Florida Senate - 2014                              CS for SB 542
       By the Committee on Banking and Insurance; and Senators Brandes,
       Simpson, and Benacquisto
       597-00970-14                                           2014542c1
    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 certain rate
    6         filings; amending s. 627.0628, F.S.; increasing the
    7         membership of the Florida Commission on Hurricane Loss
    8         Projection Methodology to include an engineer who is
    9         an expert in floodplain management and a meteorologist
   10         who 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 that certain limitations be noted
   19         on 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 of a
   24         certain amount to a surplus lines insurer without
   25         meeting certain requirements; providing prior notice
   26         requirements for cancellation or nonrenewal of a
   27         policy; requiring the insurer to notify the office
   28         before writing flood insurance and to file a plan of
   29         operation with the office; providing that any
   30         conflicts with other provisions of the Florida
   31         Insurance Code are preempted by this section;
   32         requiring the Commissioner of the Office of Insurance
   33         Regulation to provide certification that a condition
   34         qualifies for flood insurance or disaster assistance;
   35         providing an effective date.
   37  Be It Enacted by the Legislature of the State of Florida:
   39         Section 1. Paragraph (b) of subsection (2) of section
   40  627.062, Florida Statutes, is amended to read:
   41         627.062 Rate standards.—
   42         (2) As to all such classes of insurance:
   43         (b) Upon receiving a rate filing, the office shall review
   44  the filing to determine if a rate is excessive, inadequate, or
   45  unfairly discriminatory. In making that determination, the
   46  office shall, in accordance with generally accepted and
   47  reasonable actuarial techniques, consider the following factors:
   48         1. Past and prospective loss experience within and without
   49  this state.
   50         2. Past and prospective expenses.
   51         3. The degree of competition among insurers for the risk
   52  insured.
   53         4. Investment income reasonably expected by the insurer,
   54  consistent with the insurer’s investment practices, from
   55  investable premiums anticipated in the filing, plus any other
   56  expected income from currently invested assets representing the
   57  amount expected on unearned premium reserves and loss reserves.
   58  The commission may adopt rules using reasonable techniques of
   59  actuarial science and economics to specify the manner in which
   60  insurers calculate investment income attributable to classes of
   61  insurance written in this state and the manner in which
   62  investment income is used to calculate insurance rates. Such
   63  manner must contemplate allowances for an underwriting profit
   64  factor and full consideration of investment income that produces
   65  which produce a reasonable rate of return; however, investment
   66  income from invested surplus may not be considered.
   67         5. The reasonableness of the judgment reflected in the
   68  filing.
   69         6. Dividends, savings, or unabsorbed premium deposits
   70  allowed or returned to Florida policyholders, members, or
   71  subscribers in this state.
   72         7. The adequacy of loss reserves.
   73         8. The cost of reinsurance. The office may not disapprove a
   74  rate as excessive solely due to the insurer having obtained
   75  catastrophic reinsurance to cover the insurer’s estimated 250
   76  year probable maximum loss or any lower level of loss.
   77         9. Trend factors, including trends in actual losses per
   78  insured unit for the insurer making the filing.
   79         10. Conflagration and catastrophe hazards, if applicable.
   80         11. Projected hurricane losses, if applicable, which must
   81  be estimated using a model or method found to be acceptable or
   82  reliable by the Florida Commission on Hurricane Loss Projection
   83  Methodology, and as further provided in s. 627.0628.
   84         12. Projected flood losses, if applicable, which may be
   85  estimated using a model, a method, or an average of models or
   86  methods determined to be acceptable or reliable by the Florida
   87  Commission on Hurricane Loss Projection Methodology, and as
   88  further provided in s. 627.0628.
   89         13.12. A reasonable margin for underwriting profit and
   90  contingencies.
   91         14.13. The cost of medical services, if applicable.
   92         15.14. Other relevant factors that affect the frequency or
   93  severity of claims or expenses.
