Senate Bill sb2570
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Florida Senate - 2003 SB 2570
By Senator Geller
31-1148-03
1 A bill to be entitled
2 An act relating to insurance rate standards;
3 amending s. 627.062, F.S.; conforming
4 provisions relating to regulation by the Office
5 of Insurance Regulation; providing for the
6 director of that office to establish rates
7 prior to their taking effect; providing
8 procedures for such filings; deleting a
9 provision excepting motor vehicle insurance
10 from the provisions of s. 627.062, F.S.;
11 deleting an arbitration provision; prohibiting
12 certain judgments or settlements involving bad
13 faith actions or punitive damages from being
14 included in an insurer's rate base or used to
15 justify a rate change; requiring certain
16 underwriting rules to be filed; providing an
17 effective date.
18
19 Be It Enacted by the Legislature of the State of Florida:
20
21 Section 1. Section 627.062, Florida Statutes, is
22 amended to read:
23 627.062 Rate standards; prior rate approval.--
24 (1) The rates for all classes of insurance to which
25 the provisions of this part are applicable shall be set by the
26 director of the Office of Insurance Regulation and may not be
27 excessive, inadequate, or unfairly discriminatory.
28 (2) As to all such classes of insurance:
29 (a) Insurers or rating organizations shall apply for
30 establish and use rates, rating schedules, or rating manuals
31 to allow the insurer a reasonable rate of return on such
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1 classes of insurance written in this state. A copy of rates,
2 rating schedules, rating manuals, premium credits or discount
3 schedules, and surcharge schedules, and changes thereto, must
4 shall be filed with the Office of Insurance Regulation
5 department under one of the following procedures:
6 1. If the filing is made at least 180 90 days before
7 the proposed effective date. and The filing may is not be
8 implemented during the department's review of the filing and
9 any proceeding and judicial review., then such filing shall be
10 considered a "file and use" filing. In such case, the
11 department shall finalize its review by issuance of a notice
12 of intent to approve or a notice of intent to disapprove
13 within 90 days after receipt of the filing. The notice of
14 intent to approve and the notice of intent to disapprove
15 constitute agency action for purposes of the Administrative
16 Procedure Act. Requests for supporting information, requests
17 for mathematical or mechanical corrections, or notification to
18 the insurer by the department of its preliminary findings
19 shall not toll the 90-day period during any such proceedings
20 and subsequent judicial review. The rate shall be deemed
21 approved if the department does not issue a notice of intent
22 to approve or a notice of intent to disapprove within 90 days
23 after receipt of the filing.
24 2. If the filing is not made in accordance with the
25 provisions of subparagraph 1., such filing shall be made as
26 soon as practicable, but no later than 30 days after the
27 effective date, and shall be considered a "use and file"
28 filing. An insurer making a "use and file" filing is
29 potentially subject to an order by the department to return to
30 policyholders portions of rates found to be excessive, as
31 provided in paragraph (h).
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Florida Senate - 2003 SB 2570
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1 (b) Within a reasonable time after Upon receiving a
2 rate filing, the Office of Insurance Regulation department
3 shall review the rate filing and establish a rate or rate
4 schedule that to determine if a rate is not excessive,
5 inadequate, or unfairly discriminatory. In making that
6 determination, the office department shall, in accordance with
7 generally accepted and reasonable actuarial techniques,
8 consider the following factors:
9 1. Past and prospective loss experience within and
10 without this state.
11 2. Past and prospective expenses.
12 3. The degree of competition among insurers for the
13 risk insured.
14 4. Investment income reasonably expected by the
15 insurer, consistent with the insurer's investment practices,
16 from investable premiums anticipated in the filing, plus any
17 other expected income from currently invested assets
18 representing the amount expected on unearned premium reserves
19 and loss reserves. The office department may adopt promulgate
20 rules utilizing reasonable techniques of actuarial science and
21 economics to specify the manner in which insurers shall
22 calculate investment income attributable to such classes of
23 insurance written in this state and the manner in which such
24 investment income shall be used in the calculation of
25 insurance rates. Such manner shall contemplate allowances for
26 an underwriting profit factor and full consideration of
27 investment income which produce a reasonable rate of return;
28 however, investment income from invested surplus shall not be
29 considered. The profit and contingency factor as specified in
30 the filing shall be utilized in computing excess profits in
31 conjunction with s. 627.0625.
