January 4, 2017 Newsletter

NAIC December Meeting

In addition to choosing former Pennsylvania Insurance Commissioner Michael Consedine as its new CEO, the NAIC at its mid-December meeting in Miami also received important updates on NFIP reauthorization and tackled lessons in flood and fraud.

NAIC staff told the Catastrophe Insurance (C) Working Group that reauthorization will include proposed rulemaking for private flood provisions to the Biggert-Waters Flood Insurance Act of 2012 to require that lenders accept private flood insurance as an alternative to NFIP for federally-backed home mortgages.  When Congress convenes later this month, it’s expected to begin reviewing draft principles for an NFIP reauthorization bill recently approved by the House Financial Services Committee.  The GAO is also working on a report for the new Congress on how Write-Your-Own insurance companies are compensated by NFIP, the subject of a critical NPR/PBS Frontline investigative story last summer.

The Working Group also heard about the lessons learned and those still to be learned from the 2015 South Carolina flooding that caused $12 billion in total losses of which only $2 billion were insured.  Zurich’s report, Community Resilience – South Carolina Post Event Review Capability (PERC) Report among other interesting findings, recommends addressing misconceptions about flood risk and actual frequency of events; designing to enhance resilience and building back better; using FEMA funds to convert flood land to open space; and engaging local governments and policymakers on ways to increase accessibility and purchase of flood insurance.

The NAIC Antifraud (D) Task Force heard that baby boomers are increasingly committing fraud in retirement funds and real estate, in part due to their own financial insecurity as a group.  The Task Force heard from Matthew Smith of Smith, Rolfes & Skavdahl, based on the company’s previous presentation Portrait of Fraud: Are Insurers Properly Recognizing the Graying of America.  The average credit card debt of those 65+ are now second only to those in the 25-34 age group.  Smith advises insurers to be diligent: during these uncertain times of investment values, social security, and healthcare coverage, fraud is on the rise among older Americans.

The study found that higher prices were paid in states without fee schedules compared to those with them.  Kentucky, the only Index state with major fee schedule changes after June 2014, saw a major increase in prices.  Kentucky discontinued the use of relative values from Medicare’s resource-based relative value scale for its professional fee schedule.  As a result, overall prices for professional services in Kentucky increased 19% from 2013 to 2015.

Prices varied significantly across the states with Wisconsin 138% above the average and Florida taking the lowest spot at 31% below average.  In other words, overall prices paid in Wisconsin were three times that of Florida. The major surgery category saw the largest price drop in Florida – down 4% from 2014 to 2015 (see the breakdown in services costs on page 112 on the above link).  The overall price index in Florida went from a 13-year high of 123 in 2009 to 119 in 2015.  Florida’s workers’ comp premium was 2% below the Medicare fee schedule levels for Florida – the only state in the Index below the Medicare level.

As we know though, 2016 saw a 14.5% workers’ comp rate increase, not reflected in this report. Of that, 1.8% was a statewide average rate increase related to updates within the Florida Workers’ Compensation Health Care Provider Reimbursement Manual per SB 1402. The manual became effective this past July 1.

For the third year in a row, Vermont had the best insurance regulatory system, receiving the only “A+” score.  Arizona, Idaho, Illinois, Kentucky, Maine, New Hampshire, Utah, and Wisconsin each received an “A” or A-“.  At the bottom of the pile was North Carolina for the second year in a row, with the only “F” grade.  Other poorly performing states were Alaska, California, Delaware, Hawaii, Louisiana, Massachusetts, Mississippi, Montana, North Dakota, and New York – each in the “D” range.

The report focuses mostly on P&C, particularly homeowners, auto, and workers’ comp, as these tend to be the most regulated lines, according to the report.

R Street noted Florida’s strengths as having no regulatory surplus, a competitive home insurance market, and a low tax and fee burden.  Florida actually has the least concentrated homeowners insurance market, with a Herfindahl-Hirschman Index score that was 2.2 standard deviations less than the average.  But the report noted Florida’s weaknesses of being behind on financial exams, a low homeowners loss ratio (which is an indication of high rates), and utilization of “desk drawer rules” – rules that regulators routinely apply but that are not contained in state statute, regulation, or rule.

In a rebuttal in the Insurance Journal, OIR insists its current on its exams, that Florida’s residual market has been dramatically reduced in recent years, and that a low homeowners loss ratio indicates insurers are earning a reasonable profit.  OIR claims ignorance of the “desk drawer rules” referenced.  Our newsletter readers will be reminded that on the health insurance side, Florida has likewise been criticized in the past for having a high Medical Loss Ratio (MLR), requiring insurers to provide rebates on amounts under the 80% MLR threshold to policyholders as required under ACA.

