House Staff Analysis: PCS for HB 305 Insurance (Insurance & Banking Subcommittee)
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Summary
A House of Representatives staff analysis of the PCS for HB 305, an insurance bill sponsored by the Insurance & Banking Subcommittee, dated 3/20/2021. It states that the bill clarifies the Office of Insurance Regulation's authority to examine managing general agents and requires insurers doing business in Florida to file quarterly data on property insurance claims litigation. The analysis describes changes to Citizens Property Insurance Corporation, including an eligibility threshold of 20 percent, annual rate increase caps and a salary cap of 150 percent of the head of the Office of Insurance Regulation's salary. It also describes a two-year notice deadline for property insurance claims and a ten-day presuit notice requirement. The analysis reports no fiscal impact on state or local government and an effective date of July 1, 2021.
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Cite this document
“House Staff Analysis: PCS for HB 305 Insurance (Insurance & Banking Subcommittee).”
Original at www.flhouse.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/2021-3100-insurance-banking-subcommittee-proposed-committee-bill-analyses-fn-pcs0305-ibs/
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HOUSE OF REPRESENTATIVES STAFF ANALYSIS
BILL #: PCS for HB 305 Insurance
SPONSOR(S): Insurance & Banking Subcommittee
TIED BILLS: IDEN./SIM. BILLS:
REFERENCE ACTION ANALYST STAFF DIRECTOR or
BUDGET/POLICY CHIEF
Orig. Comm.: Insurance & Banking Subcommittee Fortenberry Luczynski
SUMMARY ANALYSIS
The bill makes several changes related to insurance:
Office of Insurance Regulation (OIR) – Authority to examine managing general agents (MGAs) – The
bill clarifies that OIR has the same authority to examine MGAs, including affiliates of insurers, as it has to
examine insurers, even if the MGA represents a single domestic insurer. It requires that each insurer
paying an affiliate shall produce information regarding fees paid to the affiliate upon request by OIR. It also
requires that all MGAs must execute contracts with the insurers that they do business with even if they
control, or are controlled by, an insurer.
Collection of property insurance claims litigation data by OIR – All insurers with a Florida certificate of
authority must file quarterly and annual reports with OIR that contain various financial data and actuarial
opinions. However, they are not required to collect or report data regarding the litigation of property
insurance claims. The bill establishes that each insurer or insurer group doing business in Florida shall file
specific data regarding litigation of personal and commercial residential property insurance claims on a
quarterly basis.
Citizens Property Insurance Corporation (Citizens) – The bill makes several changes to the operations
of, and requirements for, Citizens, the state-run property insurer:
o Revises the eligibility for residential property owners to obtain coverage from Citizens so that they
are not eligible for Citizens’ coverage if they can obtain coverage from private insurers that is less
than 20 percent greater than the premium for comparable coverage from Citizens
o Establishes that if Citizens does not buy reinsurance to cover its projected 100-year probable
maximum loss, it must still include the cost of such reinsurance in its rate calculations.
o Establishes that no employees of Citizens may receive salaries in excess of 150 percent of the
salary received by the head of OIR, with certain exceptions.
Notice of property insurance claims – Notice of hurricane or windstorm loss must be provided to a
property insurer within three years of the date of loss. Notice for all other types of property insurance claims
must be provided within five years of the date of loss. The bill changes the notice of claim deadlines in the
Insurance Code so that notice of any property insurance claim must be provided to a property insurer
within two years of the date of loss.
Presuit notice and demand requirements for property insurance claims – The bill creates new
statutory requirements for residential or commercial property suits that are not brought by an assignee,
including a ten-day presuit notice and demand, after a determination of coverage, before bringing suit
against an insurer. An insurer served with this notice must respond in writing within ten days by either
making a settlement offer or requiring participation in an appraisal or alternative dispute resolution
proceeding as provided for in the policy.
The bill has no impact on state or local government revenues or expenditures. It may have a positive direct
economic impact on the private sector.
The bill has an effective date of July 1, 2021.
This document does not reflect the intent or official position of the bill sponsor or House of Representatives.
