State of Florida Legislative Update May 19, 2011

In This Issue

Capitol Report: Legislative Update

Florida Surplus Lines Association

Legislative Update 2011

May 19, 2011

The 2011 session finished with a flurry of activity on the last day of session as Legislators worked past midnight, and did not conclude their business until early Saturday morning as they passed an almost $70 billion budget that took the axe to education, health care and transportation, and tax cuts for businesses.

What began as an apparent good session to advance the insurance, and other pro-business industry issues with a Republican controlled legislature along with a Republican Governor who campaigned on a Pro-business platform, turned into a surprisingly acrimonious final week. More than 2,000 bills were filed during the 2011 session, but less than 300 Passed. That was the lowest number in a decade, and somewhat surprising as the GOP also holds a 'super-majority' advantage in the legislature enabling them to advance their agenda with little resistance from the Democrats.

Overall from a surplus lines perspective, the session should be considered a success. The omnibus insurance package which we supported as an industry was passed on the final day, which also included the language advocated by the FSLA that extended the limitation on claims filing by Public Adjusters to 3 years for all property from the originally filed personal lines residential limitation. Another priority issue of the FSLA and joined by the FAIA- an amendment to eliminate the 'due diligence' requirements for certain lines of business prior to placing coverage with surplus lines insurers- also passed. And finally, the Surplus Lines Tax bill made it through the process for final passage. A top priority issue for the Office of Insurance Regulation, if not passed (or if the Governor vetoes the bill) would cost an estimated $24 million in lost tax revenue to Florida's General Revenue. The provisions provide critical implementation legislation to ensure Florida will have the opportunity to join any type of 'Compact' or other entity created with other states that may likewise join in order to determine the proper tax allocations as required by the passage of the federal legislation (The Non-admitted and Reinsurance Reform Act "NRRA").

Further, there were no bills that passed that could be deemed as a negative to the Florida Surplus Lines Association. One issue that we were advocating that did not pass was the elimination of commercial coverages being placed into Citizens, and a cap on windstorm risks at $1,000,000, decreasing to $750,000 and $500,000 over time. The provision was in the big Citizens Property Insurance Corporation bill and set to pass, but the bill became a victim in the battle between Senate and House leadership and failed to pass. The issue, which was also advocated by the Governors office, is sure to be back next year. Also of note, the amendment that would have allowed for a "take-out" of policies from Citizens by Surplus Lines Insurers, failed to pass. This issue will also most likely be back as well in 2012
SB 408 Property & Casualty Insurance by Senator Richter

One of the FSLA's top priorities was included in the main insurance package that PASSED. The new language as adopted will extend to 'commercial coverages' the 3-yr limit on the restriction to file windstorm or hurricance claims for Public Adjusters after the event. Further, 'sinkhole loss' claims now have to be brought within 2 years. (*Note- This provision is Effective June 1, 2011). Other key provisions in the comprehensive package apply mostly to the admitted market and includes, but not limited to:

Creates a 5-year statute of limitation for the breach of a property insurance claim that runs from the date of loss.
Reduces the notice of non-renewal from 180 to 120 days for residential property insurance policyholders that have been with their company for 5+ years. Maintains current law otherwise requiring 100 days notice or notice by June 1 (or 100 days notice if that will be longer) during hurricane season.
Removes a provision requiring Citizens to offer sinkhole coverage. However, it requires all insurers to offer sinkhole coverage for an additional premium.
Modifies current replacement cost coverage and actual cash value provisions relating to dwellings and personal property. Requires insurers to provide two replacement cost coverage options for payment of personal property insurance claims: One is to pay full replacement cost without reservation; two is that the insurer pays the depreciated value and holds back remainder of coverage until policyholder provides receipts. Requires notice of claim payment process on second option before the policy is bound. Also requires insurer to provide an actuarially reasonable premium discount for using second option.
Revises the regulation of public adjusters by placing limits on public adjuster compensation, prohibiting certain statements in public adjuster advertising, and revising the contents of the public adjuster contract;
Revises what constitutes a sinkhole loss;

The bill has been signed into law, and is effective May 17^th, 2011

HB 1087 Insurance by Representative Holder

This bill was amended to include language that eliminates the 'due diligence' requirements prior to placing coverage with surplus lines insurers for those commercial risks that have been deregulated by statute as to rate. This applies to most commercial lines, but does not include commercial residential risks, which along with personal lines, will still have the requirement for diligent effort. We were fortunate to partner with FAIA who also wanted this piece and did stupendous work in the final weeks to save it from dying. The bill contains other provisions not necessarily applying directly to surplus lines, but of general interest to the insurance industry such as:

Bars persons who commit specified felonies from applying for licensure and revises license waiting periods.
Changes recipient of notice from "named insured" to "first named insured" for Notice of cancellation notices.

