Tuesday May 28, 2013
It’s Summertime and the Living is Easy…or so the song says…
The song does say so, but we at LMA know that’s not the case. (And we like it that way- my mama said, “only the hard stuff matters”!). We’re as busy as ever tackling projects that took second chair while the Legislative Session was underway. One of those important and we mean, very important projects, is getting out of the office and visiting with our friends and colleagues in the industries we serve. So, over the next three months we’ll be jetting and driving all over the state and beyond, catching-up with your worlds and exchanging ideas on how we together can make our great state even better. We’ll also be attending many of industry related conventions and conferences to learn more about what’s happening, as well as share your/our thoughts on important issues and emerging trends. And of course, we’ll share all of that good information with you. We hope to see lots of you all at those events. It will be a blast!!
And, with summertime being here, our bi-weekly newsletter will be what we call our “Summer Series”. We are inviting you to be a guest writer at any time and will have a “spotlight” topic for each publication. Our first spotlight will be on “Partners in Recovery” (PIR), which sounds like a substance abuse recovery program but actually its members are insurance claims executives from around the globe who share ideas and strategies to be prepared for hurricane season. LMA is a proud participant and supporter of PIR and we want you to know and understand its’ important work.
So with that, let’s talk about a few things….
LMA Sends Comments on Adjuster Rules to DFS
As we mentioned in the Special Notice we sent you on May 13, Lisa Miller & Associates filed official comments with the Department of Financial Services regarding the amendments the DFS is proposing to the rules which govern the conduct of public adjusters and their apprentices. To read the official comments we submitted please click on the following link: letter to DFS. The proposed rule amendments also make a number of changes to the adjuster ethics rules that impact public, company and independent adjusters. On May 9, with LMA representatives in attendance, the Department of Financial Services, Division of Agent & Agency Services conducted a rule hearing regarding its proposed amendments to Rule Chapters 69B-220.051 and 69B-220.201, Florida Administrative Code. We very much appreciate the comments and suggestions we received from many of you in response to our May 13 Special Notice, which were frank and focused! One seasoned claims executive said, “How do we solve the very fundamental issue that a claimant who engages a public adjuster is never “indemnified” or “made whole”. In other words, the percentage of funds paid to the public adjuster comes from the claim payment so the claimant will never have the full value to repair the claim damage. So many of you have expressed this concern over the years and there is no “answer” to this issue other than its the policyholder who has to make the decision to either forego a portion of their claim funds for a public adjuster – or not! And we STRESS that public adjusters should ensure the policyholder knows clearly that if their kitchen is damaged and it’s a $10,000 claim, and the public adjuster’s fee is 10%, the kitchen repairs will be underfunded. Other comments about the adjuster ethics rule included one that the law or rule should prohibit an “insurance consultant” as part of a claim submission. Right away, when we see this title, we can see the abuse that could be attached to it as there is no licensure for an insurance consultant when it comes to claims and if the abuse is detected, it most likely would be the unlicensed practice of adjusting which is a high standard to prove. Please let us know if you have instances – copies of redacted claims files, etc., that you can share with us to discuss with regulators if the “insurance consultant” title or other similar title is a beginning trend in claims abuse. We will keep you posted on developments as we hear from the Department and the proposed rule amendments continue along the rule-making process.
Referral Fees/Sharing Commissions – Florida Statutes say…
LMA had the opportunity to share some good information with one of our industry folks last week regarding referral fees/sharing of commissions. We thought this was a good topic to share with you all also.
Question: A Manufactured Housing Entity (MHE) is interested in trying to generate referral fee income. The MHE has no interest in establishing an in-house agency, the licensing and appointment process or having any underwriting responsibility. The MHE is only interested in referring consumers to another party for obtaining (manufactured home) property insurance. They just want to send/track/refer consumers to the XYZ Agency. Can the MHE receive referral fees from XYZ Agency?
Answer: The Florida Insurance Code has a very specific statute that addresses the exact scenario presented. The statutory reference is Section 626.112(8), Florida Statutes, and it says, (8) No insurance agent, insurance agency, or other person licensed under the Insurance Code may pay any fee or other consideration to an unlicensed person other than an insurance agency for the referral of prospective purchasers to an insurance agent which is in any way dependent upon whether the referral results in the purchase of an insurance product.