STORAGE NAME: pcs0305.IBS
DATE: 3/20/2021
FULL ANALYSIS
I. SUBSTANTIVE ANALYSIS
A. EFFECT OF PROPOSED CHANGES:
Office of Insurance Regulation (OIR) – Authority to examine managing general agents (MGAs)
Background
MGAs
An MGA is a specialized type of insurance agent or broker that has underwriting authority from an
insurer.1 MGAs can perform certain functions that insurers typically handle, including binding coverage,
underwriting and pricing, agent appointments, and claims adjusting and settlement.2 An MGA may be
an affiliate of an insurer. Section 624.10(1), F.S., defines an affiliate as an entity that exercises control
over or is directly or indirectly controlled by an insurer. Under current law, MGAs must enter into
contracts with insurers with which they do business unless the MGA is a controlled or controlling person
of the insurer (i.e. an affiliate).3 These contracts must specify the division of responsibilities between
the insurer and the MGA.4
Examination of Insurers and MGAs
OIR is responsible for examining the affairs, transactions, accounts, records, and assets of each insurer
that holds a certificate of authority to transact insurance business in Florida.5 Examination authority
extends to the examination of MGAs6 unless the MGA solely represents a single domestic insurer.7
With certain exceptions, OIR must examine domestic insurers8 at least once every five years and the
exam shall cover the preceding five fiscal years.9
As part of the examination process, all persons being examined must make available to OIR the
accounts, records, documents, files, information, assets, and matters in their possession or control that
relate to the subject of the examination.10 As part of an examination, OIR reviews contracts between
insurers and MGAs, so that it can determine how much an insurer is paying its MGA and what services
the insurer is receiving for the fee it pays. However, the lack of contracts between insurers and their
affiliate MGAs sometimes makes it difficult to determine how much the insurer is paying and what
services it is receiving from the MGA.
Effect of the Bill
The bill clarifies that OIR has the same authority to examine MGAs as it has to examine insurers,
whether or not an MGA is an affiliate of an insurer. This authority applies even if the MGA solely
represents a single domestic insurer. It establishes that each insurer paying an affiliate shall produce
information regarding the fee paid to the affiliate upon request by OIR. OIR may determine whether the
fee an insurer pays to an affiliate is fair and reasonable and, in so doing, may consider the actual cost
of the services being provided in exchange for the fee. Further, the bill establishes that all MGAs must
1
IRMI, https://www.irmi.com/term/insurance-definitions/managing-general-agent (last visited Mar. 19, 2021).
2
Id.
3
S. 626.7451, F.S.
4
Id.
5
S. 624.316(1)(a), F.S.
6
Id.
7
S. 626.7452, F.S.
8
A domestic insurer is one formed under the laws of Florida. S. 624.06(1), F.S.
9
S. 624.316(2)(a), F.S. While s. 624.316(1)(a), F.S., clearly states that OIR may examine MGAs, because some MGAs are considered
affiliates of insurers, and 624.316(2)(a), F.S., does not specify that OIR may examine affiliates in the same way as insurers, OIR has
indicated that some MGAs have not been completely cooperative with the examination process.
10
S. 624.318(2), F.S.
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DATE: 3/20/2021
execute contracts with the insurers that they do business with, even if they are MGAs that control, or
are controlled by, an insurer.
Collection of property insurance claims litigation data by OIR
Background
All insurers with a Florida certificate of authority to transact insurance business must file quarterly and
annual reports with OIR that contain various financial data and actuarial opinions.11 However, the law
does not currently specify that insurers must report data regarding the litigation of claims.
OIR recently conducted a data survey of property insurers to gather information regarding the litigation
of personal or commercial residential property insurance claims.12 In response to this survey, several
insurers indicated that they could not provide OIR with answers to questions related to litigation trends
because they did not collect the requested data as part of their claims evaluation and adjusting
process.13
Effect of the Bill
The bill establishes that each insurer or insurer group doing business in Florida must provide specific
pieces of data regarding litigation of personal and commercial residential property insurance claims to
OIR on a quarterly basis. This data includes, but is not limited to, the following information on a per
claim basis:
Type of policy;
Date, location, and type of loss;
Dates on which the claim was reported to the insurer, closed by the insurer, and reopened by
the insurer;
Whether the claimant had a public adjuster or an attorney;
Total amounts that the insurer paid for indemnity, loss adjustment expenses,14 and insured’s
attorney fees;
Whether the insured’s attorney requested that a contingency risk multiplier (CRM)15 be applied
to the attorney fees calculation and, if so, what CRM was applied.
