Florida Senate - 2014                                     SB 542
       By Senator Brandes
       22-00534B-14                                           2014542__
    1                        A bill to be entitled                      
    2         An act relating to flood insurance; amending s.
    3         627.062, F.S.; adding projected flood losses to the
    4         factors that must be considered by the Office of
    5         Insurance Regulation in reviewing a rate filing;
    6         amending s. 627.0628, F.S.; increasing the membership
    7         of the Florida Commission on Hurricane Loss Projection
    8         Methodology to include an engineer who is an expert in
    9         floodplain management and a meteorologist who
   10         specializes in floods; requiring the commission to
   11         adopt standards and guidelines relating to flood loss
   12         by a certain date; creating s. 627.715, F.S.;
   13         authorizing insurers to offer flood insurance in this
   14         state; providing legislative findings; defining the
   15         term “flood”; establishing the minimum coverage
   16         requirements for such policies; providing coverage
   17         limitations that an insurer may include in such
   18         policies; requiring such limitations to be noted on
   19         the policy declarations or face page; providing the
   20         insurer with rate options; requiring the insurer to
   21         provide notice that flood insurance is available from
   22         the National Flood Insurance Program; allowing an
   23         insurer to export a contract or endorsement to a
   24         surplus lines insurer without meeting certain
   25         requirements; providing prior notice requirements for
   26         cancellation or nonrenewal of a policy; requiring the
   27         insurer to notify the office before writing flood
   28         insurance and to file a plan of operation with the
   29         office; providing that any conflicts with other
   30         provisions of the Florida Insurance Code are preempted
   31         by this section; providing an effective date.
   33  Be It Enacted by the Legislature of the State of Florida:
   35         Section 1. Paragraph (b) of subsection (2) of section
   36  627.062, Florida Statutes, is amended to read:
   37         627.062 Rate standards.—
   38         (2) As to all such classes of insurance:
   39         (b) Upon receiving a rate filing, the office shall review
   40  the filing to determine if a rate is excessive, inadequate, or
   41  unfairly discriminatory. In making that determination, the
   42  office shall, in accordance with generally accepted and
   43  reasonable actuarial techniques, consider the following factors:
   44         1. Past and prospective loss experience within and without
   45  this state.
   46         2. Past and prospective expenses.
   47         3. The degree of competition among insurers for the risk
   48  insured.
   49         4. Investment income reasonably expected by the insurer,
   50  consistent with the insurer’s investment practices, from
   51  investable premiums anticipated in the filing, plus any other
   52  expected income from currently invested assets representing the
   53  amount expected on unearned premium reserves and loss reserves.
   54  The commission may adopt rules using reasonable techniques of
   55  actuarial science and economics to specify the manner in which
   56  insurers calculate investment income attributable to classes of
   57  insurance written in this state and the manner in which
   58  investment income is used to calculate insurance rates. Such
   59  manner must contemplate allowances for an underwriting profit
   60  factor and full consideration of investment income that produces
   61  which produce a reasonable rate of return; however, investment
   62  income from invested surplus may not be considered.
   63         5. The reasonableness of the judgment reflected in the
   64  filing.
   65         6. Dividends, savings, or unabsorbed premium deposits
   66  allowed or returned to Florida policyholders, members, or
   67  subscribers in this state.
   68         7. The adequacy of loss reserves.
   69         8. The cost of reinsurance. The office may not disapprove a
   70  rate as excessive solely due to the insurer having obtained
   71  catastrophic reinsurance to cover the insurer’s estimated 250
   72  year probable maximum loss or any lower level of loss.
   73         9. Trend factors, including trends in actual losses per
   74  insured unit for the insurer making the filing.
   75         10. Conflagration and catastrophe hazards, if applicable.
   76         11. Projected hurricane losses, if applicable, which must
   77  be estimated using a model or method determined found to be
   78  acceptable or reliable by the Florida Commission on Hurricane
   79  Loss Projection Methodology, and as further provided in s.
   80  627.0628.
   81         12. Projected flood losses, if applicable, which may be
   82  estimated using a model, method, or an average of models or
   83  methods determined to be acceptable or reliable by the Florida
   84  Commission on Hurricane Loss Projection Methodology, and as
   85  further provided in s. 627.0628.
   86         13.12. A reasonable margin for underwriting profit and
   87  contingencies.
   88         14.13. The cost of medical services, if applicable.
   89         15.14. Other relevant factors that affect the frequency or
   90  severity of claims or expenses.
   91         Section 2. Paragraph (b) of subsection (2) and subsection
   92  (3) of section 627.0628, Florida Statutes, are amended to read:
   93         627.0628 Florida Commission on Hurricane Loss Projection
   94  Methodology; public records exemption; public meetings
   95  exemption.—
   96         (2) COMMISSION CREATED.—
   97         (b) The commission shall consist of the following 14 12
   98  members:
   99         1. The insurance consumer advocate.
