Monday August 26, 2013
The End of August Already? So Much Done but Still So Much More to Do
As we shared with everyone in the legislative wrap-up edition of our newsletter in May, our summer would be a true “road warrior” series of events. This has proven to be truer than we even imagined. While we have had few days here in our beautiful hometown, albeit, very rainy of late, the industry is crazy busy all over the state. These last two weeks we spent time in Orlando at the Florida Realtors 2013 Expo and then, with a one day break in between, we were at the 68th Annual Workers’ Compensation Educational Conference. And believe it or not, we still found time to be at the 2013 Greater Tallahassee Chamber of Commerce in Amelia Island. The two day conference included highlights of future developments for Tallahassee and insightful breakout sessions for business owners of all sizes. Of course, what we really love about being “on the road” is the chance to see so many of our friends/clients face to face. That is what really “rocks our world.”
So with that, here are a few items we thought you might want to hear about this week including this edition’s Compliance Reminder.
Compliance Reminder: Keep Tight Control over Production/Binding Materials & Databases
In today’s litigious environment it is extremely important for insurers to make certain they desire a business relationship with a particular producer (agent) and that he or she is properly licensed and appointed for the line(s) of business in question, prior to providing the producer with blank forms, applications or access to on-line systems which would be used in the soliciting, negotiating, or effectuating contracts of insurance on the insurer’s behalf. Generally speaking, when an insurer cloaks an unlicensed or unappoint producer with any indicia of representation the insurer is civilly liable to the insured to the same degree as if the producer had been licensed or appointed. Section 626.342(2) states that any insurer who supplies production materials to an agent or prospective agent not appointed to represent the insurer and who accepts from or writes any insurance business for such agent or agency is subject to civil liability to an insured of such insurer to the same extent and manner as if such agent or prospective agent had been appointed or authorized by the insurer to act on its behalf. Therefore, this statute is an excellent reminder for insurers to perform advanced due diligence and make certain the prospective producer’s background meets your standards and expectations before allowing the producer to represent your company. Hopefully you have found this compliance reminder beneficial and of interest. Please email us if you have any questions about this issue or have suggestions about other compliance topics you would like to see us address in the future.
Citizens Board Makes Critical Selection Decision for Clearinghouse Vendor
With Senate Bill 1770’s January 1, 2014 start-up-date clearly on the horizon, the Citizens Board of Governors took a major step forward by selecting on, Thursday, August 29, 2013, a vendor to provide an electronic platform for clearinghouse operations. After some discussion about exactly how best to word the motion, the board eventually approved (unanimously) a contract with Bolt Solutions, Inc. (formerly named Sea pass Solutions), based in Farmington, Connecticut. The agreement between Citizens and Bolt calls for an initial five year contract period with one available option to extend another five years. Under the terms of the agreement, the potential 10-year deal may not exceed $44.9 million. According to Citizens, Bolt Solutions provides online insurance placement to small businesses and consumers in 50 states and similar clearinghouse services to major national carriers. In particular, Bolt is the platform under Ivantage, Allstate Insurance Companies’ bridge to its alternative markets. In particular, Allstate has about a dozen such markets (translation: insurer partners) in Florida and Bolt was the engine behind the bridge between the selected insurers and Allstate. Under reforms made this past session, existing Citizens policyholders may not renew their policy after January 1 if they receive a comparable private-market offer with a premium that is equal to or less than their Citizens renewal premium. New customers receiving a private market offer for comparable coverage that is within 15 percent of Citizens’ quote will also be required to obtain coverage with a private insurer. The clearinghouse will shop for comparable offers of coverage from participating private-market insurers before placing or renewing personal lines coverage with Citizens. Bolt will provide the software platform linking private market insurers participating in the clearinghouse with consumers and their agents seeking to renew policies or purchase new coverage with Citizens. In announcing the agreement with Bolt, Citizens’ Board Chairman Chris Gardner stated, “Florida’s insurance market is expanding, with private-market options for residential insurance becoming increasingly available. By helping match homeowners with these options, the clearinghouse will perform an invaluable service, both for Florida’s insurance consumers and for all Floridians.” Citizens CEO Barry Gilway further commented, “In many cases, the clearinghouse will offer policyholders the opportunity to obtain better coverage at comparable or better rates. At the same time, it will help Citizens return to its core mission as Florida’s insurer of last resort.”
To see the brief slide presentation, click HERE.
Citizens’ Actuarial & Underwriting Committee Meets This Morning
Beginning at 10:00 a.m. EST this morning (Monday, August 26) Citizens’ Actuarial and Underwriting Committee will meet via conference call to address a number of topics. On the agenda includes an update for committee members regarding the status of the Clearinghouse Project. You may listen to the committee’s meeting by calling (866)361-7525, conference ID: 8632017402#. You may click on agenda in order to review the formal agenda and supporting documents.