If insurers collect and report this data, OIR and the Legislature should be able to more effectively
identify current and emerging property insurance litigation trends that may be affecting insureds’
rates.16
Citizens Property Insurance Corporation (Citizens)
Citizens is a state-created, not-for-profit, tax-exempt government entity that is an integral part of the
state, whose public purpose is to provide property insurance to those unable to find affordable
coverage in the private market.17
11
S. 624.424, F.S.
12
Report from David Altmaier, Florida Insurance Commissioner, to Chair Blaise Ingoglia, Commerce Committee, regarding cost
drivers affecting Florida’s insurance rates, p. 12 (Feb. 24, 2021).
13
Id.
14
Loss adjustment expenses are the costs associated with investigating and adjusting losses or insurance claims. IRMI,
https://www.irmi.com/term/insurance-definitions/loss-adjustment-expense (last visited Mar. 19, 2021).
15
A CRM is a multiplier applied to attorney fees that reflects the risk of attorneys accepting, on a contingency fee basis, cases that
may be difficult to win. See e.g., Joyce v. Federated Nat'l Ins. Co., 228 So. 3d 1122 (Fla. 2017).
16
Altmaier, supra, note 12, at 12.
17
S. 627.351(6)(a)1., F.S.
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DATE: 3/20/2021
Eligibility and Rates
Background
New applicants are eligible for coverage from Citizens if no private carrier will write them a policy for
premium that is less than 15 percent greater than what Citizens would offer them for comparable
coverage.18 The rate cap, also known as the “glide path,” is not closing the gap between Citizens rates
and private market rates. Instead, because of the rate cap and the increasing rates of private property
insurance, the gap is growing and making Citizens more like a competitor to private insurers than an
insurer of last resort. Annual rate increases for existing Citizens’ policyholders are capped at no more
than 10 percent for any single policy.19 It is unclear if, or how, the law allows OIR to approve a rate
reduction for Citizens.
Because Citizens’ rates are often well below those of private carriers, Citizens may be more
competitive than otherwise intended. Due to Citizens’ structure, its rates do not contain certain
elements that the rates of private insurers contain. Citizens does not pay taxes like private carriers do
and does not have the need to purchase as much reinsurance as private carriers due to higher levels of
capital and surplus.
Current law requires that Citizens make its best efforts to procure catastrophe reinsurance at
reasonable rates to cover its projected 100-year probable maximum loss.20 Due to the high cost of
reinsurance over the recent years, Citizens has determined that it is not available at reasonable rates
and has not purchased it. This lack of purchase has contributed to its rates remaining more competitive
and more consumers being eligible for coverage from Citizens.
Effect of the Bill
The bill establishes that residential property owners are not eligible for coverage from Citizens if they
can obtain coverage from private insurers that is less than 20 percent greater than the premium for
comparable coverage from Citizens.
The bill also establishes that on or after January 1, 2022, Citizens shall implement rate increases that
do not exceed the following percentages for any single policy that it issues:
Eleven percent for 2022;
Twelve percent for 2023;
Thirteen percent for 2024;
Fourteen percent for 2025;
Fifteen percent for 2026 and all subsequent years.
Additionally, the bill prohibits Citizens from filing with OIR a request for the approval of a rate reduction
at any time.
The bill clarifies that Citizens need not purchase catastrophe reinsurance to cover its projected 100-
year probable maximum loss if it is not available at reasonable rates. However, Citizens must include
the cost of this reinsurance in its rate calculations even if it does not purchase the reinsurance.
18
S. 627.351(6)(c)5.a., F.S.
19
S. 627.351(6)(n)6., F.S.
20
S. 627.351(6)(c)9., F.S. Probable maximum loss refers to the value that may be reasonably expected to be lost in a single casualty.
IRMI, https://www.irmi.com/term/insurance-definitions/probable-maximum-loss (last visited Mar. 19, 2021). If an insurer is buying
reinsurance to cover its 100-year probable maximum loss, it is purchasing reinsurance to cover the maximum loss that has a chance of
occurring once in 100 years.
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DATE: 3/20/2021
Salaries of Citizens’ Personnel
Background
Citizens operates pursuant to a plan of operation (plan) that is approved by the Financial Services
Commission (FSC).21 Pursuant to the applicable statute, the plan may contain certain criteria regarding
Citizens’ employees.22 Additionally, the applicable statute specifies that candidates for senior
management positions with Citizens must undergo background checks, that employees must attest
annually that they do not have any conflicts of interests with their employment, and that certain
employees of Citizens are subject to ethics disclosures.23 However, neither the statute nor the plan
provide any parameters for the salaries that Citizens may pay its employees.
