Filed Under:Carrier Innovations, Regulation/Legislation

A Trimmer Budget in 2011

How Florida’s Economy Is Impacting the Insurance Industry

As legislators return to Tallahassee for the 2011 session, they are once again facing a sizable budget shortfall and difficult spending decisions. In February, Florida Gov. Rick Scott presented a $65.9 billion budget that promised to cut $5 billion in government spending. To compensate for the lack of revenue, cuts are being discussed in major areas such as social programs, education, and health care.

Deficits are not the only topic on lawmakers’ agendas. Driven by months of double-digit unemployment rates, politicians of every stripe — from the “Let’s get to work” governor to the rank-and-file — are focused on job creation and economic rejuvenation. Debate is occurring at all levels on policy options that will make Florida a more welcoming place to do business. Gov. Scott is advocating forcefully to slash and eventually eliminate corporate income taxes and to reform the regulatory process. Scott has often declared his disdain for regulation, claiming it adversely impacts job growth.

If these ideas prevail, the 2011 session could produce significant opportunities for the business community at large — and the insurance industry in particular — in terms of passing legislation relating to issues such as tort reform, an impossible feat in previous years.

How We Got Here
The statewide angst over unemployment undoubtedly played a major role in the recent gubernatorial election by delivering the office to Republican Rick Scott, whose campaign slogan was “Let’s get to work.” 

Throughout the 2010 post-election executive office transition prior to his January inauguration, Gov.-Elect Scott presided over a slew of studies, opinions, and policy recommendations that flooded political information channels. As the issues of tort reform and returning Citizens Property Insurance Corp. to its former role as Florida’s insurer of last resort dotted Scott’s speeches and policymaking materials, the state’s property and casualty industry began to strategize how to approach these and other issues, such as ending the proliferation of fraudulent claims inundating both auto and sinkhole coverage lines statewide.

Meanwhile, Republicans, boldly empowered from their landslide sweep of state legislative offices and Florida’s Cabinet, convened a post-election special session primarily focused on reviving several 2010 bills vetoed by then-Gov. Charlie Crist. 

From those repeals surfaced SB 1565, a bill that was destined to frame Scott’s incoming regime. Now effective after the reversal of Crist’s veto, the new law effectively tightens legislative control over the state regulatory process by, among other provisions, mandating legislative ratification of any proposed agency rule that is deemed likely to have an adverse impact on small business by increasing regulatory costs in excess of $200,000.

Furthermore, newly sworn-in Gov. Scott surprised both the business and political communities when, just minutes after his inauguration, his office issued an Executive Order that not only effected a 90-day suspension of all rulemaking for all state agencies under the direction of the governor, but established the new “Office of Fiscal Accountability and Regulatory Reform,”  charged with evaluating whether the suspended rules negatively impact business, job creation, and job retention. Concurrently, all contracts in excess of $1 million were frozen during the review period.

Because the Florida Office of Insurance Regulation (OIR) falls outside the direct oversight of the Executive Branch, little legislative review and discussion has ensued in this area to date. Although the regulatory freeze has prompted only limited review of other existing and pending rules, the House of Representatives nevertheless created the Rulemaking and Regulation Subcommittee, charged with analyzing the current rulemaking process, content, and delegations of legislative authority. The new subcommittee is chaired by Rep. Chris Dorwoth, R-Heathrow, and vice chaired by Rep. Lake Ray, R-Jacksonville.

Predictably, a flurry of regulatory repeal bills — many of them liability-related in nature — were filed as the 2011 session neared its March 8 opening. In order to take full advantage of the Legislature’s Republican supermajority, which is generally supportive of tort and litigation reform, along with the favor of a politically conservative governor who has indicated his strong support of the same, various business advocacy groups have chosen to pursue related legislation this year. In fact, more tort and litigation reform legislation is expected to be filed in 2011 than at any time in the past five or six years.

Among those litigation reform measures being watched closely is HB 201, a controversial measure stemming from the 2001 Florida Supreme Court case D’Amario v. Ford Motor Co., which dealt with whether automakers, not drivers or others, should be held solely responsible for accident damages resulting from faulty design or manufacture. Additionally, bills revising Florida law relating to bad faith settlement practices are expected to prompt an all-out war between the insurance industry and segments of the legal community.

