supposed to be getting a gallon of milk, or is there a bill on the floor I need to be listening to?” So enough trivia and philosophy for this week, we do have a few special topics to share with you, specifically, some perspective on what initiatives didn’t make it during the 2014 session and whether they may show up for the 2015 Session. We are also providing a link to our last newsletter that reported in detail on the major legislation which passed during the 2014 Regular Session. Last Week’s Newsletter
Score One for the Good Guys
To get you fired up for this edition of the newsletter, click HERE and smile! This article outlines the good work of Florida’s Division of Insurance Fraud working with executives of Capacity Insurance Company to pursue a public adjuster for inflating a claim…but not just a little inflation – a LOT of inflation…to the tune of $500,000 for what should have been an approximate $200,000 hotel fire claim. WOW!
2014 Regular Session: Cautious Election Year Environment Filtered Many Worthy Endeavors
For proponents of a good number of insurance-related endeavors the 2014 Regular Session will be remembered as a year of what could have been. Although a number of significant insurance bills passed during the session that just ended, a larger number of the more debate prompting initiatives couldn’t generate sufficient traction in this election year to make it across the legislative finish line. Next year promises to hold more optimism for passing controversial measures with newly empowered leaders of the House and Senate striving to make names for themselves and re-elected or newly elected members of the executive branch (Governor, Attorney General, Agriculture Commissioner and CFO) also having a fresh start with their agendas.
One such failing measure which, in the long run, would have likely helped further expand Florida’s property insurance market and made the state much more attractive to new insurers was HB 187 by Rep. Kathleen Passidomo (R-Collier) addressing the state’s perilous bad faith laws. As filed, the bill would have required that carriers be provided with written notice of loss from the claimant or anyone acting on the claimant’s behalf as a condition precedent to a third-party bad faith claim. Afterwards, if the carrier provided the limits of liability notice under section 627.4137, Florida Statutes, and paid the demanded amount or policy limits, whichever was less, within 45 days of the notice, the carrier would not have been liable for bad faith under common law or the statutes. Passidomo’s bill was approved by the House Civil Justice Subcommittee, however, its Senate companion (SB 1494) sponsored by former Senate President John Thrasher was never heard in committee. This bill, which would likely improve the property insurance market for all Floridians, will hopefully be filed again next year and receive fair hearings in both the House and Senate. This session simply saw too much politics get in the way with unscrupulous trial lawyers leading the charge to maintain the status quo and continuing Florida’s reputation in some respects as an unattractive place for various types of businesses, including insurers, to conduct business.
Another area of proposed insurance reform that started off the 2014 Session with high hopes and a number of filed bills which just couldn’t seem to get over the ‘Mount Everest’ known as the legislative process involved the Florida Hurricane Catastrophe Fund. At the beginning of session in early March a significant debate was already underway in the legislature about Florida’s Hurricane Catastrophe Fund. With no major storms in over eight years, the Cat Fund has built surplus of around $10 billion. Some policymakers focused on reducing the size of Citizens recommended using the Cat Fund’s $10 billion in surplus as a way to shift policies from Citizens to the private market by allowing insurers to share the risk with the state. Former Senate President Tom Lee (R-Hillsborough) recognized that in the event of a storm it would take a long time to use $10 billion in capacity and that if such a storm hits, the greater liability will be Citizens, not the Cat Fund. So, Sen. Lee filed SB 610 proposing to use Cat Fund resources to reduce that liability. Had it passed during session, effective June 1st his bill would have capped the aggregate retention level at $5.2 billion allowing insurance companies to use some of the Cat Fund’s resources to take less desirable and challenging properties out of Citizens and “share” the risk with the state. Sen. Alan Hays (R-Lake/Marion/Orange/Sumter) had a largely different idea. Hays has been steadfast in his belief that the Citizens risk should be born in the worldwide insurance markets and not at all by Florida, and that the Cat Fund should be preserved in such a way that it is strictly used as a “leveling” mechanism should