Florida Senate - 2014              PROPOSED COMMITTEE SUBSTITUTE
       Bill No. CS for SB 542
       Proposed Committee Substitute by the Committee on Appropriations
       (Appropriations Subcommittee on General Government)
    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.; requiring the
    7         commission to adopt standards and guidelines relating
    8         to flood loss by a certain date; creating s. 627.715,
    9         F.S.; authorizing insurers to offer flood insurance on
   10         residential property in this state; providing
   11         legislative findings; defining the term “flood”;
   12         establishing the minimum coverage requirements for a
   13         flood insurance policy; providing coverage limitations
   14         that an insurer may include in such policies;
   15         requiring that certain limitations be noted on the
   16         policy declarations or face page; providing the
   17         insurer with rate options; requiring the insurer to
   18         provide notice that flood insurance is available from
   19         the National Flood Insurance Program; authorizing an
   20         insurer to export a contract or endorsement to a
   21         surplus lines insurer without meeting certain
   22         requirements; requiring prior notice for cancellation
   23         or nonrenewal of a policy; providing additional
   24         requirements with respect to notifying the Office of
   25         Insurance Regulation before writing flood insurance,
   26         filing a plan of operation with the office, using
   27         forms that have been approved by the office, and
   28         filing reinsurance contracts before a certain date;
   29         requiring that policies replacing subsidized policies
   30         include a statement that the subsidized rate may be
   31         lost; prohibiting Citizens Property Insurance
   32         Corporation from writing flood insurance; prohibiting
   33         the Florida Hurricane Catastrophe Fund from
   34         reimbursing losses caused by flooding; preempting any
   35         conflicts with other provisions of the Florida
   36         Insurance Code; requiring the Commissioner of the
   37         Office of Insurance Regulation to provide
   38         certification that a condition qualifies for flood
   39         insurance or disaster assistance; providing an
   40         effective date.
   42  Be It Enacted by the Legislature of the State of Florida:
   44         Section 1. Paragraph (b) of subsection (2) of section
   45  627.062, Florida Statutes, is amended to read:
   46         627.062 Rate standards.—
   47         (2) As to all such classes of insurance:
   48         (b) Upon receiving a rate filing, the office shall review
   49  the filing to determine if a rate is excessive, inadequate, or
   50  unfairly discriminatory. In making that determination, the
   51  office shall, in accordance with generally accepted and
   52  reasonable actuarial techniques, consider the following factors:
   53         1. Past and prospective loss experience within and without
   54  this state.
   55         2. Past and prospective expenses.
   56         3. The degree of competition among insurers for the risk
   57  insured.
   58         4. Investment income reasonably expected by the insurer,
   59  consistent with the insurer’s investment practices, from
   60  investable premiums anticipated in the filing, plus any other
   61  expected income from currently invested assets representing the
   62  amount expected on unearned premium reserves and loss reserves.
   63  The commission may adopt rules using reasonable techniques of
   64  actuarial science and economics to specify the manner in which
   65  insurers calculate investment income attributable to classes of
   66  insurance written in this state and the manner in which
   67  investment income is used to calculate insurance rates. Such
   68  manner must contemplate allowances for an underwriting profit
   69  factor and full consideration of investment income that produces
   70  which produce a reasonable rate of return; however, investment
   71  income from invested surplus may not be considered.
   72         5. The reasonableness of the judgment reflected in the
   73  filing.
   74         6. Dividends, savings, or unabsorbed premium deposits
   75  allowed or returned to Florida policyholders, members, or
   76  subscribers in this state.
   77         7. The adequacy of loss reserves.
   78         8. The cost of reinsurance. The office may not disapprove a
   79  rate as excessive solely due to the insurer having obtained
   80  catastrophic reinsurance to cover the insurer’s estimated 250
   81  year probable maximum loss or any lower level of loss.
   82         9. Trend factors, including trends in actual losses per
   83  insured unit for the insurer making the filing.
   84         10. Conflagration and catastrophe hazards, if applicable.