OIR Public Hearing on Citizens’ Rate Filing Goes Smoothly
This past Tuesday evening (August 20, 2013) beginning at 4:00 p.m. officials with the Office of Insurance Regulation held a public hearing in the Tampa Convention Center to ask questions of Citizens representatives and take public testimony concerning the corporation’s recent rate filing for 2014. OIR General Counsel Belinda Miller chaired the hearing with Citizens Executive Director and CEO Barry Gilway leading the insurer’s team. As many will recall, Citizens recently submitted a rate filing with OIR calling for an overall state-wide average (excluding sinkhole) rate increase of approximately 7 percent; 6.6 percent for personal residential. In his opening remarks and in response to a couple of later questions, CEO Gilway stressed that in developing this rate filing he and the Citizens team endeavored to strike a “delicate balance” between acknowledging the need for more rate adequacy while realizing the significant impact rate increases have on the corporation’s 1.2 million policyholders. He further acknowledged that in order to accomplish this delicate balance they of course were required to cap rate increases on the upside to respect the statutory 10 percent glide path but also capped the downside in the majority of situations. If the filing is approved by the Office, this will result in policies with an indicated rate reduction receiving a 0.0 percent rate increase for the 2014 year. Although the hearing was sparsely attended by the public, two elected officials did appear to express their concerns regarding Citizens’ proposed rate increases. Former senator and Representative Mike Fasano who was recently appointed Pasco County Tax Collector appeared, along with Rep. Dwight Dudley (D-Pinellas). Both men said that the filing should be scrutinized because Citizens has been employing what they called “backdoor rate increases” by overestimating replacement costs as compared to market values, taking away mitigation credits and no longer covering unattached structures. Rep. Dudley also cited lower reinsurance costs as another reason to question the proposed rate increases. In response, CEO Gilway noted that there is a massive difference between the replacement cost and market value of a house and that during the past twenty-four months the windstorm mitigation credits granted by Citizens have increased from $650 million to $1.2 billion. A representative of Fair Insurance Rates in Monroe County (FIRM) also spoke during the hearing and requested that the Office exempt Monroe County altogether from any rate increases. He noted that the loss projection models used by the corporation fail to take into account the unique and advanced building techniques employed in Monroe County and that many Keys property owners have also lost the credits for previously installed mitigation features. The Office listened intently to all testimony and left the hearing record open until 5:00 p.m. on August 30th in order to receive additional written comments from interested parties. We will keep you posted on developments as OIR announces decisions in response to the rate filing.
Concerns Abound Regarding Security of Information Collected By Federal Navigators
On August 16, 2013, Gov. Rick Scott announced that he had requested OIR to brief the Florida Cabinet during its August 20th meeting regarding escalating privacy concerns over consumers’ sensitive health and financial information which will soon be gathered by federal health care navigators when the first Obama care open enrollment period begins on October 1st. The Governor’s request came on the heels of US Department of Health and Human Services (HHS) Secretary Kathleen Sebelius’ visit to Tampa on the 15th of this month to announce the award of grants in Florida totaling $7.8 million to help get the state’s federal health insurance exchange and navigator program up and running as well as provide required navigator training. In his comments on the issue Gov Scott stated, “We know that the ‘navigators’ will be taxpayer-funded employees hired to collect personal and financial information from Floridians. What we do not know is how this information will be shared among federal agencies or if the federal government will also distribute it to outside groups. We know that navigators are not hired to determine eligibility for insurance but they will have Floridians’ personal data that will then be run through federal databases, including the IRS and agencies that track immigration status”. During this past Tuesday’s Cabinet meeting in Miami, Insurance Commissioner Kevin McCarty appeared and provided the Governor and other cabinet members with a high-level overview of the navigator training program and concurred with the Governor that recently reduced training requirements are likely inadequate. McCarty also confirmed that consumers’ confidential information will likely be shared with the IRS, Department of Homeland Security and Health and Human Services. In addition to the Governor’s concerns, in recent months concerns have been expressed at both the state and federal level regarding potential background issues with navigators and whether the Department of Health and Human Services has adequate criminal history/background check controls and other consumer protections in place before navigators can be hired. In a letter to Secretary Sebelius of June 20 Senator Orrin Hatch (R-Utah) and eight other senators wrote that the program lacked appropriate safeguards to protect the privacy of consumers and demanded more details on its requirements. The letter went on to say, “The standards proposed by your Department could result in a convicted felon receiving federal dollars and gaining access to confidential taxpayer information. The same standards allow any individual who has registered with the exchange and completed two days of training to facilitate enrollment, as if the decision to purchase health insurance is similar