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1 5. The reasonableness of the judgment reflected in the
2 filing.
3 6. Dividends, savings, or unabsorbed premium deposits
4 allowed or returned to Florida policyholders, members, or
5 subscribers.
6 7. The adequacy of loss reserves.
7 8. The cost of reinsurance.
8 9. Trend factors, including trends in actual losses
9 per insured unit for the insurer making the filing.
10 10. Conflagration and catastrophe hazards, if
11 applicable.
12 11. A reasonable margin for underwriting profit and
13 contingencies.
14 12. The cost of medical services, if applicable.
15 13. Other relevant factors which impact upon the
16 frequency or severity of claims or upon expenses.
17 (c) In the case of fire insurance rates, consideration
18 shall be given to the availability of water supplies and the
19 experience of the fire insurance business during a period of
20 not less than the most recent 5-year period for which such
21 experience is available.
22 (d) If conflagration or catastrophe hazards are given
23 consideration by an insurer in its rates or rating plan,
24 including surcharges and discounts, the insurer shall
25 establish a reserve for that portion of the premium allocated
26 to such hazard and shall maintain the premium in a catastrophe
27 reserve. Any removal of such premiums from the reserve for
28 purposes other than paying claims associated with a
29 catastrophe or purchasing reinsurance for catastrophes shall
30 be subject to approval of the department. Any ceding
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1 commission received by an insurer purchasing reinsurance for
2 catastrophes shall be placed in the catastrophe reserve.
3 (e) After consideration of the rate factors provided
4 in paragraphs (b), (c), and (d), the Office of Insurance
5 Regulation shall set an appropriate rate that is not a rate
6 may be found by the department to be excessive, inadequate, or
7 unfairly discriminatory based upon the following standards:
8 1. Rates shall be deemed excessive if they are likely
9 to produce a profit from Florida business that is unreasonably
10 high in relation to the risk involved in the class of business
11 or if expenses are unreasonably high in relation to services
12 rendered.
13 2. Rates shall be deemed excessive if, among other
14 things, the rate structure established by a stock insurance
15 company provides for replenishment of surpluses from premiums,
16 when the replenishment is attributable to investment losses.
17 3. Rates shall be deemed inadequate if they are
18 clearly insufficient, together with the investment income
19 attributable to them, to sustain projected losses and expenses
20 in the class of business to which they apply.
21 4. A rating plan, including discounts, credits, or
22 surcharges, shall be deemed unfairly discriminatory if it
23 fails to clearly and equitably reflect consideration of the
24 policyholder's participation in a risk management program
25 adopted pursuant to s. 627.0625.
26 5. A rate shall be deemed inadequate as to the premium
27 charged to a risk or group of risks if discounts or credits
28 are allowed which exceed a reasonable reflection of expense
29 savings and reasonably expected loss experience from the risk
30 or group of risks.
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1 6. A rate shall be deemed unfairly discriminatory as
2 to a risk or group of risks if the application of premium
3 discounts, credits, or surcharges among such risks does not
4 bear a reasonable relationship to the expected loss and
5 expense experience among the various risks.
6 (f) In reviewing a rate filing, the Office of
7 Insurance Regulation department may require the insurer to
8 provide at the insurer's expense all information necessary to
9 evaluate the condition of the company and the reasonableness
10 of the filing according to the criteria enumerated in this
11 section.