the reinsurance markets’ volatility swing to harden the market. His bill (SB 482) proposed to reduce the Cat Fund mandatory coverage limit from $17 billion to $14 billion over a three year period. It also proposed to allow insurers to recoup reinsurance premiums paid to the Cat Fund and purchased solely to cover a potential gap between the maximum statutory obligation of the fund and the fund’s claims-paying capacity estimate. The bill also would have repealed the prohibition against insurers recouping reinsurance costs that duplicate coverage provided by the Cat Fund. Sen. Jeremy Ring (D-Broward) filed yet another Cat Fund bill (SB 228), which was a placeholder for the Senator to prompt legislative discussion about a change in the way the Cat Fund is governed. Ring does not believe that any one individual should be responsible for managing a financial entity (such as the Cat Fund) with $17 billion of exposure. His bill would have also required the State Board of Administration to negotiate a line of credit to reimburse insurers if payments exceeded available assets and bonding receipts. The bill further called for the repeal of the rapid cash build-up factor from the formula used for determining premiums that must be paid to the Cat Fund. What became clear as the early weeks of session clicked by was that legislative leaders had minimal appetite for entertaining major changes to the Cat Fund. None of the bills made it far in the committee process and Sen. Ring’s bill never found a House companion. The results of the soon to begin 2014 Atlantic Hurricane Season will likely have significant influence on what Cat Fund legislation we see proposed in the 2015 Legislative Session.
Unfortunately, in waning days of session a major fight broke out between the House and Senate over the Senate President Gaetz supported Florida Medical Association (FMA) package (HB 1001/SB 1354) reforming step therapy, prior authorization and retroactive denial of claims under PPACA. The scuffle resulted in the defeat of most major health care bills and two highly important property and casualty insurance trains. The FMA package passed the Senate several times with a number of critical votes occurring on the very last day of session. Each time, however, the House refused to relent and P&C measures became the ultimate victims. Some of the P&C issues which died as a result include:
Florida Insurance Guaranty Association (FIGA): For the second session in a row, supporters of an effort to make fairness driven and bureaucracy reducing improvements to the manner in which FIGA assessments are calculated, collected and remitted to the state by insurers came very close to getting the job done. HB 143 by Rep. Jake Raburn (R-Hillsborough) who did an outstanding job again this session advocating for the best interests of policyholders and reducing wasteful red tape for insurers made it to second reading on the House floor. Ultimately, however, due to necessary legislative maneuvering the FIGA reform language ended up the last couple of days of session attached to HB 375 located in messages between the House and Senate. The measure came extremely close to passing; however, due to unrelated health insurance language Senate President Don Gaetz insisted be amended on to HB 375 and several other insurance bills alive during the waning hours of session, the legislation died. Hopefully we will see this bill again next session as it will bring much more fairness to way in which consumers pay required policy assessments to fund FIGA.
Counter Signature/P&C Insurance Train (HB 375, SB 870). This is one of the key bills the Senate President refused to hear Friday evening (May 2), the last day of session. The base bill made it clear that policies missing an agent’s countersignature were nonetheless valid under state law. The House bill passed on March 27 and in the last couple of days of session became an important P&C train. In addition to the FIGA language discussed above, the bill also contained language:
• Allowing the use of single zip code rating territories in auto insurance.
•Hurricane Loss Models- Allowing insurers to average model results.
•Nonrenewal notices- Repealing the required notice by June 1 for policies being cancelled between June 1 and November 30; enlarging the notice time period from 100 days to 120 days.
•Delivery of Insurance Policies Electronically-Personal Lines: Would have allowed insurers to deliver insurance policies by electronic means in lieu of delivery by mail if the policyholder affirmatively elected electronic delivery; this is already allowed for commercial risks.
•Installment Payments/Premium Financing- Would have clarified that installment payments are not premium financing if such arrangements do not involve the advancement of funds and do not exceed the services charges established in currents. 627.901, Florida Statutes.
