Florida Senate - 2014                       CS for CS for SB 542
       By the Committees on Appropriations; and Banking and Insurance;
       and Senators Brandes, Simpson, Benacquisto, Galvano, Bradley,
       and Latvala
       576-01913-14                                           2014542c2
    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:
   45         Section 1. Paragraph (b) of subsection (2) of section
   46  627.062, Florida Statutes, is amended to read:
   47         627.062 Rate standards.—
   48         (2) As to all such classes of insurance:
   49         (b) Upon receiving a rate filing, the office shall review
   50  the filing to determine if a rate is excessive, inadequate, or
   51  unfairly discriminatory. In making that determination, the
   52  office shall, in accordance with generally accepted and
   53  reasonable actuarial techniques, consider the following factors:
   54         1. Past and prospective loss experience within and without
   55  this state.
   56         2. Past and prospective expenses.
   57         3. The degree of competition among insurers for the risk
   58  insured.
   59         4. Investment income reasonably expected by the insurer,
   60  consistent with the insurer’s investment practices, from
   61  investable premiums anticipated in the filing, plus any other
   62  expected income from currently invested assets representing the
   63  amount expected on unearned premium reserves and loss reserves.
   64  The commission may adopt rules using reasonable techniques of
   65  actuarial science and economics to specify the manner in which
   66  insurers calculate investment income attributable to classes of
   67  insurance written in this state and the manner in which
   68  investment income is used to calculate insurance rates. Such
   69  manner must contemplate allowances for an underwriting profit
   70  factor and full consideration of investment income that produces
   71  which produce a reasonable rate of return; however, investment
   72  income from invested surplus may not be considered.
   73         5. The reasonableness of the judgment reflected in the
   74  filing.
   75         6. Dividends, savings, or unabsorbed premium deposits
   76  allowed or returned to Florida policyholders, members, or
   77  subscribers in this state.
   78         7. The adequacy of loss reserves.
   79         8. The cost of reinsurance. The office may not disapprove a
   80  rate as excessive solely due to the insurer having obtained
   81  catastrophic reinsurance to cover the insurer’s estimated 250
   82  year probable maximum loss or any lower level of loss.
   83         9. Trend factors, including trends in actual losses per
   84  insured unit for the insurer making the filing.
   85         10. Conflagration and catastrophe hazards, if applicable.
   86         11. Projected hurricane losses, if applicable, which must
   87  be estimated using a model or method found to be acceptable or
   88  reliable by the Florida Commission on Hurricane Loss Projection
   89  Methodology, and as further provided in s. 627.0628.
   90         12. Projected flood losses, if applicable, which may be
   91  estimated using a model, a method, or an average of models or
   92  methods determined to be acceptable or reliable by the Florida
   93  Commission on Hurricane Loss Projection Methodology, and as
   94  further provided in s. 627.0628.
   95         13.12. A reasonable margin for underwriting profit and
   96  contingencies.
   97         14.13. The cost of medical services, if applicable.
   98         15.14. Other relevant factors that affect the frequency or
   99  severity of claims or expenses.
  101  The provisions of this subsection do not apply to workers’
  102  compensation, employer’s liability insurance, and motor vehicle
  103  insurance.
  104         Section 2. Subsection (3) of section 627.0628, Florida
  105  Statutes, is amended to read:
  106         627.0628 Florida Commission on Hurricane Loss Projection
  107  Methodology; public records exemption; public meetings
  108  exemption.—
  110         (a) The commission shall consider any actuarial methods,
  111  principles, standards, models, or output ranges that have the
  112  potential for improving the accuracy of or reliability of the
  113  hurricane loss projections and flood loss projections used in
  114  residential property insurance rate filings. The commission
  115  shall, from time to time, adopt and update findings, as needed,
  116  as to the accuracy or reliability of particular methods,
  117  principles, standards, models, or output ranges.
  118         (b) The commission shall consider any actuarial methods,
  119  principles, standards, or models that have the potential for
  120  improving the accuracy of or reliability of projecting probable
  121  maximum loss levels. The commission shall adopt and update
  122  findings, as needed, as to the accuracy or reliability of
  123  particular methods, principles, standards, or models related to
  124  probable maximum loss calculations.
  125         (c) In establishing reimbursement premiums for the Florida
  126  Hurricane Catastrophe Fund, the State Board of Administration
  127  must, to the extent feasible, employ actuarial methods,
  128  principles, standards, models, or output ranges found by the
  129  commission to be accurate or reliable.
