Florida Senate - 2016                                    SB 1274
       By Senator Latvala
       20-01275-16                                           20161274__
    1                        A bill to be entitled                      
    2         An act relating to sinkhole insurance; amending s.
    3         624.407, F.S.; specifying an initial minimum surplus
    4         requirement for certain new sinkhole insurers;
    5         amending s. 624.408, F.S.; specifying a minimum
    6         surplus requirement for certain current sinkhole
    7         insurers; amending s. 627.062, F.S.; adding projected
    8         sinkhole losses to a list of factors that must be
    9         considered by the Office of Insurance Regulation in
   10         reviewing certain rate filings; amending s. 627.0628,
   11         F.S.; requiring the Florida Commission on Hurricane
   12         Loss Projection Methodology to adopt certain standards
   13         and guidelines relating to personal lines residential
   14         sinkhole loss by a specified date; creating s.
   15         627.7151, F.S.; authorizing certain insurers to offer
   16         sinkhole insurance in this state; providing
   17         applicability; providing coverage requirements and
   18         limitations; requiring a notice of coverage or policy
   19         limitations on the policy declarations page or face
   20         page; authorizing certain rate standards for sinkhole
   21         coverage rates to be established and used by insurers;
   22         requiring an insurer to provide the office with a
   23         specified notice of changes to certain sinkhole
   24         coverage rates; requiring an insurer to maintain
   25         certain actuarial data for a certain time; authorizing
   26         the office to examine such data to determine if the
   27         rate is excessive, inadequate, or unfairly
   28         discriminatory; authorizing the office to require an
   29         insurer to incur costs associated with such
   30         examination; authorizing a surplus lines agent to
   31         export sinkhole insurance to an eligible surplus lines
   32         insurer without meeting a certain requirement;
   33         providing for expiration; requiring an insurer to
   34         notify the office within a specified time before
   35         writing sinkhole insurance and to file with the office
   36         a plan of operation and financial projections;
   37         prohibiting Citizens Property Insurance Corporation
   38         from issuing or renewing certain sinkhole insurance
   39         after a certain date; requiring the corporation to
   40         provide coverage for catastrophic ground cover
   41         collapse; prohibiting the Florida Hurricane
   42         Catastrophe Fund from reimbursing certain losses
   43         caused by sinkhole; providing for construction;
   44         providing an effective date.
   46  Be It Enacted by the Legislature of the State of Florida:
   48         Section 1. Subsection (1) of section 624.407, Florida
   49  Statutes, is amended to read:
   50         624.407 Surplus required; new insurers.—
   51         (1) To receive authority to transact any one kind or
   52  combinations of kinds of insurance, as defined in part V of this
   53  chapter, an insurer applying for its original certificate of
   54  authority in this state shall possess surplus as to
   55  policyholders at least the greater of:
   56         (a) For a property and casualty insurer, $5 million, or
   57  $2.5 million for any other insurer.;
   58         (b) For life insurers, 4 percent of the insurer’s total
   59  liabilities.;
   60         (c) For life and health insurers, 4 percent of the
   61  insurer’s total liabilities, plus 6 percent of the insurer’s
   62  liabilities relative to health insurance.;
   63         (d) For all insurers other than life insurers and life and
   64  health insurers, 10 percent of the insurer’s total liabilities.;
   65  or
   66         (e) Notwithstanding paragraph (a) or paragraph (d), for a
   67  domestic insurer that transacts residential property insurance
   68  and is:
   69         1. Not a wholly owned subsidiary of an insurer domiciled in
   70  any other state, $15 million.
   71         2. A wholly owned subsidiary of an insurer domiciled in any
   72  other state, $50 million.
   73         (f) Notwithstanding paragraphs (a), (d), and (e), for a
   74  domestic insurer that solely transacts personal residential
   75  property insurance for the peril of sinkhole in accordance with
   76  s. 627.7151, $2.5 million.
   77         Section 2. Paragraph (h) is added to subsection (1) of
   78  section 624.408, Florida Statutes, to read:
   79         624.408 Surplus required; current insurers.—
   80         (1) To maintain a certificate of authority to transact any
   81  one kind or combinations of kinds of insurance, as defined in
   82  part V of this chapter, an insurer in this state must at all
   83  times maintain surplus as to policyholders at least the greater
   84  of:
   85         (h) Notwithstanding paragraphs (e), (f), and (g), for a
   86  domestic residential property insurer that solely transacts
   87  residential property insurance for the peril of sinkhole in
   88  accordance with s. 627.7151, $1.5 million.