12 (g) The Office of Insurance Regulation department may
13 at any time review a rate, rating schedule, rating manual, or
14 rate change; the pertinent records of the insurer; and market
15 conditions. If the office department finds on a preliminary
16 basis that a rate may be excessive, inadequate, or unfairly
17 discriminatory, it the department shall initiate proceedings
18 to establish a new disapprove the rate and shall so notify the
19 insurer. However, the office department may not disapprove as
20 excessive any rate that it has established for which it has
21 given final approval or which has been deemed approved for a
22 period of 1 year after the effective date of the filing unless
23 it the department finds that a material misrepresentation or
24 material error was made by the insurer or was contained in the
25 filing. Upon being so notified, the insurer or rating
26 organization shall, within 60 days, file with the office
27 department all information which, in the belief of the insurer
28 or organization, proves the reasonableness, adequacy, and
29 fairness of the rate or rate change. The office shall
30 establish an appropriate rate within a reasonable time after
31 receiving an insurer's initial response. The department shall
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1 issue a notice of intent to approve or a notice of intent to
2 disapprove pursuant to the procedures of paragraph (a) within
3 90 days after receipt of the insurer's initial response. In
4 such instances and in any administrative proceeding relating
5 to the legality of any the rate, the insurer or rating
6 organization shall carry the burden of proof by a
7 preponderance of the evidence to show that the rate is not
8 excessive, inadequate, or unfairly discriminatory. After the
9 department notifies an insurer that a rate may be excessive,
10 inadequate, or unfairly discriminatory, unless the department
11 withdraws the notification, the insurer shall not alter the
12 rate except to conform with the department's notice until the
13 earlier of 120 days after the date the notification was
14 provided or 180 days after the date of the implementation of
15 the rate. The department may, subject to chapter 120,
16 disapprove without the 60-day notification any rate increase
17 filed by an insurer within the prohibited time period or
18 during the time that the legality of the increased rate is
19 being contested.
20 (h) After setting a new rate or rate schedule, the
21 Office of Insurance Regulation In the event the department
22 finds that a rate or rate change is excessive, inadequate, or
23 unfairly discriminatory, the department shall issue an order
24 of disapproval specifying the that a new rate or rate schedule
25 and which responds to the findings of the office. The order
26 constitutes final agency action for purposes of chapter 120
27 department be filed by the insurer. The department shall
28 further order, for any "use and file" filing made in
29 accordance with subparagraph (a)2., that premiums charged each
30 policyholder constituting the portion of the rate above that
31 which was actuarially justified be returned to such
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1 policyholder in the form of a credit or refund. If the
2 department finds that an insurer's rate or rate change is
3 inadequate, the new rate or rate schedule filed with the
4 department in response to such a finding shall be applicable
5 only to new or renewal business of the insurer written on or
6 after the effective date of the responsive filing.
7 (i) Except as otherwise specifically provided in this
8 chapter, the Office of Insurance Regulation may department
9 shall not prohibit any insurer, including any residual market
10 plan or joint underwriting association, from paying
11 acquisition costs based on the full amount of premium, as
12 defined in s. 627.403, applicable to any policy, or prohibit
13 any such insurer from including the full amount of acquisition
14 costs in a rate filing.
15
16 The provisions of This subsection does shall not apply to
17 workers' compensation and employer's liability insurance and
18 to motor vehicle insurance.
19 (3)(a) For individual risks that are not rated in
20 accordance with the insurer's rates, rating schedules, rating
21 manuals, and underwriting rules filed with the Office of
22 Insurance Regulation department and which have been submitted
23 to the insurer for individual rating, the insurer must
24 maintain documentation on each risk subject to individual risk
25 rating. The documentation must identify the named insured and
26 specify the characteristics and classification of the risk
27 supporting the reason for the risk being individually risk
28 rated, including any modifications to existing approved forms
29 to be used on the risk. The insurer must maintain these
30 records for a period of at least 5 years after the effective
31 date of the policy.
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1 (b) Individual risk rates and modifications to
2 existing approved forms are not subject to this part or part
3 II, except for paragraph (a) and ss. 627.402, 627.403,
4 627.4035, 627.404, 627.405, 627.406, 627.407, 627.4085,
5 627.409, 627.4132, 627.4133, 627.415, 627.416, 627.417,
6 627.419, 627.425, 627.426, 627.4265, 627.427, and 627.428, but
7 are subject to all other applicable provisions of this code
8 and rules adopted thereunder.
9 (c) This subsection does not apply to private
10 passenger motor vehicle insurance.