   95  The provisions of this subsection do not apply to workers’
   96  compensation, employer’s liability insurance, and motor vehicle
   97  insurance.
   98         Section 2. Paragraph (b) of subsection (2) and subsection
   99  (3) of section 627.0628, Florida Statutes, are amended to read:
  100         627.0628 Florida Commission on Hurricane Loss Projection
  101  Methodology; public records exemption; public meetings
  102  exemption.—
  103         (2) COMMISSION CREATED.—
  104         (b) The commission shall consist of the following 14 12
  105  members:
  106         1. The insurance consumer advocate.
  107         2. The senior employee of the State Board of Administration
  108  responsible for the operations of the Florida Hurricane
  109  Catastrophe Fund.
  110         3. The Executive Director of the Citizens Property
  111  Insurance Corporation.
  112         4. The Director of the Division of Emergency Management.
  113         5. The actuary member of the Florida Hurricane Catastrophe
  114  Fund Advisory Council.
  115         6. An employee of the office who is an actuary responsible
  116  for property insurance rate filings and who is appointed by the
  117  director of the office.
  118         7. Seven Five members appointed by the Chief Financial
  119  Officer, as follows:
  120         a. An actuary who is employed full time by a property and
  121  casualty insurer that was responsible for at least 1 percent of
  122  the aggregate statewide direct written premium for homeowner’s
  123  insurance in the calendar year preceding the member’s
  124  appointment to the commission.
  125         b. An expert in insurance finance who is a full-time member
  126  of the faculty of the State University System and who has a
  127  background in actuarial science.
  128         c. An expert in statistics who is a full-time member of the
  129  faculty of the State University System and who has a background
  130  in insurance.
  131         d. An expert in computer system design who is a full-time
  132  member of the faculty of the State University System.
  133         e. An expert in meteorology who is a full-time member of
  134  the faculty of the State University System and who specializes
  135  in hurricanes.
  136         f. A licensed professional engineer who is an expert in
  137  floodplain management and who is not regularly retained by or on
  138  behalf of a property and casualty insurer.
  139         g. A meteorologist who specializes in floods.
  140         8. A licensed professional structural engineer who is a
  141  full-time faculty member in the State University System and who
  142  has expertise in wind mitigation techniques. This appointment
  143  shall be made by the Governor.
  145         (a) The commission shall consider any actuarial methods,
  146  principles, standards, models, or output ranges that have the
  147  potential for improving the accuracy of or reliability of the
  148  hurricane loss projections and flood loss projections used in
  149  residential property insurance rate filings. The commission
  150  shall, from time to time, adopt and update findings as to the
  151  accuracy or reliability of particular methods, principles,
  152  standards, models, or output ranges.
  153         (b) The commission shall consider any actuarial methods,
  154  principles, standards, or models that have the potential for
  155  improving the accuracy of or reliability of projecting probable
  156  maximum loss levels. The commission shall adopt and update
  157  findings as to the accuracy or reliability of particular
  158  methods, principles, standards, or models related to probable
  159  maximum loss calculations.
  160         (c) In establishing reimbursement premiums for the Florida
  161  Hurricane Catastrophe Fund, the State Board of Administration
  162  must, to the extent feasible, employ actuarial methods,
  163  principles, standards, models, or output ranges found by the
  164  commission to be accurate or reliable.
  165         (d) With respect to a rate filing under s. 627.062, an
  166  insurer shall employ and may not modify or adjust actuarial
  167  methods, principles, standards, models, or output ranges found
  168  by the commission to be accurate or reliable in determining
  169  hurricane loss factors for use in a rate filing under s.
  170  627.062. An insurer shall employ and may not modify or adjust
  171  models found by the commission to be accurate or reliable in
  172  determining probable maximum loss levels pursuant to paragraph
  173  (b) with respect to a rate filing under s. 627.062 made more
  174  than 60 days after the commission has made such findings. This
  175  paragraph does not prohibit an insurer from averaging model
  176  results or output ranges or using an average for the purpose of
  177  a flood insurance rate filing under s. 627.062.