   90  The office may reduce the surplus requirement in paragraphs (f)
   91  and (g) if the insurer is not writing new business, has premiums
   92  in force of less than $1 million per year in residential
   93  property insurance, or is a mutual insurance company.
   94         Section 3. Paragraph (b) of subsection (2) of section
   95  627.062, Florida Statutes, is amended to read:
   96         627.062 Rate standards.—
   97         (2) As to all such classes of insurance:
   98         (b) Upon receiving a rate filing, the office shall review
   99  the filing to determine if a rate is excessive, inadequate, or
  100  unfairly discriminatory. In making that determination, the
  101  office shall, in accordance with generally accepted and
  102  reasonable actuarial techniques, consider the following factors:
  103         1. Past and prospective loss experience within and without
  104  this state.
  105         2. Past and prospective expenses.
  106         3. The degree of competition among insurers for the risk
  107  insured.
  108         4. Investment income reasonably expected by the insurer,
  109  consistent with the insurer’s investment practices, from
  110  investable premiums anticipated in the filing, plus any other
  111  expected income from currently invested assets representing the
  112  amount expected on unearned premium reserves and loss reserves.
  113  The commission may adopt rules using reasonable techniques of
  114  actuarial science and economics to specify the manner in which
  115  insurers calculate investment income attributable to classes of
  116  insurance written in this state and the manner in which
  117  investment income is used to calculate insurance rates. Such
  118  manner must contemplate allowances for an underwriting profit
  119  factor and full consideration of investment income that produces
  120  a reasonable rate of return; however, investment income from
  121  invested surplus may not be considered.
  122         5. The reasonableness of the judgment reflected in the
  123  filing.
  124         6. Dividends, savings, or unabsorbed premium deposits
  125  allowed or returned to policyholders, members, or subscribers in
  126  this state.
  127         7. The adequacy of loss reserves.
  128         8. The cost of reinsurance. The office may not disapprove a
  129  rate as excessive solely due to the insurer having obtained
  130  catastrophic reinsurance to cover the insurer’s estimated 250
  131  year probable maximum loss or any lower level of loss.
  132         9. Trend factors, including trends in actual losses per
  133  insured unit for the insurer making the filing.
  134         10. Conflagration and catastrophe hazards, if applicable.
  135         11. Projected hurricane losses, if applicable, which must
  136  be estimated using a model or method found to be acceptable or
  137  reliable by the Florida Commission on Hurricane Loss Projection
  138  Methodology, and as further provided in s. 627.0628.
  139         12. Projected flood and sinkhole losses for personal
  140  residential property insurance, if applicable, which may be
  141  estimated using a model or method, or a straight average of
  142  model results or output ranges, independently found to be
  143  acceptable or reliable by the Florida Commission on Hurricane
  144  Loss Projection Methodology and as further provided in s.
  145  627.0628.
  146         13. A reasonable margin for underwriting profit and
  147  contingencies.
  148         14. The cost of medical services, if applicable.
  149         15. Other relevant factors that affect the frequency or
  150  severity of claims or expenses.
  152  The provisions of this subsection do not apply to workers’
  153  compensation, employer’s liability insurance, and motor vehicle
  154  insurance.
  155         Section 4. Paragraphs (a), (d), and (e) of subsection (3)
  156  of section 627.0628, Florida Statutes, are amended to read:
  157         627.0628 Florida Commission on Hurricane Loss Projection
  158  Methodology; public records exemption; public meetings
  159  exemption.—
  161         (a) The commission shall consider any actuarial methods,
  162  principles, standards, models, or output ranges that have the
  163  potential for improving the accuracy of or reliability of the
  164  hurricane loss projections used in residential property
  165  insurance rate filings and flood and sinkhole loss projections
  166  used in rate filings for personal lines residential flood and
  167  sinkhole insurance coverage. The commission shall, from time to
  168  time, adopt findings as to the accuracy or reliability of
  169  particular methods, principles, standards, models, or output
  170  ranges.
  171         (d) With respect to a rate filing under s. 627.062, an
  172  insurer shall employ and may not modify or adjust actuarial
  173  methods, principles, standards, models, or output ranges found
  174  by the commission to be accurate or reliable in determining
  175  hurricane loss factors and probable maximum loss levels for use
  176  in a rate filing under s. 627.062. An insurer may employ a model
  177  in a rate filing until 120 days after the expiration of the
  178  commission’s acceptance of that model and may not modify or
  179  adjust models found by the commission to be accurate or reliable
  180  in determining probable maximum loss levels. This paragraph does
  181  not prohibit an insurer from using a straight average of model
  182  results or output ranges for the purposes of a rate filing for
  183  personal lines residential flood or sinkhole insurance coverage
  184  under s. 627.062.