to the decision of registering to vote.” The Senators also noted that the “unreasonably low standard” for becoming a navigator both undermines the state’s ability to ensure consumers are protected and raises questions about the appropriate use of federal resources and the protection of highly sensitive information. During the cabinet meeting both Commissioner McCarty and CFO Jeff Atwater noted the passage of this past session’s SB 1842 which, among other things, requires federal navigators to be registered with the Department of Financial Services (DFS) and undergo state and federal criminal history background checks as part of the DFS registration process. Unfortunately, however, recently released federal rules appear to create other positions involved in the process referred to collectively as, “non-navigator assistance personnel.” A major question left unanswered during the cabinet meeting was whether these positions (Navigator Assisters and Application Counselors) identified in the federal rules will require registration and fingerprinting by DFS as do navigators. Also, in a recently issued press release, HHS stated, “Navigators will be required to adhere to strict security and privacy standards – including how to safeguard a consumer’s personal information. They will be required to complete 20-30 hours of training to be certified, will take additional training throughout the year, and will renew their certification yearly. All types of enrollment assisters – including in-person assistors, Certified Application Counselors, and agents and brokers – are required to complete specific training and are subject to federal criminal penalties for violations of privacy or fraud statutes, on top of any relevant state law penalties.” Regardless of this reassurance, Florida Attorney General Pam Bondi noted that she and twelve of her counterparts in other states very recently wrote to Secretary Sebelius asking a number important questions about navigator training, confidentiality of information and related issues, requesting a response by no later than Wednesday of this week. We will keep you updated as this issue unfolds.
OIR Approves Florida Blue Corporate Structure Change; However, Restricts Stock Sales
The Office of Insurance Regulation (Office) issued an Order on August 16th authorizing Blue Cross and Blue Shield of Florida, Inc. d/b/a Florida Blue to reorganize its corporate structure and move subsidiary companies within the group. However, the Order does not authorize Florida Blue to sell stock to investors outside the Florida Blue group. Click HERE to view the new organizational structure. The approved plan allows Florida Blue to reorganize under a not-for-profit mutual insurance holding company. Current policyholders who are members of the not-for-profit mutual insurance company known as Florida Blue will control 100% of the new parent not-for-profit mutual insurance holding company which will continue to control the entire group.
Key aspects of the approved plan include:
•The Order does not approve a demutualization.
•The Order does not allow the sale of stock of Florida Blue or the newly created non-insurance stock company to investors outside of the group.
• The Order approves a restructuring of companies within the group.
• The Order permits the transfer of assets from Florida Blue to a newly created non-insurance stock company.
• The Order authorizes the creation of a new not-for-profit mutual insurance holding company that will own 100% of Florida Blue and the new non-insurance stock company.
• The new not-for-profit mutual insurance holding company will be owned by the members of Florida Blue so that the members retain control of the group.
• Eligible members must still approve the plan for it to take effect.
• Executive compensation will not change as a result of the Reorganization.
• Health insurance rates and coverage will not change as a result of the Reorganization.
• Policyholder rebates under the Affordable Care Act are not affected by this Reorganization.
• The owners of Florida Blue will become the owners of the new not-for-profit mutual insurance holding company at the top of the organization.
The plan is still subject to member approval. Florida Blue members will have an opportunity to vote on this transaction at the annual meeting tentatively scheduled for September 10th. Florida Blue will send notice of this meeting to its members along with proxy materials explaining the transaction.
Justice Department Confirms Sentencing of Former Louisiana Deputy Insurance Commissioner
On August 16th 2013, J. Walter Green, Acting United States Attorney for the Middle District of Louisiana announced that Richard L. Chambers was sentenced after having pled guilty to racketeering based on his corrupt activity while serving as Deputy Commissioner with the Louisiana Department of Insurance. Chambers was sentenced to 30 months imprisonment, 1 year of supervised release following imprisonment, a fine of $10,500, and forfeiture of $11,341 as part of the federal investigation titled, “Operation Blighted Officials.” The U.S. Attorney’s office said Chambers was involved in two corrupt schemes in 2009 and 2010 while serving as Deputy Commissioner. In the first, Chambers allegedly used his department position to steer insurance business from municipalities and other entities to an insurance agent in exchange for a split of the commissions, federal officials noted. Prosecutors said Chambers created the scheme and estimated that it would generate between $200,000 and $4,000,000 in commissions. In the second scheme, Chambers allegedly took $5,000 in cash bribes to use his official position to fraudulently secure $500,000 in private investor funding for a conceptual trash can cleaning product, according to the U.S. Attorney’s Office. This case is part of a long-running public corruption investigation conducted primarily by the United States Attorney’s Office and the Federal Bureau of Investigation.