The Property Insurance Fight
Property insurance, on the other hand, knows no political boundaries. Rather, in the parlance of Florida’s geography, the topic has often pitted coastal legislators against inland ones, or those from “Sinkhole Alley” against those from “Hurricane Alley,” as opposed to Republicans against Democrats.

Certain legislative proposals addressing claims-related abuses are already prompting stormy feuds amid the discourse on major property insurance reform, which has centered thus far around fraudulent sinkhole claims. In several House and Senate interim committee hearings, legislators struggled to balance anti-fraud measures with allowing policyholders with legitimate settlement problems to obtain an insurance product that would afford some funds for repair without inadvertently gifting property owners with a monetary windfall.

For 2011, Senate Banking and Insurance Chairman Garrett Richter, R-Naples, has resurrected SB 2044 — the comprehensive 2010 property insurance package — in the form of SB 408, which contains many of the same SB 2044 provisions vetoed by Crist. In a superb example of unintended consequences, the SB 2044 veto caused a return of the “use and file” rate filing option, under which insurers can begin charging new rates without prior regulatory approval, subject to a refund if the OIR later finds the rates to be excessive. This process had previously been suspended, but the suspension expired in the absence of SB 2044.

The issue of what types of losses are eligible for reimbursement from the Florida Hurricane Catastrophe Fund — the state-run insurer hurricane loss reimbursement mechanism — also is addressed in SB 408. A House companion bill that is expected to be filed will contain commensurate language. Currently, Florida law is unclear on whether certain fees associated with claims settlements are reimbursable.

The 2011 session also promises to address other residential property insurance issues through bills designed to allow for more flexibility in ratemaking, as well as proposals relating to private market deregulation and raising Citizens’ rates. Of note, SB 178, which would deregulate ratemaking processes for certain commercial insurance products, sailed through its first committee of reference in both the House and the Senate without significant debate.

Tough budget cuts are likely to impact Florida’s insurers, whose insurance premium taxes and fiscal impact fuel a sizable portion of Florida’s economy. The insurance industry as a whole is preparing for an uphill battle to protect existing funding and secure additional appropriations for insurance fraud prosecutors. Generally, tight budget times mean that legislators are reluctant to create more severe penalties for fraud perpetrators, inasmuch as it could cause prisoner counts to increase and strain the state budget. The governor’s proposed budget — so drastic and dominant an issue that it will occupy a significant amount of legislators’ time and energy — will also likely usurp attention from urgent insurance matters.  

The Major Players
Gov. Scott, who campaigned derisively against President Barack Obama and his administration’s policies, has vehemently rejected any and all outreach by the White House in relation to stopgap funding for Florida’s budget woes, even while announcing his intention to spend significant time in Washington, D.C. during his term. 

In keeping with the governor’s stance on federal funding, Florida Insurance Commissioner Kevin McCarty notably returned a federal grant of $1 million meant to help the state ease the regulatory transition into the nation’s new health insurance laws. To that end, the question of Florida’s ultimate financial reliance on some form of federal catastrophe backstop also has all but disappeared with the election of Representative Alan West, R-22, to Congress, who replaced Ron Klein, the U.S. House’s best-known sponsor of a national catastrophe bill.

Aside from the House and Senate Banking and Insurance Committee Chairmen, Rep. Bryan Nelson, a Republican insurance agent from Fort Myers, and Sen. Richter respectively, those legislators most likely to drive insurance issues this year will be the major bill sponsors. Along with Chairman Richter, Sen. John Thrasher, R-Jacksonville, will play a critical role in promoting tort reform and other insurance issues. State Representatives John Wood, R-Winter Haven, Mike Horner, R-Kissimmee, and former Florida Association of Insurance Agents board member Jim Boyd, R-Manatee, will likely be active in House insurance discussions.

On the industry side, national and statewide coalitions such as the Property Casualty Insurers Association of America’s auto insurance and Personal Injury Protection-related grassroots fraud eradication effort, www.InsuranceFraudUncovered.com, have begun to campaign in full force to ensure that these issues gain momentum.

 “Let’s get to work” has remained the mantra of the governor and his effusive support base, and even his detractors will readily admit that there has been fast and furious change in Tallahassee. The work continues as the 2011 legislative session progresses and elected officials struggle to find solutions to the challenges facing our industry and our state.

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