  185         (e)1. The commission shall adopt actuarial methods,
  186  principles, standards, models, or output ranges for personal
  187  lines residential flood loss no later than July 1, 2017.
  188         2. The commission shall adopt actuarial methods,
  189  principles, standards, models, or output ranges for personal
  190  lines residential sinkhole loss no later than July 1, 2018.
  191         Section 5. Section 627.7151, Florida Statutes, is created
  192  to read:
  193         627.7151 Sinkhole insurance.—
  194         (1) An authorized insurer may issue an insurance policy
  195  providing personal lines residential property coverage for the
  196  peril of sinkhole on any residential structure or the contents
  197  of personal property contained in such residential structure
  198  subject to this section and s. 627.706. This section does not
  199  apply to commercial lines residential or commercial lines
  200  nonresidential coverage for the peril of sinkhole. This section
  201  also does not apply to coverage for the peril of sinkhole which
  202  is excess coverage over any other insurance covering the peril
  203  of sinkhole.
  204         (2) Sinkhole insurance must cover only sinkhole loss as
  205  defined in s. 627.706(2).
  206         (3) Sinkhole insurance must:
  207         (a)Include coverage for additional living expenses.
  208         (b)Provide that any loss under personal property or
  209  contents coverage which is repaired or replaced be adjusted only
  210  on the basis of replacement costs up to the policy limits.
  211         (4) Any limitations on sinkhole coverage or policy limits
  212  pursuant to this section, including, but not limited to,
  213  deductibles, must be prominently noted on the policy
  214  declarations page or face page.
  215         (5)(a) An insurer may establish and use sinkhole coverage
  216  rates in accordance with the rate standards provided in s.
  217  627.062.
  218         (b) For sinkhole coverage rates filed with the office
  219  before October 1, 2019, the insurer may also establish and use
  220  such rates in accordance with the rates, rating schedules, or
  221  rating manuals filed by the insurer with the office which allow
  222  the insurer a reasonable rate of return on sinkhole coverage
  223  written in this state.
  224         1. An insurer shall notify the office of any change to
  225  sinkhole coverage rates within 30 days after the effective date
  226  of the change. The notice must include the name of the insurer
  227  and the average statewide percentage change in rates.
  228         2. An insurer shall maintain for 2 years after the
  229  effective date of a rate change the actuarial data with respect
  230  to such rates for sinkhole coverage.
  231         3. The office may examine such actuarial data and require
  232  the insurer to incur the costs associated with an examination.
  233  Upon examination, the office, in accordance with generally
  234  accepted and reasonable actuarial techniques, shall consider the
  235  rate factors in s. 627.062(2)(b), (c), and (d), and the
  236  standards in s. 627.062(2)(e), to determine if the rate is
  237  excessive, inadequate, or unfairly discriminatory.
  238         4. Sinkhole coverage rates established pursuant to this
  239  paragraph are not subject to s. 627.062(2)(a) and (f).
  240         (6) A surplus lines agent may export sinkhole insurance to
  241  an eligible surplus lines insurer without making a diligent
  242  effort to seek such coverage from three or more authorized
  243  insurers in accordance with s. 626.916(1)(a). This subsection
  244  expires July 1, 2020.
  245         (7) In addition to any other applicable requirement, an
  246  insurer providing sinkhole coverage in this state must notify
  247  the office at least 30 days before writing sinkhole insurance in
  248  this state and file with the office a plan of operation and
  249  financial projections or revisions to such plan, as applicable.
  250         (8) Citizens Property Insurance Corporation may not issue
  251  or renew personal lines residential property insurance for the
  252  peril of sinkhole after July 1, 2018. The corporation shall
  253  provide coverage for catastrophic ground cover collapse as
  254  defined in s. 627.706(2)(a).
  255         (9) The Florida Hurricane Catastrophe Fund may not provide
  256  reimbursement for personal residential property losses
  257  proximately caused by the peril of sinkhole, including losses
  258  that occur during a covered event as defined in s.
  259  215.555(2)(b).
  260         (10) With respect to the regulation of sinkhole coverage
  261  written in this state by authorized insurers, this section
  262  supersedes any other provision in the Florida Insurance Code,
  263  except s. 627.706, in the event of a conflict.
  264         Section 6. This act shall take effect upon becoming a law.