S 2860 The Insurance Bill -- what's in it?

The Florida Senate is poised to pass S 2860, this year's insurance bill. The bill is moving to the Senate Floor, and it may pass. On the House side, there is no companion will. The House has other ideas altogether. So, as is usual in Florida, this will come down to a last minute "horse trading" session right at the end of this year's legislative meeting.

Here's what's in the bill and FCAN's interpretation. There is also an analysis on the Senate's web site at the link above.

First and foremost, the bill extends "file and use" for setting insurance rates and the bill continues to ban arbitration panels, which weaken and overturn the Insurance Commissioner. These two items are the center of FCAN's insurance program because we believe they are crucial to holding down insurance costs.

Also in S 2860:

Increased penalties for violations of the insurance code. The bill increases the maximum fines up to $100,000 per willful violation from the current $20,000 and eliminates the aggregate cap. This arose because in 2007 insurers didn't seem bothered by fines of $20,000 and seemed to ignore them completely. The bill also allows suspension of the insurer's certificate of authority, meaning they can't sell insurance. These new penalties give the Office of Insurance Regulation (OIR) some real teeth. FCAN supports the change.

Insurance Capital Build Up -- this part of the bill is an additional subsidy to encourage companies to take policies out of Citizens. FCAN is neutral on this provision. FCAN generally opposes subsidies to private companies, but it is possible that this could encourage smaller start up companies that will end up saving money for all Floridians.

Applying Florida Anti-trust law to insurance -- FCAN believes this will help lift the cloud of doubt surrounding insurance practices. As long as consumers know insurance companies are exempt from these laws, consumer will believe insurers take advantage, whether they do or not. FCAN supports this change.


OIR approval of non-renewal plans -- requires OIR approval for non-renewal of 10,000 policies or more 90 days prior. The section allows OIR to make sure the impact on consumers is the minimum possible. FCAN supports this change.

Changes to rate filings -- S 2860 strengthens laws on insurance rate filings and requires the use of models approved by the Florida Commission of Hurricane Loss Projections. FCAN hopes this effectively opens up the "Black Box" models that have led to huge rate increases in recent years.

Citizens Rate Freeze - the bill extends the freeze on Citizens Property Insurance for another year. This is controversial because while it is popular with everyone in Citizens, it could lead to rates which are not actuarially sound and higher assessments on policyholders not in Citizens, creating a subsidy. This might lead to more risky coastal development, and, in turn, higher costs in the future and more environmental damage. But the bill also prohibits Citizens from selling wind only policies, which means a broader base for policies and a sounder financial base.

Guaranteed renewability of mitigated homes - this provision means that homes that meet the Florida Building Code for wind borne debris protection will be renewed. If you spend your hard earned bucks making your home safe, there is at least this reward. Also, the homes safety must be disclosed at sale.

So, there's a lot in this bill. Everyone can find things to like and dislike. On balance, FCAN supports the bill. To us, the most important element remains continuing "prior rate review" and ending arbitration panels. Those items are in this bill and we consider them essential to keeping rates down.

There are the usual people saying that insurers will leave, but they never have and State Farm has actually increased their "book of business" in recent years. Florida is the fourth largest market in the US. Besides, there is nothing that bad here, but it does allow us to make sure we are being charged appropriate rates. Insurers should be grateful that the legislature is restoring credibility to the insurance market.

The question of how to manage Citizens is difficult, but FCAN maintains that Citizens should be run like a business and must compete to offer the best deal for consumers. Since Citizens is stuck with the riskiest customers, that isn't easy. The current deal would require Citizens to issue assessments to make up for a shortfall in the event of a big storm. An alternative would be for Citizens to buy reinsurance, spreading the risk to the international market but probably raising rates.

Ultimately, FCAN would like to see rate regulation by the state result in fair rates for consumers and reasonable profits for insurers. This is a difficult balance to achieve in a complicated market. The opposing view is that if the market were deregulated, balance would occur naturally. We disagree because insurance is a necessary product, meaning people must pay the price requested. Secondly, people usually cannot understand the insurance product and cannot strike a bargain that is in their best interest.