In the months leading up to the 2011 session, residential property insurance and motor vehicle insurance appeared poised to become significant legislative issues. Legitimate crises were evolving around both types of insurance and the need for reform was supported by quantifiable evidence, including sinkhole claims that have nearly tripled from 2006 to 2010, and motor vehicle personal injury protection (PIP) claims that have risen 28 percent (and payments over 66 percent) during the same period.

The basis for residential property insurance reform goes back to at least the 2010 legislative session. SB 2044, a comprehensive package of residential property insurance reforms designed to create a healthier private property insurance market, was broadly supported by stakeholders that included the Office of Insurance Regulation (OIR), the Florida Chamber of Commerce, and other parties. Gov. Charlie Crist, however, vetoed the bill. His veto was premised on two principal provisions in the bill—expedited rate filing for property insurers and changes to the application of mitigation discounts. Supporters of the bill roundly condemned Crist's veto, and the legislature began work on a successor bill for the 2011 session.

Another casualty in 2010 was PIP fraud reform, which did not receive a single hearing in House or Senate committees that year, despite evidence that fraudulent automobile crashes staged to collect PIP benefits were driving up the cost of motor vehicle insurance. Additional compelling evidence began to mount after the 2010 session, indicating that not only was PIP fraud spreading to central Florida, but that it was also costing each policyholder upwards of $100 per year. With that data in hand, supporters began to develop and promote PIP reform legislation for the 2011 session, where they met with minimal success.

Residential Property Insurance
The Senate began work on a residential property insurance reform proposal in January under the guidance of Sen. Garrett Richter, R-Naples. The House proposal by Rep. John Wood, R-Haines City, did not begin moving until mid-March. Both proposals engendered lengthy debates on sinkhole insurance fraud, actual cash value versus replacement cost value, and enhanced regulation of public adjusters.

Ultimately, SB 408 was passed, and Gov. Rick Scott signed the bill on May 17. It includes significant residential property insurance reforms:

  • Increasing the minimum surplus requirements for residential property insurers to $15 million.
  • Expanding exclusions from losses covered by the Florida Hurricane Catastrophe Fund to include losses caused by perils other than a covered event, such as fire, theft, flood, or rising water, as well as amounts paid for waivers of deductibles and bad faith awards.
  • Increasing from 10 to 15 percent the amount a residential property may increase premiums based on a rate filing to adjust its rates for the cost of reinsurance.
  • Authorizing residential property insurers to provide written notice of policy changes without non-renewing the entire policy.
  • Limiting public adjuster compensation for reopened or supplemental claims to 20 percent of the claim payment (10 percent for Citizens Property Insurance Corp. claims) and requiring additional disclosure statements and notices to certain parties. 
  • Requiring insurers to provide two replacement cost coverage options for payment of personal property insurance claims. The first option pays the full replacement cost without reservation. The second option pays the depreciated value and holds back the remainder of coverage until the policyholder provides receipts.
  • Requiring a policyholder to file windstorm and hurricane claims within 3 years and sinkhole claims within 2 years of the covered loss.
  • Continuing to require an insurer to offer sinkhole coverage, but specifically defining "structural damage" to narrow the definition of a sinkhole loss.
  • Requiring a policyholder to pay 50 percent of sinkhole testing costs up to $2,500 if the policyholder requests testing after an insurer denies the claim.

Motor Vehicle Insurance
At the outset, the House appeared to tepidly embrace the need for PIP reform, with House Insurance and Banking Subcommittee Chairman Rep. Bryan Nelson, R-Apopka, indicating that the House might not take up major reform during the 2011 session. Nevertheless, a number of issues were identified by the industry as necessary to rein in PIP fraud, including:

  • Limiting attorney's fees by eliminating application of a contingency risk multiplier.
  • Requiring the insured to submit to a medical examination as a threshold requirement prior to obtaining PIP benefits.
  • Requiring the medical provider to submit to an examination under oath.
  • Expanding the use of the long form crash reports by law enforcement and requiring the collection of the names of all parties involved in an accident.
  • Creating a direct support organization to support the Department of Financial Services in prosecuting PIP fraud.
  • Creating enhanced financial penalties for PIP fraud.
  • Authorizing an insurer to offer a discount to a policyholder who chooses a preferred provider network for PIP benefits.