Measure Empowering DOT to Set Speed Limits Will End in Veto
Tuesday 5/13/14- Yielding to pressure from members of Florida’s law enforcement community, AAA and other interests Governor Rick Scott announced this past week his intention to veto SB 392 which would have vested the authority to raise speed limits by 5 MPH on Florida’s highways and interstates in the hands of Department of Transportation (DOT) traffic engineers. The measure, co-sponsored by Senators Jeff Brandes (R-Hillsborough/Pinellas) and Jeff Clemens (D-Palm Beach) stirred a large number of safety concerns as it went through the legislative process culminating with a razor thin (58-56) vote on the House floor. Shortly after the House vote that gave the measure final legislative approval a group of House members even attempted a motion to recall the bill from the Senate. Even though the motion failed, the maneuver garnered even more media attention to the controversial legislation. In announcing his position on the bill, Governor Scott said that he has decided to “stand with law enforcement” who has been urging him to veto the legislation that just narrowly passed the Florida Legislature. Earlier this month Florida Highway Patrol Trooper Tod Cloud spoke with Scott while both were attending funeral services for Master Trooper Chelsea Richard who died along with two others on May 3 after they were struck by a vehicle while standing alongside Interstate 75 near a traffic accident. Cloud told the Governor that raising the speed limit was not a bright idea and that people do not drive with common sense. “I want everybody to stay safe, I don’t want anybody to be injured,” Scott has since noted. “I think by doing this we are doing the right thing for our troopers and the right thing for law enforcement. I’ve been to too many law-enforcement funerals”, noted Florida’s chief executive. Throughout session, however, the bill was often mischaracterized by opponents and some in the media, and would not have automatically raised the state’s speed limits. The measure simply authorized DOT officials to increase by 5 miles per hour only the speed limit on Florida’s “limited access highways” (i.e. Interstates and some highways) after scientific studies were conducted supporting such increases. Further, bill sponsors Brandes and Clemens have long held that the legislation puts speed limit decisions in the hands of traffic experts and engineers and took it out of the hands of politicians. During session both men relied heavily on verifiable scientific data substantiating that the safest speed limits are those in which 85 percent of motorists are traveling and that speed differential is more of a safety threat than speed itself. “Unfortunately, the issue became more about emotion than about facts,” Clemens said recently. “We’ve raised the speed limits in the past and it simply did not result in increased fatalities.” We’ll continue monitoring this measure and update you when the Governor actually signs the promised veto.
Florida Hurricane Cat Fund Continues its Strong Financial Position for 2014 Storm Season
The Florida Hurricane Catastrophe Fund (FHCF or Cat Fund) held the first of its two 2014 bonding and claims paying capacity estimate meetings on May 15, 2014. Claims-paying capacity of the FHCF is equal to the sum of the projected year-end fund balance plus the available Series 2013A pre-event bonds (or any other financing resources available) and the estimated bonding capacity. The FHCF projects that its year-end fund balances for the 2014-2015 season will be approximately $10.95 billion as calculated by its administrator, Paragon. Using this projection and the $2 billion of Series 2013A pre-event bonds, plus a bonding capacity estimate of $8.3 billion, the FHCF’s estimated claims-paying capacity for the initial season is $21.25 billion, which is $4.25 billion above the total potential maximum claims-paying obligation of $17 billion. The FHCF can use the potential additional bonding amounts from the initial season or a portion of the Series 2013A pre-event bonds plus the projected $6.5 billion in bonding capacity for the following 12- 24 months and the reimbursement premiums accumulated during the subsequent season to estimate its claims-paying capacity in the 2015-2016 season. The May 2014 bonding estimates from the financial market experts (Wells Fargo, Bank of America/Merrill Lynch, Citi, Morgan Stanley, and JP Morgan) answered the following question posed to them from the Cat Fund team:
“Please provide us with your firm’s opinion on the potential tax-exempt and/or taxable post event market capacity over the next 0-12 and 12-24 months at rates that are at or above the current “market” scale, as needed.”