11 (4) The establishment of any rate, rating
12 classification, rating plan or schedule, or variation thereof
13 in violation of part IX of chapter 626 is also in violation of
14 this section.
15 (5) With respect to a rate filing involving coverage
16 of the type for which the insurer is required to pay a
17 reimbursement premium to the Florida Hurricane Catastrophe
18 Fund, the insurer may fully recoup in its property insurance
19 premiums any reimbursement premiums paid to the Florida
20 Hurricane Catastrophe Fund, together with reasonable costs of
21 other reinsurance, but may not recoup reinsurance costs that
22 duplicate coverage provided by the Florida Hurricane
23 Catastrophe Fund.
24 (6) Any portion of a judgment entered as a result of a
25 statutory or common-law bad faith action and any portion of a
26 judgment that awards punitive damages against an insurer may
27 not be included in the insurer's rate base or used to justify
28 a rate or rate change. Any portion of a settlement entered as
29 a result of a statutory or common-law bad faith action
30 identified as such and any portion of a settlement wherein an
31 insurer agrees to pay specific punitive damages may not be
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1 used to justify a rate or rate change. The portion of the
2 taxable costs and attorney's fees which is identified as being
3 related to the bad faith and punitive damages in these
4 judgments and settlements may not be included in the insurer's
5 rate base or used to justify a rate or rate change.
6 (7)(a) Underwriting rules not contained in rating
7 manuals shall be filed for private passenger automobile
8 insurance and homeowners' insurance.
9 (b) The submission of rates, rating schedules, or
10 rating manuals to the Office of Insurance Regulation by a
11 licensed rating organization of which an insurer is a member
12 or subscriber is sufficient compliance with this subsection
13 for such insurer to the extent that the insurer uses these
14 rates, rating schedules, and rating manuals. All such filed
15 information shall be available for public inspection at the
16 Office of Insurance Regulation during usual business hours.
17 (a) After any action with respect to a rate filing
18 that constitutes agency action for purposes of the
19 Administrative Procedure Act, an insurer may, in lieu of
20 demanding a hearing under s. 120.57, require arbitration of
21 the rate filing. Arbitration shall be conducted by a board of
22 arbitrators consisting of an arbitrator selected by the
23 department, an arbitrator selected by the insurer, and an
24 arbitrator selected jointly by the other two arbitrators. Each
25 arbitrator must be certified by the American Arbitration
26 Association. A decision is valid only upon the affirmative
27 vote of at least two of the arbitrators. No arbitrator may be
28 an employee of any insurance regulator or regulatory body or
29 of any insurer, regardless of whether or not the employing
30 insurer does business in this state. The department and the
31 insurer must treat the decision of the arbitrators as the
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1 final approval of a rate filing. Costs of arbitration shall be
2 paid by the insurer.
3 (b) Arbitration under this subsection shall be
4 conducted pursuant to the procedures specified in ss.
5 682.06-682.10. Either party may apply to the circuit court to
6 vacate or modify the decision pursuant to s. 682.13 or s.
7 682.14. The department shall adopt rules for arbitration under
8 this ubsection, which rules may not be inconsistent with the
9 arbitration rules of the American Arbitration Association as
10 of January 1, 1996.
11 (c) Upon initiation of the arbitration process, the
12 insurer waives all rights to challenge the action of the
13 department under the Administrative Procedure Act or any other
14 provision of law; however, such rights are restored to the
15 insurer if the arbitrators fail to render a decision within 90
16 days after initiation of the arbitration process.
17 Section 2. This act shall take effect upon becoming a
18 law.
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21 SENATE SUMMARY
22 Revises insurance rate standards provisions. Conforms
provisions relating to regulation by the Office of
23 Insurance Regulation instead of the Department of
Insurance. Provides for insurers to file rate requests
24 for approval with the office and provides procedures for
such filings. Deletes a provision excepting motor vehicle
25 insurers from such regulation. Deletes an arbitration
provision. Prohibits bad faith or punitive damages
26 judgments or settlements from being included in an
insurer's rate base or being used to justify a rate
27 change. Requires that certain underwriting rules be filed
with the office (see bill for details.)
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