   85         11. Projected hurricane losses, if applicable, which must
   86  be estimated using a model or method found to be acceptable or
   87  reliable by the Florida Commission on Hurricane Loss Projection
   88  Methodology, and as further provided in s. 627.0628.
   89         12. Projected flood losses, if applicable, which may be
   90  estimated using a model, a method, or an average of models or
   91  methods determined to be acceptable or reliable by the Florida
   92  Commission on Hurricane Loss Projection Methodology, and as
   93  further provided in s. 627.0628.
   94         13.12. A reasonable margin for underwriting profit and
   95  contingencies.
   96         14.13. The cost of medical services, if applicable.
   97         15.14. Other relevant factors that affect the frequency or
   98  severity of claims or expenses.
  100  The provisions of this subsection do not apply to workers’
  101  compensation, employer’s liability insurance, and motor vehicle
  102  insurance.
  103         Section 2. Subsection (3) of section 627.0628, Florida
  104  Statutes, is amended to read:
  105         627.0628 Florida Commission on Hurricane Loss Projection
  106  Methodology; public records exemption; public meetings
  107  exemption.—
  109         (a) The commission shall consider any actuarial methods,
  110  principles, standards, models, or output ranges that have the
  111  potential for improving the accuracy of or reliability of the
  112  hurricane loss projections and flood loss projections used in
  113  residential property insurance rate filings. The commission
  114  shall, from time to time, adopt and update findings, as needed,
  115  as to the accuracy or reliability of particular methods,
  116  principles, standards, models, or output ranges.
  117         (b) The commission shall consider any actuarial methods,
  118  principles, standards, or models that have the potential for
  119  improving the accuracy of or reliability of projecting probable
  120  maximum loss levels. The commission shall adopt and update
  121  findings, as needed, as to the accuracy or reliability of
  122  particular methods, principles, standards, or models related to
  123  probable maximum loss calculations.
  124         (c) In establishing reimbursement premiums for the Florida
  125  Hurricane Catastrophe Fund, the State Board of Administration
  126  must, to the extent feasible, employ actuarial methods,
  127  principles, standards, models, or output ranges found by the
  128  commission to be accurate or reliable.
  129         (d) With respect to a rate filing under s. 627.062, an
  130  insurer shall employ and may not modify or adjust actuarial
  131  methods, principles, standards, models, or output ranges found
  132  by the commission to be accurate or reliable in determining
  133  hurricane loss factors for use in a rate filing under s.
  134  627.062. An insurer shall employ and may not modify or adjust
  135  models found by the commission to be accurate or reliable in
  136  determining probable maximum loss levels pursuant to paragraph
  137  (b) with respect to a rate filing under s. 627.062 made more
  138  than 60 days after the commission has made such findings. This
  139  paragraph does not prohibit an insurer from averaging model
  140  results or output ranges or from using an average for the
  141  purpose of a flood insurance rate filing under s. 627.062.
  142         (e) The commission shall adopt actuarial methods,
  143  principles, standards, models, or output ranges for flood loss
  144  by July 1, 2016.
  145         (f)(e) The commission shall revise adopt revisions to
  146  previously adopted actuarial methods, principles, standards,
  147  models, or output ranges every odd-numbered odd year.
  148         (g)(f)1. A trade secret, as defined in s. 688.002, which
  149  that is used in designing and constructing a hurricane loss
  150  model and which that is provided pursuant to this section, by a
  151  private company, to the commission, office, or consumer advocate
  152  appointed pursuant to s. 627.0613, is confidential and exempt
  153  from s. 119.07(1) and s. 24(a), Art. I of the State
  154  Constitution.
  155         2.a. That portion of a meeting of the commission or of a
  156  rate proceeding on an insurer’s rate filing at which a trade
  157  secret made confidential and exempt by this paragraph is
  158  discussed is exempt from s. 286.011 and s. 24(b), Art. I of the
  159  State Constitution. The closed meeting must be recorded, and no
  160  portion of the closed meeting may be off the record.
