Bill Text: FL S0542 | 2014 | Regular Session | Comm Sub
NOTE: There are more recent revisions of this legislation. Read Latest Draft
Bill Title: Flood Insurance
Spectrum: Moderate Partisan Bill (Republican 18-2)
Status: (Passed) 2014-06-13 - Chapter No. 2014-80, companion bill(s) passed, see SB 1262 (Ch. 2014-98) [S0542 Detail]
Download: Florida-2014-S0542-Comm_Sub.html
Bill Title: Flood Insurance
Spectrum: Moderate Partisan Bill (Republican 18-2)
Status: (Passed) 2014-06-13 - Chapter No. 2014-80, companion bill(s) passed, see SB 1262 (Ch. 2014-98) [S0542 Detail]
Download: Florida-2014-S0542-Comm_Sub.html
Florida Senate - 2014 CS for SB 542 By the Committee on Banking and Insurance; and Senators Brandes, Simpson, and Benacquisto 597-00970-14 2014542c1 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.; increasing the 7 membership of the Florida Commission on Hurricane Loss 8 Projection Methodology to include an engineer who is 9 an expert in floodplain management and a meteorologist 10 who specializes in floods; requiring the commission to 11 adopt standards and guidelines relating to flood loss 12 by a certain date; creating s. 627.715, F.S.; 13 authorizing insurers to offer flood insurance in this 14 state; providing legislative findings; defining the 15 term “flood”; establishing the minimum coverage 16 requirements for such policies; providing coverage 17 limitations that an insurer may include in such 18 policies; requiring that certain limitations be noted 19 on the policy declarations or face page; providing the 20 insurer with rate options; requiring the insurer to 21 provide notice that flood insurance is available from 22 the National Flood Insurance Program; allowing an 23 insurer to export a contract or endorsement of a 24 certain amount to a surplus lines insurer without 25 meeting certain requirements; providing prior notice 26 requirements for cancellation or nonrenewal of a 27 policy; requiring the insurer to notify the office 28 before writing flood insurance and to file a plan of 29 operation with the office; providing that any 30 conflicts with other provisions of the Florida 31 Insurance Code are preempted by this section; 32 requiring the Commissioner of the Office of Insurance 33 Regulation to provide certification that a condition 34 qualifies for flood insurance or disaster assistance; 35 providing an effective date. 36 37 Be It Enacted by the Legislature of the State of Florida: 38 39 Section 1. Paragraph (b) of subsection (2) of section 40 627.062, Florida Statutes, is amended to read: 41 627.062 Rate standards.— 42 (2) As to all such classes of insurance: 43 (b) Upon receiving a rate filing, the office shall review 44 the filing to determine if a rate is excessive, inadequate, or 45 unfairly discriminatory. In making that determination, the 46 office shall, in accordance with generally accepted and 47 reasonable actuarial techniques, consider the following factors: 48 1. Past and prospective loss experience within and without 49 this state. 50 2. Past and prospective expenses. 51 3. The degree of competition among insurers for the risk 52 insured. 53 4. Investment income reasonably expected by the insurer, 54 consistent with the insurer’s investment practices, from 55 investable premiums anticipated in the filing, plus any other 56 expected income from currently invested assets representing the 57 amount expected on unearned premium reserves and loss reserves. 58 The commission may adopt rules using reasonable techniques of 59 actuarial science and economics to specify the manner in which 60 insurers calculate investment income attributable to classes of 61 insurance written in this state and the manner in which 62 investment income is used to calculate insurance rates. Such 63 manner must contemplate allowances for an underwriting profit 64 factor and full consideration of investment income that produces 65which producea reasonable rate of return; however, investment 66 income from invested surplus may not be considered. 67 5. The reasonableness of the judgment reflected in the 68 filing. 69 6. Dividends, savings, or unabsorbed premium deposits 70 allowed or returned toFloridapolicyholders, members, or 71 subscribers in this state. 72 7. The adequacy of loss reserves. 73 8. The cost of reinsurance. The office may not disapprove a 74 rate as excessive solely due to the insurer having obtained 75 catastrophic reinsurance to cover the insurer’s estimated 250 76 year probable maximum loss or any lower level of loss. 77 9. Trend factors, including trends in actual losses per 78 insured unit for the insurer making the filing. 79 10. Conflagration and catastrophe hazards, if applicable. 80 11. Projected hurricane losses, if applicable, which must 81 be estimated using a model or method found to be acceptable or 82 reliable by the Florida Commission on Hurricane Loss Projection 83 Methodology, and as further provided in s. 627.0628. 