  178         (e) The commission shall adopt actuarial methods,
  179  principles, standards, models, or output ranges for flood loss
  180  by July 1, 2015.
  181         (f)(e) The commission shall revise adopt revisions to
  182  previously adopted actuarial methods, principles, standards,
  183  models, or output ranges every odd-numbered odd year.
  184         (g)(f)1. A trade secret, as defined in s. 688.002, which
  185  that is used in designing and constructing a hurricane loss
  186  model and which that is provided pursuant to this section, by a
  187  private company, to the commission, office, or consumer advocate
  188  appointed pursuant to s. 627.0613, is confidential and exempt
  189  from s. 119.07(1) and s. 24(a), Art. I of the State
  190  Constitution.
  191         2.a. That portion of a meeting of the commission or of a
  192  rate proceeding on an insurer’s rate filing at which a trade
  193  secret made confidential and exempt by this paragraph is
  194  discussed is exempt from s. 286.011 and s. 24(b), Art. I of the
  195  State Constitution. The closed meeting must be recorded, and no
  196  portion of the closed meeting may be off the record.
  197         b. The recording of a closed portion of a meeting is exempt
  198  from s. 119.07(1) and s. 24(a), Art. I of the State
  199  Constitution.
  200         c. This subparagraph is subject to the Open Government
  201  Sunset Review Act in accordance with s. 119.15 and shall stand
  202  repealed on October 2, 2015, unless reviewed and saved from
  203  repeal through reenactment by the Legislature.
  204         Section 3. Section 627.715, Florida Statutes, is created to
  205  read:
  206         627.715Flood insurance.—Subject to the requirements of
  207  this section, an insurer may issue an insurance policy,
  208  contract, or endorsement providing coverage for the peril of
  209  flood on any structure or on the contents of personal property
  210  on a form that has been filed with and approved by the office
  211  pursuant to s. 627.410(2) and that may be substantially similar
  212  to the form used by the National Flood Insurance Program (NFIP).
  213         (1) The Legislature finds that:
  214         (a) The National Flood Insurance Program is a federal
  215  program that enables property owners in participating
  216  communities to purchase flood insurance. A community
  217  participates in the federal program by adopting and enforcing
  218  floodplain management regulations that meet or exceed federal
  219  floodplain management criteria designed to reduce future flood
  220  risk to new construction in floodplains. The program was created
  221  by Congress in 1968 because insurance covering the peril of
  222  flood was often unavailable in the private insurance market and
  223  was intended to reduce the amount of financial aid paid by the
  224  Federal Government in the aftermath of flood-related disasters.
  225  After the creation of the NFIP, flood insurance coverage
  226  continued to be generally unavailable for purchase from private
  227  market insurance companies.
  228         (b) The Biggert-Waters Flood Insurance Reform Act of 2012
  229  reauthorized and revised the NFIP. The act increases flood
  230  insurance premiums purchased through the program for second
  231  homes, business properties, severe repetitive loss properties,
  232  and substantially improved damaged properties by requiring
  233  premium increases of 25 percent per year until premiums meet the
  234  full actuarial cost. Most residences lose their subsidized rates
  235  if the property is sold, the policy lapses, repeated and severe
  236  flood losses occur, or a new policy is purchased. Policyholders
  237  whose communities adopt a new, updated Flood Insurance Rate Map
  238  (FIRM) that results in higher rates will experience a 5-year
  239  phase-in of rate increases to achieve required rate levels.
  240         (c) The Biggert-Waters Flood Insurance Reform Act of 2012
  241  also encourages the use and acceptance of private market flood
  242  insurance. The Legislature finds, however, that there has been a
  243  long-term inadequacy of private market flood insurance available
  244  in this state. Such inadequacy suggests that the private market
  245  in this state is unlikely to expand unless the Legislature
  246  provides multiple options for the regulation of flood insurance.