OIR Announces Receipt of NCCI Workers’ Compensation Rate Filing
The Office of Insurance Regulation recently announced it has received the National Council on Compensation Insurance (NCCI) annual rate filing for workers’ compensation insurance rates in Florida. The proposed overall rate change is an increase of 1 percent to become effective on January 1, 2014. OIR says it will conduct a careful review and thorough analysis of the rate filing to evaluate its potential effects on Florida’s workers’ compensation insurance marketplace and employers. The OIR also anticipates conducting a public hearing in early October. Regardless, many experts believe Florida employers can expect minimal or no change in their 2014 workers’ compensation rates due to the state-wide average one percent rate increase request. The Council’s filing is the fourth consecutive increase requested by the rating agency; however, NCCI and OIR continued to note the success of legislative changes to Florida’s workers’ compensation laws in 2003. Before those legislative changes, Florida routinely found itself in the group of states with the highest workers’ compensation rates. Since the 2003 legislative reforms ten years ago, comp rates in Florida have come down by 64.7 percent and even if the recent filing is approved by OIR, comp rates will still be down about 56 percent from their pre-reform level. NCCI says that this year’s filing reflects several factors including the continued stabilization of the state’s loss experience. Also, claims frequency was up in 2011, but not nearly to the degree that it had been between the years 2008 and 2010. In fact, NCCI reports that most of the proposed one percent increase request reflects that medical costs are outpacing wage inflation and declines in expenses. Taking a high-level look at the filing, it appears rate changes would be modest, ranging from an average high of 3.5 percent in construction classes to a low of minus 3.2 percent throughout the manufacturing classes. Goods and services would incur an average increase of 1.1 percent while miscellaneous classes would see an average increase of 0.9 percent. Office and clerical classes would see a small average increase of 0.3 percent. We’ll keep you posted on developments concerning this rate filing.
Commissioner Responds to CFO’s Inquiry Regarding Property Rates and Reinsurance Costs
As you will recall, on August 7th Chief Financial Officer Jeff Atwater wrote Insurance Commissioner Kevin McCarty asking for a justification as to why insurers have not lowered property rates in light of reports about considerably lower reinsurance costs as of late. McCarty quickly responded to the CFO in a letter of August 9th and cited several reasons why a significant drop in reinsurance costs has not yet corresponded with a significant drop in property insurance rates. Please click on RESPONSE to read Commissioner McCarty’s letter back to the CFO.
Homeowners’ Policy & Claims Working Group Update
The Homeowners’ Policy and Claim Bill of Rights Working Group met in Pinellas County on August 19, 2013 for an all afternoon meeting at the Pinellas Realtors Organization. The majority of the meeting was dedicating to discussing and suggesting wording changes to a proposed Homeowner’s Policy and Claim Bill Of Rights that may be recommended by the working group for legislative adoption in its final report and recommendations. It’s our understanding at this point that such a Homeowner’s Bill Of Rights, if recommended by the working group and adopted by the Legislature, would be in addition to the current Policyholders’ Bill of Rights found in Section 626.9641 of the Insurance Code. You may click on DRAFT in order to view a rough draft of the Homeowner’s Policy and Claim Bill Of Rights. This document was prepared by the Consumer Advocate’s office based on conversations throughout the working group’s prior meetings and to some degree the Texas DOI’s Consumer Bill of Rights for Homeowners, Dwelling and Renters Insurance. As soon as the working group releases a revised version of the proposed Florida Homeowner’s Policy And Claim Bill Of Rights based on edits suggested during this past Monday’s meeting we will share that with you. It remains the goal of the working group to issue its final report and recommendations before legislative committees begin this fall. It is very likely that another conference call meeting of the working group will be scheduled in the near future to help finalize the group’s formal recommendations. We will keep you up-to-speed as working group activities progress.
If you are Reading this Newsletter between August 26-28…
…we are in Indianapolis at the Summer National Association of Insurance Commissioner’s (NAIC) meeting. Always a packed agenda, we will be there representing our clients and the great state of Florida to the other states within our U.S. We’ll tell you all about it when we return and then, as we all know, September brings some cooler weather (hopefully) and then the blast of 2013-2014 committee weeks, beginning the week of September 23rd. So, it all begins again. We have much information and innovative ideas for the 2014 Session and we know we’ll see you all there.
Warmest regards always – Lisa