So, what this means is that the MHE can certainly enter into an agreement with one or more insurance agencies, managing general agents (MGA), insurers, etc., whereby the MHE could be paid a referral fee for each customer/potential customer referred to an agency, MGA, insurer. However, whether a referral fee is paid and how much is paid cannot be tied in any way or conditioned upon the referred customer actually purchasing an insurance product. From a practical standpoint and to remain in compliance with the above statute, about the only way to structure an arrangement like this is for the parties to agree on the front end to a flat fee per referral. As mentioned earlier, this fee must be paid to the MHE for every single referral and the amount paid cannot fluctuate based on whether insurance is purchased. These arrangements are fairly common in Florida and the DFS has responded to countless questions/scenarios just like this with the majority of such arrangements having been between referring entities (such as an MHE) and larger, high premium volume agencies.
We are happy to help any of you who have questions or musings about “what does the statutes say?” We’ll do our best to tell you!
Sinkhole Neutral Evaluator Rule
Several of you responded to the recent DFS notices regarding improvements to the sinkhole neutral evaluator rule. In fact, we had solid, technical expertise provided by in-house insurance company attorneys, as well as a handful of specialized sinkhole adjusters. In our recent meeting with DFS officials, we were pleased to hear them say that they appreciated our level of detail and the fact that not only did we provide suggestions, but we gave them exact language for the idea to be included in the draft rule. For example, one of the suggestions was that once a neutral evaluator completed a report, often times there is a request to do a report “addendum” because something or some detail was left out. Because a neutral evaluation is just that – supposed to be neutral – one of our avid readers suggested that if a neutral report addendum is requested, that both sides must agree to the additional information and the cost for the neutral evaluator to complete the addendum must be borne by the requesting party. DFS liked the concept and we feel confident that this good idea will be adopted in the rule as it is a fair and neutral way to include all of the information a neutral evaluator should consider, even information that arises after a neutral evaluation is completed. We would love to know your thoughts as well and are standing by for your input.
The Experts say the Florida Hurricane CAT Fund is Very Healthy
On May 16 the Florida Hurricane Catastrophe Fund Advisory Council met in Tallahassee to, among other things, discuss and approve the Draft May 2013 Estimated Claims Paying Capacity Report. Important Documents: FHCF Presentation May 16, 2013 and FHCF May 2013 Bonding Capacity. The main presenters of the report were Kapil Bhatia and Rick Patterson with Raymond James & Associates, Inc. The presenters discussed the highly successful, April pre-event financing with $2 billion in financing bonds being sold, some with three, five and seven year maturity dates. 139 investors participated in the bond purchases with 132 of them representing new investors. The CAT Fund’s current estimated exposure rests at approximately $17 billion. Taking the CAT Fund’s $9.77 billion in available funds and adding the $2 billion in recently procured pre-event financing, the Fund would have about $11.7 billion in funds to pay claims if it became necessary. This, of course, would leave the CAT Fund about $5.24 billion short of its $17 billion exposure and the $5.24 billion needed would have to be obtained from post-event bond financing. However, financial experts attending the meeting noted that the $5.24 billion post-event bond financing needed should a disaster event of certain magnitude occur is the lowest amount needed by the Fund in several years. Experts further noted that taking all of the funding numbers into consideration; the CAT Fund is in the best claims paying shape it’s been in for a number of years. It was further noted that California, New York City and New York State have each been able to raise $5+ billion in bond financing since 2009, so confidence was expressed that the Florida CAT Fund could raise the $5.24 billion in post-event bond financing should it become necessary. A $7.2 billion assessment would occur in the unlikely event the CAT Fund was required to access the $2 billion in pre-event financing it has secured and also was required to obtain an additional $5.24 billion in post-event financing. After the favorable vote by the advisory council to adopt the bond estimate, the following statement was issued: The Fund’s projected post-event borrowing capacity estimate is $7.3 billion for May 2013. Given the current state of the financial markets, the borrowing capacity estimate is dependent on many factors, such as the size of an event or events, the limitations or constraints of the financial markets to absorb potential debt issuances, the time necessary to access such markets, and the existing level of interest rates at the time of issuance. The estimated borrowing capacity ($7.3 billion), proceeds of the Series 2013A pre-event bond issue ($2 billion), and projected available year-end cash balance ($9.7 billion) provide the Fund with a total estimated claims-paying capacity of $19.070 billion over the next twelve months. (NOTE FROM LMA: It takes a long time to spend $19 billion and certainly longer than 12 months!) Greater detail can be obtained in the “May 16, 2013 Claims-Paying Capacity Estimates” Report, which can be found on the Fund’s website at www.sbafla.com/fhcf/ under “Bonding Program.” The obligation of the Board for the payment of reimbursable losses is limited in Section 215.555(4)(c)1., Florida Statutes, and shall not exceed the actual claims-paying capacity of the Fund. The projected year-end balance on December 31, 2013, is estimated to be $9.770 billion, which represents the amount of assets available to pay claims, not including any bond proceeds, resulting from Covered Events which may occur during the June 1, 2013 through May 31, 2014 Contract Year. The Board recognizes that its good faith estimate is being made while highly volatile global financial market conditions exist; therefore, changing market conditions can dramatically impact the Fund’s actual claims-paying capacity either positively or negatively. Current conditions may or may not be the same if and when the Board determines that it is necessary to issue revenue bonds.”