  247  The Legislature also finds that the consumers of this state
  248  would benefit from the availability of competitively priced
  249  private market flood insurance due to the continued availability
  250  of NFIP flood insurance, the likely availability of alternative
  251  private market flood insurance coverage options, and the
  252  oversight of the Office of Insurance Regulation.
  253         (d) The NFIP, as amended by the Biggert-Waters Flood
  254  Insurance Reform Act of 2012, will prevent many property owners
  255  from obtaining affordable flood insurance coverage in this
  256  state. The absence of affordable flood insurance threatens the
  257  public health, safety, and welfare and the economic health of
  258  this state. Therefore, the state has a compelling public purpose
  259  and interest in providing alternatives to coverage from NFIP by
  260  promoting the availability of flood insurance from private
  261  market insurers at potentially lower premium rates so as to
  262  facilitate the remediation, reconstruction, and replacement of
  263  damaged or destroyed property in order to reduce or avoid harm
  264  to the public health, safety, and welfare, to the economy of
  265  this state, and to the revenues of state and local governments
  266  which are needed to provide for the public welfare.
  267         (2) As used in this section, the term “flood” means a
  268  general and temporary condition of partial or complete
  269  inundation of 2 acres or more of normally dry land area or of
  270  two or more properties, at least one of which is the
  271  policyholder’s property, from:
  272         (a) Overflow of inland or tidal waters;
  273         (b) Unusual and rapid accumulation or runoff of surface
  274  waters from any source;
  275         (c) Mudflow; or
  276         (d) Collapse or subsidence of land along the shore of a
  277  lake or similar body of water as a result of erosion or
  278  undermining caused by waves or currents of water exceeding
  279  anticipated cyclical levels which result in a flood.
  280         (3)At a minimum, coverage for the peril of flood must
  281  cover a flood as defined in subsection (2). Coverage for the
  282  peril of flood may also include water intrusion, as defined by
  283  the policy, which originates from outside the structure and is
  284  not otherwise covered under the definition of flood.
  285         (4) An insurer may offer a flood coverage policy, contract,
  286  or endorsement:
  287         (a) That has a flood deductible based on a stated dollar
  288  amount or a percentage of the coverage amount. At a minimum, an
  289  insurer must offer deductible amounts applicable to flood losses
  290  that equal the standard deductibles offered under the National
  291  Flood Insurance Program;
  292         (b) That provides that any flood loss will be adjusted on
  293  the basis of:
  294         1. The actual cash value of the property; or
  295         2. Replacement costs up to the policy limits as provided
  296  under s. 627.7011(3);
  297         (c) That restricts flood coverage to the principal
  298  building, as defined in the applicable policy;
  299         (d) In an agreed-upon amount, including coverage limited to
  300  the amount of all outstanding mortgages applicable to the
  301  covered property. However, if a policy, contract, or endorsement
  302  does not limit flood coverage to the replacement cost of the
  303  covered property, the contract or endorsement may not include a
  304  provision penalizing the policyholder for not insuring the
  305  covered property up to replacement cost; or
  306         (e) That, as to the peril of flood, does not cover:
  307         1.Additional living expenses;
  308         2.Personal property or contents; or
  309         3. Law and ordinance coverage. However, an insurer, must
  310  offer law and ordinance coverage that is comparable to the law
  311  and ordinance coverage offered in the standard NFIP policy. A
  312  policy, endorsement, or contract that includes the law and
  313  ordinance coverage that must be offered under this paragraph
  314  must include the following disclosure in uppercase bold
  315  lettering of at least 12-point type: “LAW AND ORDINANCE COVERAGE
  319         (5) Any limitations on flood coverage or policy limits as
  320  to the peril of flood, including, but not limited to, flood
  321  deductibles or flood coverage limited to the amount of all
  322  outstanding mortgages, must be prominently disclosed on the
  323  declarations page or face page of the policy in uppercase bold
  324  lettering of at least 12-point type and be sufficiently clear so
  325  as to be readily understandable by both the agent and the
  326  property owner.