The R-Street report credited much of Florida’s improvement in recent years (it was in last place in 2012) to the continued shrinking of Citizens Property Insurance Corporation, which has dropped from 14.3% of the market in 2011 to just 5% of the market in 2015.

• Treasury plans no changes in current requirements that insurers disclose premiums charged for TRIA coverage.

• Treasury declined industry calls to define a timeline for certifying “Acts of Terrorism”; rather, it will now provide a timeline for announcements when considering whether an act is eligible, beginning within 30 days of commencing a review of an incident and updates every 60 days until a decision is made to certify or not.   Industry groups noted that due to state laws on unfair claims practices, it may not be possible to await Treasury certification under TRIA before paying a claim.  Treasury has said that state laws allow for exceptions under such circumstances.

• Full annual data calls will continue, despite requests by some insurers that Treasury utilize state regulators to secure some data through existing state data calls – a less administratively burdensome approach.

• Likewise, Treasury will continue to define a “small insurer” as any whose policyholder surplus plus direct earned premium in TRIA lines from the preceding year is less than five times the Program Trigger for the current year.  Some insurers had questioned why surplus level was included, given that it’s not necessarily an indicator of a company’s size.

• Companies must continue to provide notices disclosing the $100 billion cap at the time of purchase.

Most of the other changes involve removing obsolete language and requirements under previous authorizations dating back to TRIA’s 2002 inception. Click here to view the full Federal Rule.

The federal government’s share of the overpayments amounts to just over $15 million and AHCA has put in place steps to halt the faulty payment practices including monthly database information review and methods to identify death information.  Of course this will remind our readers of how the life insurance industry verifies death information using the social security death master file – with some life insurers using it with some of its payment systems and not for others. You can read more about that in our previous newsletters.

Suffice to say that with any multi-billion dollar program  – public or private – mistakes are made.  It’s all a matter of degree!

Michigan Rep. Jason Sheppard sponsored HB 5951, which would let insurance consumers pick their own levels of medical coverage: $250,000, $500,000, $1 million, or unlimited coverage (what Michigan currently offers).  Doing so would save an average of 30% off auto insurance policies, per his estimates.  Those opposed fear that consumers would pick the lowest coverage and too many would end up under-insured as a result, with state Medicaid picking up the balance of their medical bills…and that insurance companies won’t promise it would lower rates (a familiar refrain, yes?)

Although Sheppard’s bill ultimately failed to pass (their legislature is pursuing an alternate bill to limit costs on certain procedures, similar to Florida’s own HB 119), it reinforces the mantra of consumer choice.  Even OIR’s final Pinnacle report outlines different consumer cost savings through choosing different medical payment levels.  Why can’t auto insurance consumers choose such limits just like they choose deductible limits on their homeowners policies?

As a point of editorial privilege: I think public policy should always be geared toward the greater good.  There will always be outliers who end up with catastrophic medical bills.  But a system that is based on consumer choice and cost accountability will surely bring down rates, reduce the continuing rampant fraud that we all pay for, and provide adequate coverage for the majority of Florida drivers.  What do you think?  We’d love to hear your feedback.

The couple has since passed away but their children are now asking the Florida Supreme Court to hear their appeal, saying the city of Marathon has effectively banned all future development of their property, amounting to an unconstitutional seizure without just compensation.

The family had previously appealed the bird rookery designation and showed their property value declined from the initial $70,000 investment to just $900.  Although a Special Master concluded “there is absolutely no allowable use” under city regulations, he awarded them 16 “ROGO” points.  ROGO, derived from the local “Rate of Growth Ordinance” is meant to control growth by allocating points toward possible purchase of one of the limited number of development permits available.

A trial court later ruled against the family as well, saying they unreasonably waited too long to make an initial claim, and didn’t present evidence they had a plan to develop the property when they bought it.  The 3rd DCA this past year upheld that decision, ruling that the ROGO points awarded provided adequate compensation and that the family had no reasonable investment-backed expectations for the property.  The family has continued to pay taxes and retain liability on the property, according to the Pacific Legal Foundation, which is representing the family at no charge.

As many of you are following the trends in the Supreme Court with opinions being released that are less conservative, it will be anyone’s guess what the court’s ruling will be in this case. We will keep you apprised.

Traditionally, New Year’s resolutions are about making a commitment to do something different in our lives, perhaps going in a new direction from that of the past. I’m thrilled to share my resolutions with you in the opening of this edition……you’re welcome to adopt a few as your own and offer a few of yours to me by reply e-mail.  Let’s talk soon!

Best wishes for a blessed 2017,

Your LMA Team