  100         2. The senior employee of the State Board of Administration
  101  responsible for the operations of the Florida Hurricane
  102  Catastrophe Fund.
  103         3. The Executive Director of the Citizens Property
  104  Insurance Corporation.
  105         4. The Director of the Division of Emergency Management.
  106         5. The actuary member of the Florida Hurricane Catastrophe
  107  Fund Advisory Council.
  108         6. An employee of the office who is an actuary responsible
  109  for property insurance rate filings and who is appointed by the
  110  director of the office.
  111         7. Seven Five members appointed by the Chief Financial
  112  Officer, as follows:
  113         a. An actuary who is employed full time by a property and
  114  casualty insurer that was responsible for at least 1 percent of
  115  the aggregate statewide direct written premium for homeowner’s
  116  insurance in the calendar year preceding the member’s
  117  appointment to the commission.
  118         b. An expert in insurance finance who is a full-time member
  119  of the faculty of the State University System and who has a
  120  background in actuarial science.
  121         c. An expert in statistics who is a full-time member of the
  122  faculty of the State University System and who has a background
  123  in insurance.
  124         d. An expert in computer system design who is a full-time
  125  member of the faculty of the State University System.
  126         e. An expert in meteorology who is a full-time member of
  127  the faculty of the State University System and who specializes
  128  in hurricanes.
  129         f. A licensed professional engineer who is an expert in
  130  floodplain management.
  131         g. A meteorologist who specializes in floods.
  132         8. A licensed professional structural engineer who is a
  133  full-time faculty member in the State University System and who
  134  has expertise in wind mitigation techniques. This appointment
  135  shall be made by the Governor.
  137         (a) The commission shall consider any actuarial methods,
  138  principles, standards, models, or output ranges that have the
  139  potential for improving the accuracy of or reliability of the
  140  hurricane loss projections and flood loss projections used in
  141  residential property insurance rate filings. The commission
  142  shall, from time to time, adopt and update findings as to the
  143  accuracy or reliability of particular methods, principles,
  144  standards, models, or output ranges.
  145         (b) The commission shall consider any actuarial methods,
  146  principles, standards, or models that have the potential for
  147  improving the accuracy of or reliability of projecting probable
  148  maximum loss levels. The commission shall adopt and update
  149  findings as to the accuracy or reliability of particular
  150  methods, principles, standards, or models related to probable
  151  maximum loss calculations.
  152         (c) In establishing reimbursement premiums for the Florida
  153  Hurricane Catastrophe Fund, the State Board of Administration
  154  must, to the extent feasible, employ actuarial methods,
  155  principles, standards, models, or output ranges determined found
  156  by the commission to be accurate or reliable.
  157         (d) With respect to a rate filing under s. 627.062, an
  158  insurer shall employ and may not modify or adjust actuarial
  159  methods, principles, standards, models, or output ranges
  160  determined found by the commission to be accurate or reliable in
  161  determining hurricane loss factors for use in a rate filing
  162  under s. 627.062. An insurer shall employ and may not modify or
  163  adjust models determined found by the commission to be accurate
  164  or reliable in determining probable maximum loss levels pursuant
  165  to paragraph (b) with respect to a rate filing under s. 627.062
  166  made more than 60 days after the commission has made such
  167  findings. This paragraph does not prohibit an insurer from
  168  averaging model results or output ranges, or using an average
  169  for the purpose of a rate filing under s. 627.062.
  170         (e) The commission shall adopt actuarial methods,
  171  principles, standards, models, or output ranges for flood loss
  172  by July 1, 2015.
  173         (f)(e) The commission shall revise adopt revisions to
  174  previously adopted actuarial methods, principles, standards,
  175  models, or output ranges every odd-numbered odd year.
  176         (g)(f)1. A trade secret, as defined in s. 688.002, which
  177  that is used in designing and constructing a hurricane loss
  178  model and which that is provided pursuant to this section, by a
  179  private company, to the commission, office, or consumer advocate
  180  appointed pursuant to s. 627.0613, is confidential and exempt
  181  from s. 119.07(1) and s. 24(a), Art. I of the State
  182  Constitution.
  183         2.a. That portion of a meeting of the commission or of a
  184  rate proceeding on an insurer’s rate filing at which a trade
  185  secret made confidential and exempt by this paragraph is
  186  discussed is exempt from s. 286.011 and s. 24(b), Art. I of the
  187  State Constitution. The closed meeting must be recorded, and no
  188  portion of the closed meeting may be off the record.