Effect of the Bill
The bill provides statutory guidance that Citizens can utilize in its plan to set parameters for employee
compensation. The bill establishes that no employees of Citizens may receive salaries in excess of 150
percent of the salary received by the Florida Insurance Commissioner, with certain exceptions. Anyone
employed by Citizens as of June 30, 2021, whose salary exceeds this cap may keep his or her salary,
but may not receive a raise. Anyone employed by Citizens whose salary does not exceed this cap as of
June 30, 2021, may receive a raise as long as that raise does not cause his or her salary to exceed this
cap.
Notice of Property Insurance Claims
Background
Until 2011, the Florida Insurance Code (Code)24 did not contain a time limit for giving notice of any type
of property insurance claim. Section 95.11, F.S., requires that actions on contracts be brought within
five years. Because an insurance policy is a contract, the five year statute of limitations for contract
actions generally applied to claims under insurance policies. Since a claim must have been made
before a policyholder could sue for breach of contract, and a policyholder had five years to sue for
breach of contract, the claim must have been made within five years of the date of loss.
Section 627.70132, F.S., enacted in 2011, established that notice of any hurricane or windstorm claim,
supplemental claim, or reopened claim25 under a property insurance policy must be provided to an
insurer within three years after the hurricane made landfall or the windstorm caused the covered
damage. Any claim for which notice is not given within the three-year timeframe is barred.26 The three-
year time limit for providing notice of a hurricane or windstorm claim does not affect the five-year
statute of limitations for bringing suit under s. 95.11, F.S.27 This means that while notice of a windstorm
or hurricane claim must be provided to an insurer within three years of the date of loss, suit may still be
brought for an additional two years past the notice deadline.28 The time limit for notice of all other
property insurance claims besides hurricane and windstorm claims has remained equal to the five-year
statute of limitations because statutes do not specify otherwise.
Effect of the Bill
21
S 627.351(6)(a)2., F.S. The FSC is composed of the Governor, Attorney General, Chief Financial Officer, and Commissioner of
Agriculture. S. 20.121(3), F.S.
22
S. 627.351(6)(c)3., F.S.
23
S. 627.351(6)(d), F.S.
24
The Florida Insurance Code is comprised of chapters 624-632, 634-636, 641, 642, 648, and 651, F.S.
25
S. 627.70132, F.S., defines both “supplemental claim” and “reopened claim” as “any additional claim for recovery from the insurer
for losses from the same hurricane or windstorm which the insurer has previously adjusted pursuant to the initial claim.” Because
these terms have the same definition, it is unclear why the statute uses both of them.
26
S. 627.70132, F.S.
27
Id.
28
Often, the type of suit that an insured brings against an insurer is a breach of contract suit based upon a denial of a claim.
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DATE: 3/20/2021
The bill changes the notice of claim deadlines in the Code so that notice of any property insurance
claim, including a claim made under a property insurance policy issued by an eligible surplus lines
insusrer, must be provided to a property insurer within two years of the date of loss. It also makes
technical changes to the statute regarding alternative dispute resolution of property insurance claims so
that the changes to the notice of claim statute do not conflict with that statute.29
Presuit notice and demand requirements for property insurance claims
Background
Under existing law, within 90 days after a residential property insurer receives a notice of an initial,
reopened, or supplemental property insurance claim from a policyholder, the insurer must pay or deny
the claim or a portion of the claim, unless the failure to pay is due to circumstances beyond the
insurer’s control which reasonably prevent payment.30 In some circumstances, a claimant will hire an
attorney and file suit against an insurer before the expiration of the allotted time for the insurer to pay or
deny a claim. In contrast, as a condition precedent to bringing a third-party cause of action to
enforcement an assignment agreement against an insurer, the assignee must provide the name
insured and the assignor a written notice of intent to initiate litigation, delivered at least 10 business
days before filing suit, but not before the insurer has made a determination of coverage.31
Effect of the Bill
The bill creates a new statutory section which applies to all residential and commercial property suits
not brought by an assignee. Under that section, a claimant or claimant’s attorney must give presuit
notice of intent to initiate litigation at least ten business days prior to filing suit, but not before the insurer
has made a determination of coverage as provided for under existing law.32 The notice must include the
following information:
Insurer’s acts or omissions that give rise to the suit;
Damages in dispute;
Demand;33
Amount of reasonable and necessary attorney fees and costs incurred by the claimant.