For those of you who are interested in attending, the 13th Annual FHCF Participating Insurers Workshop will be held in Orlando on June 13 and 14.
Public-Private Sector Disaster Preparedness Summit Set
Another event that you might want to attend is the State Division of Emergency Management’s 2nd annual Public-Private Sector Disaster Preparedness Summit on June 11-13, 2013 in Orlando, Florida. As a collaborative effort between the Division, the Florida Emergency Preparedness Association (FEPA), state agencies, statewide associations and private sector entities, the Division believes this summit serves as the next step in continuing the work that began in 2011. This year’s summit will provide attendees the opportunities to discuss emergency management issues facing the private sector prior to the next disaster. One of the goals of this year’s Summit is to continue to foster communication between the county, private sector, and State’s emergency management team. A key to the economic return of a community following a disaster is to ensure that the private sector is able to return to normal as soon as possible. The agenda will address concerns by the private sector on all phases of emergency management and provide opportunities for those involved to discuss ways to improve the system. There is no fee charged to attend and you can call the event hotel and use the code FDEM2 to make a reservation for your room at the discounted conference rate. See the following link for more information: http://floridadisaster.org/FLPPSummit2013/
You Learn Lots “On the Road”
As we mentioned above, we are on the road already primarily because over the years, we know you learn very little by sitting in Tallahassee! Over the last few weeks we spent some quality time in Dade, Broward and Palm Beach counties. Our visits started with attending the Partners in Recovery (PIR) meeting in Ft. Lauderdale that we mentioned in this newsletter’s introduction and the PIR participants are nothing short of “in touch” insurance executives, agency representatives, adjusting firms, contraction companies and more. It was a great exchange of information and good will. We also had a blast visiting with the Latin American Insurance Agents Association in Miami. These folks are so passionate about our industry and had lots of good ideas to share. We listened and shared in return and encouraged them to get to Tallahassee whenever possible and visit with our state leaders. In addition to these two visits, we also had some grand times with other friends in the biz, all of whom are equally passionate about making Florida THE place to do business. We would welcome an opportunity to spend time with you and you with us. We will be making our legislative visits starting soon so let us attend events with you and/or look for invites with us to go see legislators in their district offices as we prepare for the 2014 session.
In the month of June, we won’t be “home” in Tally much, starting with June 3. We will have lots of good news and challenges to share with you from all those visits. Of course, we want to help you GROW your businesses and appreciate your support of our work – we make a great team.
A few of the events we will attend and you may want to know about are: June 5-7, Florida Insurance Fraud Education Conference (FIFEC) in Orlando; June 11-13, Division of Emergency Management (DEM) Private Sector Disaster Preparedness Summit in Orlando; June 13-14, Florida Hurricane Catastrophe Fund Participating Insurers Workshop in Orlando June 13-14; Florida Association of Insurance Agents (FAIA) Annual Convention in Orlando June 20-22. There are other places we will be and lots of folks we will visit in addition to those we see at these scheduled meetings. We know we will see some of you there and look forward to catching up face-to-face.
Until then, we wait in anticipation for some LAZY…HAZY…CRAZY days of summer.
Always thinking of you and thanks for all you do – Lisa
