Florida Senate - 2014                        COMMITTEE AMENDMENT
       Bill No. SB 542
                              LEGISLATIVE ACTION                        
                    Senate             .             House              
                  Comm: RCS            .                                
                  01/08/2014           .                                

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