  161         b. The recording of a closed portion of a meeting is exempt
  162  from s. 119.07(1) and s. 24(a), Art. I of the State
  163  Constitution.
  164         c. This subparagraph is subject to the Open Government
  165  Sunset Review Act in accordance with s. 119.15 and shall stand
  166  repealed on October 2, 2015, unless reviewed and saved from
  167  repeal through reenactment by the Legislature.
  168         Section 3. Section 627.715, Florida Statutes, is created to
  169  read:
  170         627.715Flood insurance.—Subject to the requirements of
  171  this section, an insurer may issue an insurance policy,
  172  contract, or endorsement providing coverage for the peril of
  173  flood on any residential structure or its contents in this
  174  state. This section does not apply to commercial lines risks
  175  policies that provide coverage in excess of an underlying
  176  policy.
  177         (1) The Legislature finds that:
  178         (a) The National Flood Insurance Program (NFIP) is a
  179  federal program that enables property owners in participating
  180  communities to purchase flood insurance. A community
  181  participates in the federal program by adopting and enforcing
  182  floodplain management regulations that meet or exceed federal
  183  floodplain management criteria designed to reduce future flood
  184  risk to new construction in floodplains. The program was created
  185  by Congress in 1968 because insurance covering the peril of
  186  flood was often unavailable in the private insurance market and
  187  was intended to reduce the amount of financial aid paid by the
  188  Federal Government in the aftermath of flood-related disasters.
  189  After the creation of the NFIP, flood insurance coverage
  190  continued to be generally unavailable for purchase from private
  191  market insurance companies.
  192         (b) The Biggert-Waters Flood Insurance Reform Act of 2012
  193  reauthorized and revised the NFIP. The act increased flood
  194  insurance premiums purchased through the program for second
  195  homes, business properties, severe repetitive loss properties,
  196  and substantially improved damaged properties by requiring
  197  premium increases of 25 percent per year until premiums meet the
  198  full actuarial cost. Most residences lose their subsidized rates
  199  if the property is sold, the policy lapses, repeated and severe
  200  flood losses occur, or a new policy is purchased. Policyholders
  201  whose communities adopt a new, updated Flood Insurance Rate Map
  202  (FIRM) that results in higher rates will experience a 5-year
  203  phase in of rate increases to achieve required rate levels.
  204         (c) The Biggert-Waters Flood Insurance Reform Act of 2012
  205  also encourages the use and acceptance of private market flood
  206  insurance. The Legislature finds, however, that there has been a
  207  long-term inadequacy of private market flood insurance available
  208  in this state. Such inadequacy suggests that the private market
  209  in this state is unlikely to expand unless the Legislature
  210  provides multiple options for the regulation of flood insurance.
  211  The Legislature also finds that the consumers of this state
  212  would benefit from the availability of competitively priced
  213  private market flood insurance due to the continued availability
  214  of the NFIP flood insurance, the likely availability of
  215  alternative private market flood insurance coverage options, and
  216  the oversight of the Office of Insurance Regulation.
  217         (d) The NFIP, as amended by the Biggert-Waters Flood
  218  Insurance Reform Act of 2012, is likely to prevent many property
  219  owners from obtaining affordable flood insurance coverage in
  220  this state. The absence of affordable flood insurance threatens
  221  the public health, safety, and welfare and the economic health
  222  of this state. Therefore, the state has a compelling public
  223  purpose and interest in providing alternatives to coverage from
  224  the NFIP by promoting the availability of flood insurance from
  225  private market insurers at potentially lower premium rates in an
  226  effort to facilitate the remediation, reconstruction, and
  227  replacement of damaged or destroyed property in order to reduce
  228  or avoid harm to public health, safety, and welfare, to the
  229  economy of this state, and to the revenues of state and local
  230  governments which are needed to provide for the public welfare.