The answer to this question indicated that the Cat Fund could float bonds in the range of $5.5 billion to $14 billion; in order to meet its obligation to pay claims when insurance companies exhaust their layer of claims paying liabilities (see page 11 of the report HERE) the average estimate of this range is $8.3 billion in bonding capacity. This over $8 billion is significantly above what is needed to meet the FHCF’s potential obligations for the initial season; even if one conservatively expects that the FHCF payout after an event will need to occur within the first twelve months. However, when considering the larger picture of the FHCF’s ability to pay additional claims for a subsequent season, the Cat Fund continues to remain strong with estimates that the Fund could cover 70% of its obligations. In the case of any shortfall, the FHCF could levy assessments (up to a total of over $2.2 billion per year) without issuing bonds, although this approach could fall short of meeting the FHCF’s payout timing needs for its participating insurers.
Bottom line is that there is great comfort that the Cat Fund has resources to meet its obligations for the first storm and would do well for subsequent storms in the same hurricane cycle, although not totally funding itself for the subsequent season. There are those who believe that because the Cat Fund is solid, this “solid” state asset should be used to reduce the liability of the state’s largest liability which is Citizens’ exposure, i.e., using the Cat Fund’s resources in a public-private partnership with private insurance companies to “backstop” some of Citizens’ riskier policies to move them to the private market.
Cat Fund Event: Hope to see you at the June 19, 2014 Cat Fund annual participating insurer workshop to show the WIRE system (Web Insurer Reporting Engine) and just great overall networking.
Louisiana Insurance Commissioner Warns of Dual Regulation Threat
Recently during an address before the New York City Bar Association, Louisiana insurance commissioner James J. Donelon commented that the dual system of insurance regulation is the biggest threat the industry faces today. Donelon spoke to Best’s News Service at the Current Issues in Insurance Regulation 2014 sponsored by the New York City Bar. No question, it’s the threat of a dual system of regulation being imposed on them, said Donelon. Ten years ago, the U.S. paid 55% of the premiums for insurance worldwide; now that is down to 35%. Ten years from now, that will be 25%. As the emerging markets in China, India, Central and South America take more and more, consume more and more of the insurance availability and our companies truly need to be competitive in those emerging markets in order to protect their profitability and their ability to provide affordable insurance to policyholders in the U.S.; and frankly, we are losing that fight to Europeans. And it is our biggest challenge as the NAIC and the biggest challenge the industry faces today.
Southern Oak Insurance Company to Take 10,000 Polices From Citizens
Tuesday 4/29/14- Effective July 15, 2014, Florida domestic insurer Southern Oak will assume (take out) 10,000 policies from Citizens Property Insurance Corporation. The Office of Insurance Regulation (OIR) approved the removal of the policies in its Order dated April 29th. This is part of the state’s ongoing effort to reduce the number of policies in state-run insurer and transfer them into the private insurance market. Southern Oak had requested to remove 8,500 policies from Citizen’s Personal Lines Account (non-coastal properties) and 1,500 from the Coastal Account (coastal properties) for the July 15, 2014 take-out period. The announcement brings the total number of policies approved for take-outs this year to 344,341. Policies approved for removal by the OIR are not all necessarily eliminated from Citizens inventory. The policyholder has the choice whether to be transferred to the take-out company or remain with Citizens. Policyholders choosing to be transferred have a lower risk of being charged higher amounts for Citizens assessments.
Tampa Accident Clinic Owner Sentenced for Insurance Fraud
Tuesday 4/13/14- The Department of Financial Services has announced the sentencing of Dailin Rojas Perez, 30, of Tampa due to her involvement in what the Department referred to as a major insurance fraud scheme at a Tampa accident clinic. Rojas entered into a plea agreement and was sentenced to 24 months house arrest, required to pay $350,000 in restitution to victimized insurers and approximately $40,000 in investigative costs. In September she was charged with racketeering and money laundering involving more than $340,000 in fraudulent proceeds. An investigation by the Department of Financial Services’ Division of Insurance Fraud found that Rojas Perez’s company, Today’s Medical Marketing, LLC worked with Medical Therapy Practitioners to fraudulently bill insurance carriers. The fraudulent charges included services not rendered, services procured as a result of staged automobile crashes, services for patients who had no injuries and services not compensable because the business license was obtained fraudulently.