  130         (d) With respect to a rate filing under s. 627.062, an
  131  insurer shall employ and may not modify or adjust actuarial
  132  methods, principles, standards, models, or output ranges found
  133  by the commission to be accurate or reliable in determining
  134  hurricane loss factors for use in a rate filing under s.
  135  627.062. An insurer shall employ and may not modify or adjust
  136  models found by the commission to be accurate or reliable in
  137  determining probable maximum loss levels pursuant to paragraph
  138  (b) with respect to a rate filing under s. 627.062 made more
  139  than 60 days after the commission has made such findings. This
  140  paragraph does not prohibit an insurer from averaging model
  141  results or output ranges or from using an average for the
  142  purpose of a flood insurance rate filing under s. 627.062.
  143         (e) The commission shall adopt actuarial methods,
  144  principles, standards, models, or output ranges for flood loss
  145  by July 1, 2016.
  146         (f)(e) The commission shall revise adopt revisions to
  147  previously adopted actuarial methods, principles, standards,
  148  models, or output ranges every odd-numbered odd year.
  149         (g)(f)1. A trade secret, as defined in s. 688.002, which
  150  that is used in designing and constructing a hurricane loss
  151  model and which that is provided pursuant to this section, by a
  152  private company, to the commission, office, or consumer advocate
  153  appointed pursuant to s. 627.0613, is confidential and exempt
  154  from s. 119.07(1) and s. 24(a), Art. I of the State
  155  Constitution.
  156         2.a. That portion of a meeting of the commission or of a
  157  rate proceeding on an insurer’s rate filing at which a trade
  158  secret made confidential and exempt by this paragraph is
  159  discussed is exempt from s. 286.011 and s. 24(b), Art. I of the
  160  State Constitution. The closed meeting must be recorded, and no
  161  portion of the closed meeting may be off the record.
  162         b. The recording of a closed portion of a meeting is exempt
  163  from s. 119.07(1) and s. 24(a), Art. I of the State
  164  Constitution.
  165         c. This subparagraph is subject to the Open Government
  166  Sunset Review Act in accordance with s. 119.15 and shall stand
  167  repealed on October 2, 2015, unless reviewed and saved from
  168  repeal through reenactment by the Legislature.
  169         Section 3. Section 627.715, Florida Statutes, is created to
  170  read:
  171         627.715Flood insurance.—Subject to the requirements of
  172  this section, an insurer may issue an insurance policy,
  173  contract, or endorsement providing coverage for the peril of
  174  flood on any residential structure or its contents in this
  175  state. This section does not apply to commercial lines risks
  176  policies that provide coverage in excess of an underlying
  177  policy.
  178         (1) The Legislature finds that:
  179         (a) The National Flood Insurance Program (NFIP) is a
  180  federal program that enables property owners in participating
  181  communities to purchase flood insurance. A community
  182  participates in the federal program by adopting and enforcing
  183  floodplain management regulations that meet or exceed federal
  184  floodplain management criteria designed to reduce future flood
  185  risk to new construction in floodplains. The program was created
  186  by Congress in 1968 because insurance covering the peril of
  187  flood was often unavailable in the private insurance market and
  188  was intended to reduce the amount of financial aid paid by the
  189  Federal Government in the aftermath of flood-related disasters.
  190  After the creation of the NFIP, flood insurance coverage
  191  continued to be generally unavailable for purchase from private
  192  market insurance companies.
  193         (b) The Biggert-Waters Flood Insurance Reform Act of 2012
  194  reauthorized and revised the NFIP. The act increased flood
  195  insurance premiums purchased through the program for second
  196  homes, business properties, severe repetitive loss properties,
  197  and substantially improved damaged properties by requiring
  198  premium increases of 25 percent per year until premiums meet the
  199  full actuarial cost. Most residences lose their subsidized rates
  200  if the property is sold, the policy lapses, repeated and severe
  201  flood losses occur, or a new policy is purchased. Policyholders
  202  whose communities adopt a new, updated Flood Insurance Rate Map
  203  (FIRM) that results in higher rates will experience a 5-year
  204  phase in of rate increases to achieve required rate levels.
  205         (c) The Biggert-Waters Flood Insurance Reform Act of 2012
  206  also encourages the use and acceptance of private market flood
  207  insurance. The Legislature finds, however, that there has been a
  208  long-term inadequacy of private market flood insurance available
  209  in this state. Such inadequacy suggests that the private market
  210  in this state is unlikely to expand unless the Legislature
  211  provides multiple options for the regulation of flood insurance.
  212  The Legislature also finds that the consumers of this state
  213  would benefit from the availability of competitively priced
  214  private market flood insurance due to the continued availability
  215  of the NFIP flood insurance, the likely availability of
  216  alternative private market flood insurance coverage options, and
  217  the oversight of the Office of Insurance Regulation.