Provides that when a cancellation request is made by the insured in writing, the effective date of cancellation is the date requested by the insured or the date of the request if no date is specified. Provides that requests for insurance-related information from self-insured corporations must be sent by certified mail to the registered agent of the disclosing entity.

Provides an exemption from certificate of authority requirements for insurers domiciled outside of the U.S. and covering only persons who, at the time of issuance or renewal, are nonresidents of the U.S., but residing legally in the U.S. The bill was amended on the floor to include all lines.Effective July 1, 2011, with some provisions effective upon becoming law.

SB 1816 Surplus Lines Insurance by Senator Fasano

Applies the surplus lines tax to the entire premium if the state is the home state of the insured as defined in the Nonadmitted and Reinsurance Reform Act ("NRRA").

Authorizes the Department of Financial Services ("DFS") and the Office of Insurance Regulation ("OIR") to enter into cooperative reciprocal agreements with other states to collect and allocate nonadmitted insurance taxes for multistate risks pursuant to the NRRA.

Provides that surplus lines agents (and insureds that do not use a surplus lines agent to procure coverage) have 45 days after the end of the calendar quarter to file an affidavit describing transactions handled during the last quarter and pay the required premium tax and fees. Current law requires the affidavit to be filed on or before the end of the month after end of the quarter.

Specifies that the surplus lines tax shall be computed on the gross premium when the surplus lines policy covers risks that are only partially in Florida, and Florida is the home state as defined by the NRRA.

Allows surplus lines agents 45 days following each calendar quarter to pay to the Surplus Lines Service Office all service fees related to policies reported during the previous quarter. Current law requires monthly payments. The fee will be computed on the gross premium when the surplus lines policy covers risks that are only partially in Florida, and Florida is the home state as defined by the NRRA.

Authorizes the DFS and the OIR to enter into cooperative reciprocal agreements with other states to collect and allocate non-admitted insurance taxes for multi-state risks pursuant to the NRRA.

Provides for a service fee of up to 0.3% of gross premium on transactions processed by the clearinghouse (or other entity created by agreement) to fund the operations of the clearinghouse.

The reciprocal agreements must be implemented by the Florida Surplus Lines Service Office, which is authorized to collect the total tax imposed on a multi-state risk nonadmitted insurance premium. The OIR and the DFS are granted rulemaking authority to administer agreements reached with other states.

Requires that insureds that do not use a surplus lines agent to procure surplus lines coverage must pay the surplus lines premium tax and the service fee within 45 days following each calendar quarter in which the insurance was procured. Current law requires payment within 30 days after the insurance is procured. Specifies that the surplus lines tax paid by the insured shall be computed on the gross premium when the surplus lines policy covers risks that are only partially in Florida and Florida is the home state as defined by the NRRA

HB 99 Commercial Insurance Rates by
Representative Drake

Expands the following commercial insurance coverage's that are exempt from the rate filing and approval process: Fiduciary Liability, General Liability, Nonresidential Property (but not collateral protection insurance), Non-residential Multi-peril, Excess Property, and Burglary and Theft. Note- these rates still cannot be excessive, inadequate, or unfairly discriminatory as determined by current law and the OIR. Additionally, the bill will allow insurers selling these types of coverages to make pricing changes for those coverages on a more expedited basis and avoid some of the expense incurred in a full rate filing and review process.

Bills of Note that Did "NOT" Pass the Legislature

Citizens Insurance Corporation- Sb 1714/Hb 1243. As noted above, the bill was killed as a retaliatory act by the House.

Residential Property Insurance- Sb 1330/Hb 885 (Deregulation of residential rates under certain circumstances) a/k/a this year's State Farm bill. Issues made it to the House Calendar, but never made it on Calendar in Senate.

Captive Insurance- Hb 1235/Sb 1836. Would have defined a "captive insurer" as a domestic insurer that is owned by, or is under common ownership with, a specific corporation or group of corporations for which the captive insurer provides insurance coverage; and would have added a definition for "pure captive insurer" to mean a company that insures the risks of its parent, affiliated companies, controlled unaffiliated businesses, or a combination thereof.

Once a bill is passed by both the House of Representatives and the Florida Senate respectively, the bill is "Enrolled" by the legislature into its finalized version, and then sent to the Governor for his action. During an 'active' legislative session the Governor has only seven (7) days after receiving a bill that has been passed to:

1. Sign the bill into law
2. Let the bill become law without his signature by allowing the 7 days to expire without any action 3.Veto the bill. (*If the Governor vetoes a bill, both the House and Senate can 'override' the veto by a two-thirds vote. Normally, this is a tough hurdle to overcome by a legislature; however, both the Florida House and Senate currently hold a 'super-majority' advantage and can override any veto by the Governor.)

Once Session 'adjourns sine die' (i.e. concludes business for the session), or takes a recess of more than 30 days, the Governor's deadline to act is extended to 15 days from the time he receives the bill.

We will continue to provide updates on the Governor's actions on the bills passed by the 2011 Legislature.