  189         b. The recording of a closed portion of a meeting is exempt
  190  from s. 119.07(1) and s. 24(a), Art. I of the State
  191  Constitution.
  192         c. This subparagraph is subject to the Open Government
  193  Sunset Review Act in accordance with s. 119.15 and shall stand
  194  repealed on October 2, 2015, unless reviewed and saved from
  195  repeal through reenactment by the Legislature.
  196         Section 3. Section 627.715, Florida Statutes, is created to
  197  read:
  198         627.715Flood Insurance.—An insurer may issue an insurance
  199  policy, contract, or endorsement providing coverage for the
  200  peril of flood on any structure or the contents of personal
  201  property contained therein, subject to this section.
  202         (1) The Legislature finds that:
  203         (a) The National Flood Insurance Program (NFIP) is a
  204  federal program that enables property owners in participating
  205  communities to purchase flood insurance. A community
  206  participates in the federal program by adopting and enforcing
  207  floodplain management regulations that meet or exceed federal
  208  floodplain management criteria designed to reduce future flood
  209  risk to new construction in floodplains. The program was created
  210  by Congress in 1968 because insurance covering the peril of
  211  flood was often unavailable in the private insurance market and
  212  was intended to reduce the amount of financial aid paid by the
  213  Federal Government in the aftermath of flood-related disasters.
  214  Since the creation of the NFIP, generally flood insurance
  215  coverage has been unavailable for purchase from private market
  216  insurance companies.
  217         (b) The Biggert-Waters Flood Insurance Reform Act of 2012
  218  reauthorized and revised the NFIP. The act increases flood
  219  insurance premiums purchased through the program for second
  220  homes, business properties, severe repetitive loss properties,
  221  and substantially improved damaged properties by requiring
  222  premium increases of 25 percent per year until premiums meet the
  223  full actuarial cost. Primary residences lose their subsidized
  224  rates if the property is sold, the policy lapses, repeated and
  225  severe flood losses occur, or a new policy is purchased.
  226  Policyholders whose communities adopt a new, updated Flood
  227  Insurance Rate Map (FIRM) that results in higher rates will
  228  experience a 5-year phase-in of rate increases to achieve
  229  required rate levels.
  230         (c) The Biggert-Waters Flood Insurance Reform Act of 2012
  231  also encourages the use and acceptance of private-market flood
  232  insurance. The Legislature finds, however, that there has been a
  233  long-term inadequacy of private-market flood insurance available
  234  in this state. Such inadequacy suggests that the private market
  235  in this state is unlikely to expand unless the Legislature
  236  provides multiple options for the regulation of flood insurance.
  237  In addition, the consumers of this state will be protected from
  238  excessive premiums by the continued oversight of insurance rates
  239  by the Office of Insurance Regulation and the continued
  240  availability of flood insurance from the NFIP.
  241         (d) The NFIP, as amended by the Biggert-Waters Flood
  242  Insurance Reform Act of 2012, will prevent many property owners
  243  from obtaining affordable flood insurance coverage in this
  244  state. The absence of affordable flood insurance threatens the
  245  public health, safety, and welfare and the economic health of
  246  this state. Therefore, the state has a compelling public purpose
  247  and interest in providing alternatives to coverage from NFIP by
  248  promoting the availability of flood insurance from private
  249  market insurers at potentially lower premium rates so as to
  250  facilitate the remediation, reconstruction, and replacement of
  251  damaged or destroyed property in order to reduce or avoid harm
  252  to the public health, safety, and welfare, to the economy of
  253  this state, and to the revenues of state and local governments
  254  which are needed to provide for the public welfare.
  255         (2) As used in this section, the term “flood” means a
  256  general and temporary condition of partial or complete
  257  inundation of 2 acres or more of normally dry land area or of
  258  two or more properties, at least one of which is the
  259  policyholder’s property, from:
  260         (a) Overflow of inland or tidal waters;
  261         (b) Unusual and rapid accumulation or runoff of surface
  262  waters from any source;
  263         (c) Mudflow; or
  264         (d) Collapse or subsidence of land along the shore of a
  265  lake or similar body of water as a result of erosion or
  266  undermining caused by waves or currents of water exceeding
  267  anticipated cyclical levels which result in a flood.