84 12. Projected flood losses, if applicable, which may be 85 estimated using a model, a method, or an average of models or 86 methods determined to be acceptable or reliable by the Florida 87 Commission on Hurricane Loss Projection Methodology, and as 88 further provided in s. 627.0628. 89 13.12.A reasonable margin for underwriting profit and 90 contingencies. 91 14.13.The cost of medical services, if applicable. 92 15.14.Other relevant factors that affect the frequency or 93 severity of claims or expenses. 94 95 The provisions of this subsection do not apply to workers’ 96 compensation, employer’s liability insurance, and motor vehicle 97 insurance. 98 Section 2. Paragraph (b) of subsection (2) and subsection 99 (3) of section 627.0628, Florida Statutes, are amended to read: 100 627.0628 Florida Commission on Hurricane Loss Projection 101 Methodology; public records exemption; public meetings 102 exemption.— 103 (2) COMMISSION CREATED.— 104 (b) The commission shall consist of the following 1412105 members: 106 1. The insurance consumer advocate. 107 2. The senior employee of the State Board of Administration 108 responsible for the operations of the Florida Hurricane 109 Catastrophe Fund. 110 3. The Executive Director of the Citizens Property 111 Insurance Corporation. 112 4. The Director of the Division of Emergency Management. 113 5. The actuary member of the Florida Hurricane Catastrophe 114 Fund Advisory Council. 115 6. An employee of the office who is an actuary responsible 116 for property insurance rate filings and who is appointed by the 117 director of the office. 118 7. SevenFivemembers appointed by the Chief Financial 119 Officer, as follows: 120 a. An actuary who is employed full time by a property and 121 casualty insurer that was responsible for at least 1 percent of 122 the aggregate statewide direct written premium for homeowner’s 123 insurance in the calendar year preceding the member’s 124 appointment to the commission. 125 b. An expert in insurance finance who is a full-time member 126 of the faculty of the State University System and who has a 127 background in actuarial science. 128 c. An expert in statistics who is a full-time member of the 129 faculty of the State University System and who has a background 130 in insurance. 131 d. An expert in computer system design who is a full-time 132 member of the faculty of the State University System. 133 e. An expert in meteorology who is a full-time member of 134 the faculty of the State University System and who specializes 135 in hurricanes. 136 f. A licensed professional engineer who is an expert in 137 floodplain management and who is not regularly retained by or on 138 behalf of a property and casualty insurer. 139 g. A meteorologist who specializes in floods. 140 8. A licensed professional structural engineer who is a 141 full-time faculty member in the State University System and who 142 has expertise in wind mitigation techniques. This appointment 143 shall be made by the Governor. 144 (3) ADOPTION AND EFFECT OF STANDARDS AND GUIDELINES.— 145 (a) The commission shall consideranyactuarial methods, 146 principles, standards, models, or output ranges that have the 147 potential for improving the accuracy of or reliability of the 148 hurricane loss projections and flood loss projections used in 149 residential property insurance rate filings. The commission 150 shall, from time to time,adopt and update findings as to the 151 accuracy or reliability of particular methods, principles, 152 standards, models, or output ranges. 153 (b) The commission shall consideranyactuarial methods, 154 principles, standards, or models that have the potential for 155 improving the accuracy of or reliability of projecting probable 156 maximum loss levels. The commission shall adopt and update 157 findings as to the accuracy or reliability of particular 158 methods, principles, standards, or models related to probable 159 maximum loss calculations. 160 (c) In establishing reimbursement premiums for the Florida 161 Hurricane Catastrophe Fund, the State Board of Administration 162 must, to the extent feasible, employ actuarial methods, 163 principles, standards, models, or output ranges found by the 164 commission to be accurate or reliable. 165 (d) With respect to a rate filing under s. 627.062, an 166 insurer shall employ and may not modify or adjust actuarial 167 methods, principles, standards, models, or output ranges found 168 by the commission to be accurate or reliable in determining 169 hurricane loss factors for use in a rate filing under s. 170 627.062. An insurer shall employ and may not modify or adjust 171 models found by the commission to be accurate or reliable in 172 determining probable maximum loss levels pursuant to paragraph 173 (b) with respect to a rate filing under s. 627.062 made more 174 than 60 days after the commission has made such findings. This 175 paragraph does not prohibit an insurer from averaging model 176 results or output ranges or using an average for the purpose of 177 a flood insurance rate filing under s. 627.062. 