An insurer served with a presuit notice must respond to the notice in writing within 10 business days
after receiving the notice by making a settlement offer or by requiring the claimant to participate in
appraisal or another form of alternative dispute resolution as provided for under the insurance policy.
The bill establishes that time limits for filing a suit under s. 95.11, F.S., are tolled during the ten-day
period for the insurer to respond to the presuit notice and while appraisal or alternative dispute
resolution is ongoing.
The bill requires that a court must dismiss without prejudice any claimant’s suit relating to a claim for
which presuit notice is given if the suit is commenced before the expiration of the ten-day period for the
insurer to respond. If a court dismissed a claimant’s suit under these circumstances, the claimant’s
attorney is not entitled to an award of attorney fees for services rendered before the dismissal of the
suit.
Finally, the bill establishes that presuit notice is admissible as evidence in a civil suit or an alternative
dispute resolution proceeding, does not limit the evidence of attorney fees or costs, damages, or loss,
29
S. 627.7015, F.S.
30
S. 627.70131, F.S. This statute is sometimes referred to as the “prompt pay” statute for property insurance claims.
31
An assignee is someone who receives policy rights through an assignment by a policyholder (assignor). IRMI,
https://www.irmi.com/term/insurance-definitions/assignee (last visited Mar. 19, 2021). See s. 627.7152, F.S., for presuit requirements
placed on assignees.
32
S. 627.70131, F.S.
33
The statute created by the bill defines demand as “the specific amount alleged to be owed by the insurer to the claimant under the
residential or commercial property insurance policy.”
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DATE: 3/20/2021
which may be offered at trial, and does not relieve the insured or an assignee of any other notice
required by law.
B. SECTION DIRECTORY:
Section 1. Amends s. 624.316, F.S., relating to examination of insurers.
Section 2. Amends s. 624.318, F.S., relating to conduct of examination or investigation; access to
records; correction of accounts; appraisals.
Section 3. Amends s. 624.424, F.S., relating to annual statement and other information.
Section 4. Amends s. 626.7451, F.S., relating to managing general agents; required contract
provisions.
Section 5. Amends s. 626.7452, F.S., relating to managing general agents; examination authority.
Section 6. Amends s. 627.351, F.S., relating to insurance risk reapportionment plans.
Section 7. Amends s. 627.3518, F.S., relating to Citizens Property Insurance Corporation policyholder
eligibility clearinghouse program.
Section 8. Amends s. 627.70132, F.S., relating to notice of windstorm or hurricane claim.
Section 9. Amends s. 627.7015, F.S., relating to alternative procedure for resolution for disputed
property insurance claims.
Section 10. Creates s. 627.70152, F.S., relating to suits arising under a property insurance policy.
Section 11. Provides an effective date of July 1, 2021.
II. FISCAL ANALYSIS & ECONOMIC IMPACT STATEMENT
A. FISCAL IMPACT ON STATE GOVERNMENT:
1. Revenues:
None.
2. Expenditures:
None.
B. FISCAL IMPACT ON LOCAL GOVERNMENTS:
1. Revenues:
None.
2. Expenditures:
None.
C. DIRECT ECONOMIC IMPACT ON PRIVATE SECTOR:
None
D. FISCAL COMMENTS:
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DATE: 3/20/2021
None.
III. COMMENTS
A. CONSTITUTIONAL ISSUES:
1. Applicability of Municipality/County Mandates Provision:
Not applicable. This bill does not appear to affect county or municipal governments.
2. Other:
None.
B. RULE-MAKING AUTHORITY:
The bill requires no additional rulemaking authority for OIR. While the bill requires the adoption of a
form prescribed by the FSC on which insurers will report their property insurance claims litigation data,
the Florida Insurance Code contains existing authority for the promulgation of such forms by the FSC.
C. DRAFTING ISSUES OR OTHER COMMENTS:
None.
IV. AMENDMENTS/ COMMITTEE SUBSTITUTE CHANGES
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DATE: 3/20/2021
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