  231         (2) As used in this section, the term “flood” means a
  232  general and temporary condition of partial or complete
  233  inundation of 2 acres or more of normally dry land area or of
  234  two or more properties, at least one of which is the
  235  policyholder’s property, from:
  236         (a) Overflow of inland or tidal waters;
  237         (b) Unusual and rapid accumulation or runoff of surface
  238  waters from any source;
  239         (c) Mudflow; or
  240         (d) Collapse or subsidence of land along the shore of a
  241  lake or similar body of water as a result of erosion or
  242  undermining caused by waves or currents of water exceeding
  243  anticipated cyclical levels.
  244         (3)At a minimum, coverage for the peril of flood must
  245  cover a flood as defined in subsection (2). Coverage for the
  246  peril of flood may also include water intrusion, as defined by
  247  the policy, which originates from outside the structure and is
  248  not otherwise covered under the definition of flood.
  249         (4) An insurer may offer a flood coverage policy, contract,
  250  or endorsement that:
  251         (a) Has a flood deductible based on a stated dollar amount
  252  or a percentage of the coverage amount. The deductible amount
  253  must be acceptable to federal mortgage and banking regulators if
  254  such policy, contract, or endorsement is intended to satisfy a
  255  mortgage requirement;
  256         (b) Provides that any flood loss will be adjusted on the
  257  basis of:
  258         1. The actual cash value of the property; or
  259         2. Replacement costs up to the policy limits as provided
  260  under s. 627.7011(3);
  261         (c) Restricts flood coverage to the principal building, as
  262  defined in the applicable policy;
  263         (d) Is in an agreed-upon amount, including coverage limited
  264  to the amount of all outstanding mortgages applicable to the
  265  covered property. However, if a policy, contract, or endorsement
  266  does not limit flood coverage to the replacement cost of the
  267  covered property, the policy, contract, or endorsement may not
  268  include a provision penalizing the policyholder for not insuring
  269  the covered property up to replacement cost; or
  270         (e) As to the peril of flood, does not cover:
  271         1.Additional living expenses;
  272         2.Personal property or contents; or
  273         3. Law and ordinance coverage. However, an insurer must
  274  offer law and ordinance coverage that is comparable to the law
  275  and ordinance coverage offered in the standard NFIP policy. A
  276  policy, contract, or endorsement that includes the law and
  277  ordinance coverage that must be offered under this paragraph
  278  must include the following disclosure in at least 12-point
  279  uppercase and boldfaced type: “LAW AND ORDINANCE COVERAGE UNDER
  283         (5) Any limitations on flood coverage or policy limits as
  284  to the peril of flood, including, but not limited to, flood
  285  deductibles or flood coverage limited to the amount of all
  286  outstanding mortgages, must be prominently disclosed on the
  287  declarations page or face page of the policy in at least 12
  288  point uppercase and boldfaced type and be sufficiently clear so
  289  as to be readily understandable by the agent and the property
  290  owner.
  291         (a) A policy that limits flood coverage to an amount less
  292  than the full replacement cost of the property must include the
  293  following statement: “THIS POLICY LIMITS FLOOD COVERAGE TO LESS
  297         (b) A policy that insures a dwelling on the basis of actual
  298  cash value must include the following statement: “THIS POLICY
  302         (6) An insurer may establish and use flood coverage rates
  303  in accordance with the rate standards under s. 627.062. For
  304  flood coverage rates filed with the office before July 1, 2024,
  305  the insurer may also elect one or more of the following options:
  306         (a) In accordance with the rates, rating schedules, or
  307  rating manuals filed by the insurer with the office which allow
  308  the insurer a reasonable rate of return on flood coverage
  309  written in this state. Flood coverage rates established under
  310  this paragraph are not subject to s. 627.062(2)(a) and (f). An
  311  insurer shall notify the office of any change to rates within 30
  312  days after the effective date of the change. The notice must
  313  include the name of the insurer and the average statewide
  314  percentage change in rates. Actuarial data with regard to rates
  315  for flood coverage must be maintained by the insurer for 2 years
  316  after the effective date of such rate change and is subject to
  317  examination by the office. The office may require the insurer to
  318  incur the costs associated with an examination. Upon
  319  examination, the office, in accordance with generally accepted
  320  and reasonable actuarial techniques, shall consider the rate
  321  factors and standards specified in s. 627.062 to determine if
  322  the rate is excessive, inadequate, or unfairly discriminatory.