DFS says Ft. Myers Man Sentenced for Stealing Over $900,000 in State Funds
Tuesday 5/13/14- Stealing more than $900,000 in state funds intended to aid persons with disabilities living in Charlotte, Collier, Glades, Henry and Lee Counties has landed Robert Michael Eugene “Gene” Bruist, 37, of Fort Myers, in prison for some 39 months. The funds in question were intended for use by the now defunct Center for Independent Living of Southwest Florida, a non-profit organization located in Fort Myers. Bruist’s conviction is the result of a joint investigation launched by the Department of Financial Services’ Office of Fiscal Integrity and the Department of Education’s Office of Inspector General after the Center was unexpectedly closed due to a lack of operational funds. The investigation revealed that Bruist stole state money as well as other funds received from sources including federal grants, non-profit grants and individual donations for his own personal use to fund an extravagant lifestyle that included international travel. Bruist, the Center for Independent Living of Southwest Florida’s former executive director, was convicted of aggravated white collar crime, grand theft and communications fraud. He was sentenced to 39 years in prison – 17 years each for the grand theft and white collar crime charges and an additional five years for the communications fraud charge, each to be served consecutively. The State Attorney’s Office for the 20th Judicial Circuit prosecuted the case. DFS’s Office of Fiscal Integrity is comprised of investigators, accountants and sworn law enforcement detectives who investigate contract fraud and other theft schemes committed against the State of Florida.
OIR Reminds Insurers About Trade Secret Assertions in Connection with Submission of Documents, Filings, etc.
Earlier this month the Office of Insurance Regulation (OIR) issued an Informational Memorandum (OIR-14-02M) designed to remind insurers and other regulated entities of the proper procedure to follow when required to submit documents or other information to the OIR and the insurer wishes to make a trade secret assertion in connection with such documents or information. The Informational Memorandum also contained detailed instructions for making such an assertion when using OIR’s recently enhanced I-File System. Making a trade secret assertion in connection with documents and information provided to the OIR is specifically addressed in Section 624.4213 of the Florida Insurance Code. LMA clients and other readers who submit documents having trade secret value to the Office are strongly encouraged to thoroughly read and understand both the Informational Memorandum and supporting statute. The failure to strictly follow established procedures could result in the unintentional waiver of one’s legal right to assert a trade secret privilege.
Seasoned Reporter David Royse Authors new Florida Demographic and Political Almanac
LMA is pleased to partner with David Royse, News Service of Florida editor and book author, who has written the “Political Almanac of Florida.” The book is a close-up look at Florida’s communities, spelling out who lives in each of the 120 state House districts (demographic characteristics such as income level, type of employment, ethnicity, age and religious affiliation) and how they vote. Changes in demographics may have a bigger impact on Florida politics than anything else, and this book details those changes. A true veteran of state politics, Royse has spent 17 years writing about Florida, 15 of them focusing on public policy, politics and the Legislature, first for The Associated Press and then as the founding executive editor of the News Service of Florida. During that time, he covered government, including more than 15 legislative sessions and the administrations of four governors, and political stories, including the deadlocked presidential election of 2000 and every legislative election for more than a decade. The book is a must read for anyone interested in the Florida electorate and how demographics may shape the outcome of the upcoming elections this fall. You may obtain a copy of Royse’s Almanac by visiting the following link:
http://www.amazon.com/Service-Floridas-Political-Almanac-Florida/dp/0615978266
The Summer Approaches
As our loyal readers know, this is the time of the year when we put on our traveling shoes and start making our rounds throughout the state. We have lots of events already on our calendars and as always, will share all the good information and Intel with you throughout the summer in our bi-weekly newsletters. This is also the time of year we will be looking for innovative and interesting topics to cover in the newsletter so we’d love to hear any suggestions you may have; simply email those to us and we’ll be in touch with you. We sure do hope to see you in person as we make the rounds; maybe even we’ll be lucky enough to have a cup of coffee with you and catch up on all the fun stuff. So, please stay close and in touch during these upcoming months ….we’ll do the same.
Now, where was I about to go? Oh yes, I need a gallon of milk!
Hugs to all – Lisa
Visit our website | www.LisaMillerAssociates.com