  268         (3)At a minimum, coverage for the peril of flood must
  269  cover a flood as defined in subsection (2). Coverage for the
  270  peril of flood may also include water intrusion originating from
  271  outside the structure which is not otherwise covered under the
  272  definition of flood. A policy, contract, or endorsement
  273  providing coverage for the peril of flood which includes water
  274  intrusion originating from outside the structure must also be
  275  regulated and rated as a flood policy in accordance with this
  276  section and not as a homeowners or other personal lines
  277  residential policy under separate provisions of the Insurance
  278  Code.
  279         (4) An insurer may offer a flood coverage policy, contract,
  280  or endorsement:
  281         (a) That has a deductible based on a stated dollar amount
  282  or a percentage of the coverage amount. At a minimum, an insurer
  283  must offer deductible amounts applicable to flood losses that
  284  equal the standard deductibles offered under the National Flood
  285  Insurance Program;
  286         (b) That provides that any loss that is repaired or
  287  replaced will be adjusted on the basis of:
  288         1. Replacement costs up to the policy limits; or
  289         2.The actual cash value of the property;
  290         (c) That restricts flood coverage to the principal
  291  building, as defined in the applicable policy;
  292         (d) In any agreed-upon amount, including coverage limited
  293  to the amount of all outstanding mortgages applicable to the
  294  covered property. However, if a policy, contract, or endorsement
  295  does not limit flood coverage to the replacement cost of the
  296  covered property, the contract or endorsement may not include a
  297  provision penalizing the policyholder for not insuring the
  298  covered property up to replacement cost; or
  299         (e) That does not cover:
  300         1.Additional living expenses;
  301         2.Personal property or contents; or
  302         3. Ordinance and law coverage.
  303         (5) Any limitations on coverage or policy limits,
  304  including, but not limited to, deductibles or coverage limited
  305  to the amount of all outstanding mortgages, must be prominently
  306  disclosed on the declarations page or face page of the policy.
  307         (6) An insurer may establish and use flood coverage rates
  308  pursuant to one or more of the following options:
  309         (a) In accordance with the rate standards of s. 627.062,
  310  including s. 627.062(2)(a)-(b);
  311         (b) In accordance with the rates, rating schedules, or
  312  rating manuals filed by the insurer with the office which allow
  313  the insurer a reasonable rate of return on flood coverage
  314  written in this state. Flood coverage rates are not subject to
  315  s. 627.062(2)(a) or (b). An insurer shall notify the office of
  316  any change to rates within 30 days after the effective date of
  317  the change. The notice must include the name of the insurer and
  318  the average statewide percentage change in rates. Actuarial data
  319  with regard to rates for flood coverage must be maintained by
  320  the insurer for 2 years after the effective date of such rate
  321  changes and is subject to examination by the office. The office
  322  may require the insurer to incur the costs associated with an
  323  examination. Upon examination, the office, in accordance with
  324  generally accepted and reasonable actuarial techniques, shall
  325  consider the rate factors specified in s. 627.062(2)(b)-(d) and
  326  the standards specified in s. 627.062(2)(e) to determine if the
  327  rate is excessive, inadequate, or unfairly discriminatory;
  328         (c) Through individual risk rating as provided in s.
  329  627.062(3)(a) and (b); or
  330         (d) With the written consent of the insured signed before
  331  the policy inception date and filed with the insurer, using a
  332  flood coverage rate that has not been approved by the office.
  333  The signed consent form must notify the insured that the rate is
  334  not subject to the approval of the office. A copy of the form
  335  shall be maintained by the insurer for 3 years and must be
  336  available for review by the office. An insurer is not required
  337  to obtain subsequent written consents upon renewal, but shall
  338  provide notice at each renewal that the rate is not subject to
  339  office approval.
  340         (7) A policy, endorsement, or contract providing coverage
  341  for the peril of flood must provide notice that flood insurance
  342  coverage is available from the NFIP.
  343         (8) A surplus lines agent may export a contract or
  344  endorsement providing flood coverage to an eligible surplus
  345  lines insurer without making a diligent effort to seek such
  346  coverage from three or more authorized insurers under s.
  347  626.916(1)(a).
  348         (9) A policy, endorsement, or contract providing coverage
  349  for the peril of flood must require the insurer to give 45 days’
  350  prior written notice of cancellation or nonrenewal to the
  351  insured and any regulated lending institution or federal agency
  352  that is a mortgagee. An insurer or insured may cancel during the
  353  term of the policy or upon renewal if the cancellation is for a
  354  valid reason under the NFIP.
  355         (10) In addition to any other applicable requirements, an
  356  insurer providing flood coverage in this state must:
  357         (a) Notify the office at least 30 days before writing flood
  358  insurance in this state; and
  359         (b) File a plan of operation and financial projections or
  360  revisions to such plan, as applicable, with the office, unless
  361  the insurer maintains at least $35 million in surplus and
  362  provides coverage as an endorsement to an existing property
  363  insurance form.
  364         (11) With respect to the regulation of flood insurance
  365  coverage written in this state by private insurers, this section
  366  supersedes any other provision in the Florida Insurance Code in
  367  the event of a conflict.
  368         Section 4. This act shall take effect upon becoming a law.