  327         (a) A policy that limits flood coverage to an amount less
  328  than the full replacement cost of the property must include the
  333         (b) A policy that insures a dwelling on the basis of actual
  334  cash value must include the statement: “THIS POLICY PAYS YOU THE
  338         (6) An insurer may establish and use flood coverage rates
  339  in accordance with the rate standards under s. 627.062. For
  340  flood coverage rates filed with the office before July 1, 2017,
  341  the insurer may also elect one or more of the following options:
  342         (a) In accordance with the rates, rating schedules, or
  343  rating manuals filed by the insurer with the office which allow
  344  the insurer a reasonable rate of return on flood coverage
  345  written in this state. Flood coverage rates established under
  346  this paragraph are not subject to s. 627.062(2)(a) and (f). An
  347  insurer shall notify the office of any change to rates within 30
  348  days after the effective date of the change. The notice must
  349  include the name of the insurer and the average statewide
  350  percentage change in rates. Actuarial data with regard to rates
  351  for flood coverage must be maintained by the insurer for 2 years
  352  after the effective date of such rate change and is subject to
  353  examination by the office. The office may require the insurer to
  354  incur the costs associated with an examination. Upon
  355  examination, the office, in accordance with generally accepted
  356  and reasonable actuarial techniques, shall consider the rate
  357  factors and standards specified in s. 627.062 to determine if
  358  the rate is excessive, inadequate, or unfairly discriminatory.
  359         (b) Through individual risk rating as provided in s.
  360  627.062(3)(a) and (b).
  361         (c) With the written consent of the insured signed before
  362  the policy inception date and filed with the insurer, using a
  363  flood coverage rate that has not been approved by the office.
  364  The signed consent form must notify the insured that the rate is
  365  not subject to the approval of the office. A copy of the form
  366  shall be maintained by the insurer for 3 years and must be
  367  available for review by the office. An insurer is not required
  368  to obtain subsequent written consents upon renewal, but shall
  369  provide notice at each renewal that the rate is not subject to
  370  office approval.
  371         (7) A policy, endorsement, or contract providing coverage
  372  for the peril of flood must provide notice that flood insurance
  373  coverage is available from the NFIP.
  374         (8) A surplus lines agent may export a contract or
  375  endorsement providing flood coverage of $1 million or more to an
  376  eligible surplus lines insurer without making a diligent effort
  377  to seek such coverage from three or more authorized insurers
  378  under s. 626.916(1)(a). This subsection expires July 1, 2017.
  379         (9) A policy, endorsement, or contract providing coverage
  380  for the peril of flood must require the insurer to give 45 days’
  381  prior written notice of cancellation or nonrenewal to the
  382  insured and any regulated lending institution or federal agency
  383  that is a mortgagee. An insurer or insured may cancel during the
  384  term of the policy or upon renewal if the cancellation is for a
  385  valid reason under the NFIP.
  386         (10) In addition to any other applicable requirements, an
  387  insurer providing flood coverage in this state must:
  388         (a) Notify the office at least 30 days before writing flood
  389  insurance in this state; and
  390         (b) File a plan of operation and financial projections or
  391  revisions to such plan, as applicable, with the office, unless
  392  the insurer maintains at least $35 million in surplus and
  393  provides coverage as an endorsement to an existing property
  394  insurance form.
  395         (11) With respect to the regulation of flood insurance
  396  coverage written in this state by private insurers, this section
  397  supersedes any other provision in the Florida Insurance Code in
  398  the event of a conflict.
  399         Section 4. If federal law or rule requires a certification
  400  by a state insurance regulatory official as a condition of
  401  qualifying for private flood insurance or disaster assistance,
  402  the Commissioner of the Office of Insurance Regulation shall
  403  provide such certification, and such certification is not
  404  subject to review under chapter 120.
  405         Section 5. This act shall take effect upon becoming a law.