  218         (d) The NFIP, as amended by the Biggert-Waters Flood
  219  Insurance Reform Act of 2012, is likely to prevent many property
  220  owners from obtaining affordable flood insurance coverage in
  221  this state. The absence of affordable flood insurance threatens
  222  the public health, safety, and welfare and the economic health
  223  of this state. Therefore, the state has a compelling public
  224  purpose and interest in providing alternatives to coverage from
  225  the NFIP by promoting the availability of flood insurance from
  226  private market insurers at potentially lower premium rates in an
  227  effort to facilitate the remediation, reconstruction, and
  228  replacement of damaged or destroyed property in order to reduce
  229  or avoid harm to public health, safety, and welfare, to the
  230  economy of this state, and to the revenues of state and local
  231  governments which are needed to provide for the public welfare.
  232         (2) As used in this section, the term “flood” means a
  233  general and temporary condition of partial or complete
  234  inundation of 2 acres or more of normally dry land area or of
  235  two or more properties, at least one of which is the
  236  policyholder’s property, from:
  237         (a) Overflow of inland or tidal waters;
  238         (b) Unusual and rapid accumulation or runoff of surface
  239  waters from any source;
  240         (c) Mudflow; or
  241         (d) Collapse or subsidence of land along the shore of a
  242  lake or similar body of water as a result of erosion or
  243  undermining caused by waves or currents of water exceeding
  244  anticipated cyclical levels.
  245         (3)At a minimum, coverage for the peril of flood must
  246  cover a flood as defined in subsection (2). Coverage for the
  247  peril of flood may also include water intrusion, as defined by
  248  the policy, which originates from outside the structure and is
  249  not otherwise covered under the definition of flood.
  250         (4) An insurer may offer a flood coverage policy, contract,
  251  or endorsement that:
  252         (a) Has a flood deductible based on a stated dollar amount
  253  or a percentage of the coverage amount. The deductible amount
  254  must be acceptable to federal mortgage and banking regulators if
  255  such policy, contract, or endorsement is intended to satisfy a
  256  mortgage requirement;
  257         (b) Provides that any flood loss will be adjusted on the
  258  basis of:
  259         1. The actual cash value of the property; or
  260         2. Replacement costs up to the policy limits as provided
  261  under s. 627.7011(3);
  262         (c) Restricts flood coverage to the principal building, as
  263  defined in the applicable policy;
  264         (d) Is in an agreed-upon amount, including coverage limited
  265  to the amount of all outstanding mortgages applicable to the
  266  covered property. However, if a policy, contract, or endorsement
  267  does not limit flood coverage to the replacement cost of the
  268  covered property, the policy, contract, or endorsement may not
  269  include a provision penalizing the policyholder for not insuring
  270  the covered property up to replacement cost; or
  271         (e) As to the peril of flood, does not cover:
  272         1.Additional living expenses;
  273         2.Personal property or contents; or
  274         3. Law and ordinance coverage. However, an insurer must
  275  offer law and ordinance coverage that is comparable to the law
  276  and ordinance coverage offered in the standard NFIP policy. A
  277  policy, contract, or endorsement that includes the law and
  278  ordinance coverage that must be offered under this paragraph
  279  must include the following disclosure in at least 12-point
  280  uppercase and boldfaced type: “LAW AND ORDINANCE COVERAGE UNDER
  284         (5) Any limitations on flood coverage or policy limits as
  285  to the peril of flood, including, but not limited to, flood
  286  deductibles or flood coverage limited to the amount of all
  287  outstanding mortgages, must be prominently disclosed on the
  288  declarations page or face page of the policy in at least 12
  289  point uppercase and boldfaced type and be sufficiently clear so
  290  as to be readily understandable by the agent and the property
  291  owner.
