The Incredibles
We have chosen several topics for this week’s newsletter that we deem “incredible” and are sharing our thoughts with you. Because we think you all are incredible, we always want to hear your thoughts in return. Happy reading!
The Incredible Shrinking Cat Fund…or Not
HB 1107 and SB 1262 would shrink the state’s Florida Hurricane Catastrophe Fund, a tax-exempt fund that provides low-cost backup insurance for property insurers. Shrinking the $17 billion “Cat Fund” to $14 billion over three years would likely increase insurance premiums according to initial estimates by the Insurance Consumer Advocate, Robin Westcott. Westcott said that the rate increase, however, would be offset by what she identified as a trend toward reduced rates in the private reinsurance market and she estimated reinsurance costs would go down by as much as 10% to 15%. Sen. Alan Hays, R-Umatilla, who is leading the Senate debate with other supporters of shrinking the Cat Fund say it’s a fiscally prudent move to lower the top limit and close the gap between what Cat Fund Director Jack Nicholson says he is liable for ($17 billion), what he can borrow (about $5 billion) and what he has in the bank (about $10 billion). The $1.5 to $2 billion gap is what he is trying to close and he doesn’t want to chance what the financial markets might hand him in the event of a massive hurricane and volatility that goes with it. He was firm in his statements that insurance companies would go bankrupt if the big one hits which would mean claims would not be paid. Sen. Hays closed his arguments by saying, “Without a firm foundation, no industry will be able to stand and without proper financial background, and the Cat Fund will not be able to pay the claims.”
The contrasting view to Sen. Hays’ bill was contained in an amendment by South Florida Democrat, Sen. Jeremy Ring, presented Thursday morning March 14 in the Senate Banking and Insurance Committee. Senator Ring, in presenting his amendment, said that the above doomsday scenario is very unlikely since the bond markets could provide billions of dollars to cover a disaster. He cited that the cat fund shortfall is a timing issue as the cat fund would not need billions the day after a storm and the cat fund’s $10 billion in the bank could be more efficiently used to assist companies with reducing reinsurance costs especially for Citizens take outs. One carrier testified in writing that if the cat fund’s retention was lowered, they could lower rates by 5% to 8%. Robin Westcott’s commented, “I just don’t agree with the approach of dropping the (cat fund’s retention) limit. What we are talking about here is that if you do that rates will go down? Really? There is no guarantee (by the companies) of that.”
The House’s debate (in a bill sponsored by Rep. Bill Hager) has not publicly contemplated reducing the cat fund retention and is currently following Sen. Hays’ bill language of reducing the top of the cat fund and leaving the bottom retention alone. A study completed by actuary John Rollins (click name to view study), provided data to support the cat fund retention reduction. The bill analysis of SB 1262 provides information on reducing the top of the cat fund.
This week’s meetings: House Insurance is scheduled Tuesday, March 19th and Senate Insurance is scheduled Wednesday, March 20th. Please check links provided in this newsletter to check agenda items, etc.
The Incredible Expanding Medicaid…or Not
Whether we call it Medicaid or health insurance, lawmakers are looking to provide health coverage to those not covered. On Wednesday, the Senate Health Policy Committee held a workshop and listened to testimony on what a program to expand health coverage might look like. Getting more people covered is a mandate of the new federal health care law. Our legislators don’t want to do it by expanding Medicaid but by looking at other ways to get uninsured people covered.
The Senate Select Committee on the federal Affordable Care Act voted on a party line vote of 7 to 4 to reject the fed’s method to expand Medicaid and use Florida’s Healthy Kids program as a “third option.” The third option would provide health coverage to nearly a million adults living on income up to 138 percent of the federal poverty line. Republican senators argued Medicaid is a broken system, that it made no sense to enroll people into it, and Florida would be well-served to use its existing structure through the Florida’s Healthy Kids program to help those that are uninsured. Committee Chairman Joe Negron, R-Stuart, provided the following “principles” for the uninsured:
• Build upon the Florida Healthy Kids program;
• Include copayments, so there is cost sharing;
• Feature a health savings account so that healthy behavior is rewarded;
• Do away with what Negron called the “disparaging language of Medicaid that connotes dependency on government rather than individual ownership”. He talked about how it is not right for the uninsured to say they are “on” Medicaid and he prefers they be “insured” with a viable program. “What I want to explore is empowering people with private health insurance. People who go to work every day to pay their taxes would rather be in a private health insurance plan than be on the Medicaid program. So, that is what we’re going to explore.”
The ACA calls for providing coverage to people living in households earning up to 138 percent of the federal poverty level. That’s about $16,000 for an individual and $27,000 for a family of three. Currently, a single parent with two children must earn less than $9,000 to qualify for Medicaid.
State economists project expanding health care coverage would draw down more than $51 billion over 10 years while costing the state $3.5 billion. Any Florida plan would have to be approved by the federal government for such subsidies to be available.
A House committee last week voted not to recommend expansion. House members said they didn’t want to expand what they view as a broken Medicaid system and expressed interest in an alternative.
Governor Rick Scott has called for an expansion and said he is confident lawmakers will do the right thing.
The Incredible Shrinking Sinkholes…We Pray
A Florida court upheld a decision by state insurance regulators that property insurers must offer sinkhole loss coverage in an amount equal to the dwelling coverage limit. The article in the Winter Haven News Chief reported that Florida Farm Bureau asked the Office of Insurance Regulation to approve an amendment to its endorsement form that would limit sinkhole loss coverage to 25 percent of the overall coverage amount. When OIR rejected the request, Farm Bureau filed suit in court. Stories of sinkholes abound on television stations throughout the state. And the stories aren’t just in “sinkhole alley” anymore. WCJB (ABC/Gainesville) reported on a home getting sinkhole repairs. A geologist notes that filling the underground hole with grout does not guarantee there won’t be another sinkhole in the future, but in most cases it tends to work. Another reporter did a report on a homeowner whose insurer paid policy limits to cover the sinkhole claim, but it wasn’t enough to repair the sinkhole damage. The homeowner paid off her mortgage and now wants the city and county to buy out her home so she can move.