The issues were separated into two proposals. The first dealt primarily with attorney's fees and medical provider examinations (HB 967 by Rep. Mike Horner, R-Kissimmee, and SB Bill 1694 by Sen. Richter). The second dealt more broadly with issues related to PIP fraud (HB 1411 by Rep. Jim Boyd, R-Bradenton, and SB 1930 by Sen. Ellyn Bogdanoff, R-Ft. Lauderdale). Both proposals encountered significant opposition in the House and Senate from trial attorneys and physician groups and, as a result, died in committee.

Various members of the legislature tried to amend some of these issues onto other bills, namely attorney's fees, long form crash reports, enhanced fraud penalties, and the Direct Support Organization. Only two issues survived on bills that passed the legislature—SB 1150 (containing language relating to expanded use of long form crash reports) and HB 1087 (creating civil monetary penalties for motor vehicle insurance fraud). Subject to the governor's signature, these bills will take effect July 1, 2011.

Commercial Lines Rates
Following up on last year's deregulation of ratemaking for most forms of commercial insurance, HB 99 by Rep. Brad Drake, R-DeFuniak Springs, deregulates additional forms of commercial insurance. These new deregulated lines of insurance include general liability, non-residential property, non-residential multi-peril, excess property, and burglary and theft. In addition, commercial motor vehicle insurance is further deregulated by striking a threshold requirement of a fleet of 20 or more vehicles. The bill also limits an insurer to maintaining 2 years of actuarial data supporting rates for such commercial risks.

An insurer may implement rates for these commercial lines without the approval of the OIR if the insurer notifies the OIR of any rate changes no later than 30 days after the effective date of the change. Further, the OIR may subsequently review such rates to determine whether they are excessive, inadequate, or unfairly discriminatory. Subject to the governor's signature, the bill will take effect Oct. 1, 2011.

Workers' Compensation
In the area of workers' compensation, a number of House and Senate bills were passed to repeal various obsolete provisions, spurred on in part by a House rule that allowed representatives to file additional bills if they advanced bills that only repeal statutory law. Substantively, HB 723 by Rep. Mike Weinstein, R-Orange Park, provides for extraterritorial reciprocity for workers' compensation claims under certain conditions. Florida employees injured while temporarily working in another state will receive benefits under Florida's workers' compensation law, while out-of-state workers temporarily working in Florida are exempt from Florida's workers' compensation law and will thus receive benefits under the law of their home state. The exemption for out-of-state workers is contingent upon Florida employees being exempted from the workers' compensation law of the home state of the out-of-state worker for injuries that occur while the Florida employee is temporarily working in such state. The requirements of the bill apply to claims made on or after July 1, 2011. Subject to the governor's signature, the bill will take effect July 1, 2011.

HB 1087, by Rep. Doug Holder, R-Sarasota, is an omnibus insurance bill that contained a number of disparate insurance provisions. For example, it authorizes insurers to pay workers' compensation benefits to employees through the use of a prepaid card as a cost-saving measure. The bill also changes the timing of the assessment for the Specialty Disability Trust Fund from a fiscal year to a calendar year calculation. Subject to the governor's signature, the bill will take effect July 1, 2011.

Certificates of Authority, Service Warranties, and Surplus Lines Insurance
HB 1087 also contained a number of provisions related to certificates of authority, service warranties, and deregulation of surplus lines insurance.

Certificates of Authority. HB 1087 expands an existing exemption from the requirement to obtain a certificate of authority, from life insurance and annuity contracts, to any insurer domiciled outside of the U.S. that only covers persons who are non-residents of the U.S. The exemption requires that the insurer:

  • Not solicit, sell, or accept application for any insurance policy or contract to be delivered to or issued for delivery to any person in this state.
  • Register with the OIR.
  • Annually provide the OIR information relating to the ownership of the insurer and contact information, the lines of insurance and types of products offered by the insurer, and proof that the insurer is licensed in its domicile.

Service Warranties. HB 1087 creates an exemption from the service warranty licensure requirement for a person who only sells warranties to non-residents of this state and does not otherwise market such warranties to residents of this state. A person exempted from licensure must annually provide a statement indicating that he or she is either not subject to licensure in his or her home state or, if a licensed is required, is licensed in such state.

Surplus Lines Insurance. Finally, HB 1087 eliminates the diligent search requirement for surplus lines agents who place policies for lines of commercial insurance that are not subject to the OIR rate review (as described above, such as nonresidential property and nonresidential multi-peril). The policyholder must sign a disclosure statement that explains, among other things, that other coverage may be available in the admitted market at a lesser cost.

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