  292         (a) A policy that limits flood coverage to an amount less
  293  than the full replacement cost of the property must include the
  294  following statement: “THIS POLICY LIMITS FLOOD COVERAGE TO LESS
  298         (b) A policy that insures a dwelling on the basis of actual
  299  cash value must include the following statement: “THIS POLICY
  303         (6) An insurer may establish and use flood coverage rates
  304  in accordance with the rate standards under s. 627.062. For
  305  flood coverage rates filed with the office before July 1, 2024,
  306  the insurer may also elect one or more of the following options:
  307         (a) In accordance with the rates, rating schedules, or
  308  rating manuals filed by the insurer with the office which allow
  309  the insurer a reasonable rate of return on flood coverage
  310  written in this state. Flood coverage rates established under
  311  this paragraph are not subject to s. 627.062(2)(a) and (f). An
  312  insurer shall notify the office of any change to rates within 30
  313  days after the effective date of the change. The notice must
  314  include the name of the insurer and the average statewide
  315  percentage change in rates. Actuarial data with regard to rates
  316  for flood coverage must be maintained by the insurer for 2 years
  317  after the effective date of such rate change and is subject to
  318  examination by the office. The office may require the insurer to
  319  incur the costs associated with an examination. Upon
  320  examination, the office, in accordance with generally accepted
  321  and reasonable actuarial techniques, shall consider the rate
  322  factors and standards specified in s. 627.062 to determine if
  323  the rate is excessive, inadequate, or unfairly discriminatory.
  324         (b) Through individual risk rating as provided in
  325  627.062(3)(a) and (b). Upon examination, the office, in
  326  accordance with generally accepted and reasonable actuarial
  327  techniques, shall determine if the rate is excessive,
  328  inadequate, or unfairly discriminatory.
  329         (c) With the written consent of the insured signed before
  330  the policy inception date and filed with the insurer, using a
  331  flood coverage rate that has not been approved by the office.
  332  The signed consent form must notify the insured that the rate is
  333  not subject to the approval of the office. A copy of the form
  334  shall be maintained by the insurer for 3 years and must be
  335  available for review by the office. An insurer is not required
  336  to obtain subsequent written consents upon renewal, but shall
  337  provide notice at each renewal that the rate is not subject to
  338  office approval. Section 627.171(2) does not apply to policies
  339  issued under this section. Upon examination, the office, in
  340  accordance with generally accepted and reasonable actuarial
  341  techniques, shall determine if the rate is excessive,
  342  inadequate, or unfairly discriminatory.
  343         (7) A policy, contract, or endorsement providing coverage
  344  for the peril of flood must provide notice that flood insurance
  345  coverage is available from the NFIP.
  346         (8) A surplus lines agent may export a contract or
  347  endorsement to an eligible surplus lines insurer without making
  348  a diligent effort to seek such coverage from three or more
  349  authorized insurers under s. 626.916(1)(a). This subsection
  350  expires July 1, 2017.
  351         (9) A policy, contract, or endorsement providing coverage
  352  for the peril of flood must require the insurer to give 45 days’
  353  written notice before cancellation or nonrenewal to the insured
  354  and any regulated lending institution or federal agency that is
  355  a mortgagee. An insurer or insured may cancel during the term of
  356  the policy or upon renewal if the cancellation is for a valid
  357  reason under the NFIP.
  358         (10) In addition to any other applicable requirements, an
  359  insurer providing flood coverage under this section must:
  360         (a) Notify the office at least 30 days before writing flood
  361  insurance in this state;
  362         (b) File a plan of operation and financial projections or
  363  revisions to such plan, as applicable, with the office unless
  364  the insurer maintains at least $35 million in surplus. For
  365  purposes of this paragraph, an insurer may demonstrate such
  366  surplus if the insurer group surplus is used to support covered
  367  flood insurance risks through a pooling arrangement or
  368  intercompany reinsurance;
  369         (c) Offer flood insurance on a form that has been filed
  370  with and approved by the office pursuant to s. 627.410. If an
  371  insurer files a form with the office that is substantially
  372  similar to a form used by the NFIP, the office may not extend
  373  the 30-day period as provided under s. 627.410(2); and
  374         (d) File all reinsurance contracts with the office on or
  375  before June 30 of each year.
  376         (11)For a policy on a structure that was previously
  377  insured through the NFIP at a subsidized rate, the policy must
  378  include the following statement: “BY ACCEPTING A PRIVATE FLOOD
  382         (12) Citizens Property Insurance Corporation may not
  383  provide insurance for the peril of flood.
  384         (13) The Florida Hurricane Catastrophe Fund may not provide
  385  reimbursement for losses proximately caused by the peril of
  386  flood, including losses that occur during a covered event as
  387  defined under s. 215.555(2).
  388         (14) With respect to the regulation of flood insurance
  389  coverage written in this state by private insurers, this section
  390  supersedes any other provision in the Florida Insurance Code in
  391  the event of a conflict.
  392         Section 4. If federal law or rule requires a certification
  393  by a state insurance regulatory official as a condition of
  394  qualifying for private flood insurance or disaster assistance,
  395  the Commissioner of the Office of Insurance Regulation shall
  396  provide such certification, and such certification is not
  397  subject to review under chapter 120.
  398         Section 5. This act shall take effect upon becoming a law.