Some insurers are reporting that SB 408 is working with frivolous sinkhole claims counts being reduced. In the Friday, March 8 Citizens Claims Committee meeting, staff reported that while 2012 new reported sinkhole claims decreased by 29.8% in total volume from 2011, there is a total pending sinkhole claim inventory as of year-end 2012 at 5,422. Through non-litigated pending inventory reduction efforts, Citizens was able to close 6,542 sinkhole claims through year end 2012 compared to 4,112 through year end 2011, representing a 59.1% year over year increase in closures. There was discussion in the claims committee meeting about a sinkhole coordination counsel, a law firm designated to coordinate between Citizens insurance defense law firms who are leading Citizens sinkhole litigation. The lawyer representing the firm says they have expanded their army of lawyers from four to one hundred firms. I would love to hear the thoughts of those involved out there in sinkhole litigation about this legal army expansion.
There is a hodge-podge of bills in both the Senate and the House that are addressing sinkholes “around the edges.” One bill specifies that if a Citizens policyholder has a sinkhole claim and it is repaired according to engineering specifications, then Citizens has to reinsure the home. (Current practice is the homeowner has to seek property insurance coverage in the surplus lines market which consumer advocates say is non-existent.)
The Incredible Shrinking Citizens Property Insurance Corporation…We Hope
House and Senate packages shrinking Citizens, cleaning up its finances, making claims payments with fewer statewide assessments and promoting the private market place are in serious play. While the packages are different, they do agree on the important issues. Two of those issues are including a Citizens “keep-out” clearinghouse and a phased-in reduction in maximum home replacement values under which a risk would be eligible for Citizens coverage.
Although changes were made to minimize how much of a rate increase might hit Citizens policyholders, there will still be rate impact. Some provisions which would increase rates are phased-in; including reducing the maximum insurable limits of homes eligible for Citizens coverage from $1 million to $500 thousand implemented over a six-year period. The House, while it has limited its scope on Citizens reform, is primarily focused on leading the Citizens clearinghouse proposal which is the mechanism that will help ensure compliance with Citizens eligibility standards before policies make it into Citizens. What this means is that the policyholder would have to make it through the clearinghouse and then each year or two, their agent would be required to shop the market for the customer or the customer could find sound rates while in Citizens, as the proposals call for a new standard for continued eligibility for Citizens when a policy comes up for renewal. Review SB 1770 and a few key points when you have a moment.
The Incredible Omnibus Catch-All Property Insurance Package House Bill 635 was approved by the House Banking & Insurance Subcommittee on March 6. While this was intended to be a noncontroversial bill to clean up some insurance code, it grows larger and larger. The revised bill with amendments will be posted as CS/HB 635 on the House site. This bill includes in part authority for electronic proof of automobile insurance and electronic distribution of insurance policies; a three-year extension of the medical malpractice exemption from Florida Hurricane Catastrophe Fund assessments; allowing a weighted average of hurricane loss models in property insurance rate filings; allowing parties to negotiate rate factors in retrospective rating in workers’ compensation; and reducing the notification period for property insurance non-renewals, cancellations, or terminations given to policyholders. At this point, two other issues are being considered for this bill:
1. The new language on a notice of change in a renewal policy says that the insurer may either enclose the notice of change in the written notice or renewal premium or send it in a separate notice that complies with the nonrenewal mailing time requirement for that particular line of business. The insurer must also provide a sample copy of the notice to the insured’s insurance agent before or at the same time notice is given to the insured and
2. Clarification of the length of effectiveness of PIP medical fee schedules. There are other major pieces of the package that might interest you, take some time and explore HB 635
And of course, there’s the Budget
Good news AND good news!
First, good news is that lawmakers will have more than $3.5 billion more to work with this year than last year. By all accounts, the state could have a surplus of $1.1 billion. WOW!!!!
And the second good news is that the Governor is bullish on his proposal to provide every teacher a $2,500 pay raise and his intent to add millions to reduce the waiting list for services needed by Florida’s disabled adults.
As a reminder, the only bill the legislature is required to pass is the budget. The Governor released his version the first part of this year. The House and Senate will each release theirs most likely this week. “I think our hope is to be on the same timeline as the Senate. Ideally, we would like to be tracking with them. So I think you’ll see next week, very early in the week, that we’ll have allocations go out to the committees,” said House Speaker Will Weatherford. Despite his objections to accepting federal money to increase Medicaid eligibility as part of the federal law, Weatherford said he was willing to look at a Senate proposal to accept the federal funding but use it to place people in private sector health insurance plans. He added that differences between the House and Senate over the approach to Medicaid expansion shouldn’t hold up budget talks. “I think you’d say there’s still a concern (about taking federal money). But let’s say that a conversation about getting people on private insurance is a much better conversation as far, I believe, as our chamber is concerned when talking about expanding the Medicaid rolls by 1 million people,” Weatherford said. House Budget Chairman Seth McKeel said, “The findings of today’s revenue estimating conference are encouraging. For the first time in many years, Florida will have a budget surplus as our economy shows further signs of recovery. Though this is certainly welcomed news, my optimism is clouded by the potential effects of sequester on Florida’s economy.”
Stay tuned next week as we follow the Incredible money trail! -Lisa