  323         (b) Through individual risk rating as provided in
  324  627.062(3)(a) and (b). Upon examination, the office, in
  325  accordance with generally accepted and reasonable actuarial
  326  techniques, shall determine if the rate is excessive,
  327  inadequate, or unfairly discriminatory.
  328         (c) With the written consent of the insured signed before
  329  the policy inception date and filed with the insurer, using a
  330  flood coverage rate that has not been approved by the office.
  331  The signed consent form must notify the insured that the rate is
  332  not subject to the approval of the office. A copy of the form
  333  shall be maintained by the insurer for 3 years and must be
  334  available for review by the office. An insurer is not required
  335  to obtain subsequent written consents upon renewal, but shall
  336  provide notice at each renewal that the rate is not subject to
  337  office approval. Section 627.171(2) does not apply to policies
  338  issued under this section. Upon examination, the office, in
  339  accordance with generally accepted and reasonable actuarial
  340  techniques, shall determine if the rate is excessive,
  341  inadequate, or unfairly discriminatory.
  342         (7) A policy, contract, or endorsement providing coverage
  343  for the peril of flood must provide notice that flood insurance
  344  coverage is available from the NFIP.
  345         (8) A surplus lines agent may export a contract or
  346  endorsement to an eligible surplus lines insurer without making
  347  a diligent effort to seek such coverage from three or more
  348  authorized insurers under s. 626.916(1)(a). This subsection
  349  expires July 1, 2017.
  350         (9) A policy, contract, or endorsement providing coverage
  351  for the peril of flood must require the insurer to give 45 days’
  352  written notice before cancellation or nonrenewal to the insured
  353  and any regulated lending institution or federal agency that is
  354  a mortgagee. An insurer or insured may cancel during the term of
  355  the policy or upon renewal if the cancellation is for a valid
  356  reason under the NFIP.
  357         (10) In addition to any other applicable requirements, an
  358  insurer providing flood coverage under this section must:
  359         (a) Notify the office at least 30 days before writing flood
  360  insurance in this state;
  361         (b) File a plan of operation and financial projections or
  362  revisions to such plan, as applicable, with the office unless
  363  the insurer maintains at least $35 million in surplus. For
  364  purposes of this paragraph, an insurer may demonstrate such
  365  surplus if the insurer group surplus is used to support covered
  366  flood insurance risks through a pooling arrangement or
  367  intercompany reinsurance;
  368         (c) Offer flood insurance on a form that has been filed
  369  with and approved by the office pursuant to s. 627.410. If an
  370  insurer files a form with the office that is substantially
  371  similar to a form used by the NFIP, the office may not extend
  372  the 30-day period as provided under s. 627.410(2); and
  373         (d) File all reinsurance contracts with the office on or
  374  before June 30 of each year.
  375         (11)For a policy on a structure that was previously
  376  insured through the NFIP at a subsidized rate, the policy must
  377  include the following statement: “BY ACCEPTING A PRIVATE FLOOD
  381         (12) Citizens Property Insurance Corporation may not
  382  provide insurance for the peril of flood.
  383         (13) The Florida Hurricane Catastrophe Fund may not provide
  384  reimbursement for losses proximately caused by the peril of
  385  flood, including losses that occur during a covered event as
  386  defined under s. 215.555(2).
  387         (14) With respect to the regulation of flood insurance
  388  coverage written in this state by private insurers, this section
  389  supersedes any other provision in the Florida Insurance Code in
  390  the event of a conflict.
  391         Section 4. If federal law or rule requires a certification
  392  by a state insurance regulatory official as a condition of
  393  qualifying for private flood insurance or disaster assistance,
  394  the Commissioner of the Office of Insurance Regulation shall
  395  provide such certification, and such certification is not
  396  subject to review under chapter 120.
  397         Section 5. This act shall take effect upon becoming a law.