178 (e) The commission shall adopt actuarial methods, 179 principles, standards, models, or output ranges for flood loss 180 by July 1, 2015. 181 (f)(e)The commission shall reviseadopt revisions to182 previously adopted actuarial methods, principles, standards, 183 models, or output ranges every odd-numberedoddyear. 184 (g)(f)1. A trade secret, as defined in s. 688.002, which 185thatis used in designing and constructing a hurricane loss 186 model and whichthatis provided pursuant to this section,by a 187 private company,to the commission, office, or consumer advocate 188 appointed pursuant to s. 627.0613,is confidential and exempt 189 from s. 119.07(1) and s. 24(a), Art. I of the State 190 Constitution. 191 2.a. That portion of a meeting of the commission or of a 192 rate proceeding on an insurer’s rate filing at which a trade 193 secret made confidential and exempt by this paragraph is 194 discussed is exempt from s. 286.011 and s. 24(b), Art. I of the 195 State Constitution. The closed meeting must be recorded, and no 196 portion of the closed meeting may be off the record. 197 b. The recording of a closed portion of a meeting is exempt 198 from s. 119.07(1) and s. 24(a), Art. I of the State 199 Constitution. 200 c. This subparagraph is subject to the Open Government 201 Sunset Review Act in accordance with s. 119.15 and shall stand 202 repealed on October 2, 2015, unless reviewed and saved from 203 repeal through reenactment by the Legislature. 204 Section 3. Section 627.715, Florida Statutes, is created to 205 read: 206 627.715 Flood insurance.—Subject to the requirements of 207 this section, an insurer may issue an insurance policy, 208 contract, or endorsement providing coverage for the peril of 209 flood on any structure or on the contents of personal property 210 on a form that has been filed with and approved by the office 211 pursuant to s. 627.410(2) and that may be substantially similar 212 to the form used by the National Flood Insurance Program (NFIP). 213 (1) The Legislature finds that: 214 (a) The National Flood Insurance Program is a federal 215 program that enables property owners in participating 216 communities to purchase flood insurance. A community 217 participates in the federal program by adopting and enforcing 218 floodplain management regulations that meet or exceed federal 219 floodplain management criteria designed to reduce future flood 220 risk to new construction in floodplains. The program was created 221 by Congress in 1968 because insurance covering the peril of 222 flood was often unavailable in the private insurance market and 223 was intended to reduce the amount of financial aid paid by the 224 Federal Government in the aftermath of flood-related disasters. 225 After the creation of the NFIP, flood insurance coverage 226 continued to be generally unavailable for purchase from private 227 market insurance companies. 228 (b) The Biggert-Waters Flood Insurance Reform Act of 2012 229 reauthorized and revised the NFIP. The act increases flood 230 insurance premiums purchased through the program for second 231 homes, business properties, severe repetitive loss properties, 232 and substantially improved damaged properties by requiring 233 premium increases of 25 percent per year until premiums meet the 234 full actuarial cost. Most residences lose their subsidized rates 235 if the property is sold, the policy lapses, repeated and severe 236 flood losses occur, or a new policy is purchased. Policyholders 237 whose communities adopt a new, updated Flood Insurance Rate Map 238 (FIRM) that results in higher rates will experience a 5-year 239 phase-in of rate increases to achieve required rate levels. 240 (c) The Biggert-Waters Flood Insurance Reform Act of 2012 241 also encourages the use and acceptance of private market flood 242 insurance. The Legislature finds, however, that there has been a 243 long-term inadequacy of private market flood insurance available 244 in this state. Such inadequacy suggests that the private market 245 in this state is unlikely to expand unless the Legislature 246 provides multiple options for the regulation of flood insurance. 247 The Legislature also finds that the consumers of this state 248 would benefit from the availability of competitively priced 249 private market flood insurance due to the continued availability 250 of NFIP flood insurance, the likely availability of alternative 251 private market flood insurance coverage options, and the 252 oversight of the Office of Insurance Regulation. 253 (d) The NFIP, as amended by the Biggert-Waters Flood 254 Insurance Reform Act of 2012, will prevent many property owners 255 from obtaining affordable flood insurance coverage in this 256 state. The absence of affordable flood insurance threatens the 257 public health, safety, and welfare and the economic health of 258 this state. Therefore, the state has a compelling public purpose 259 and interest in providing alternatives to coverage from NFIP by 260 promoting the availability of flood insurance from private 261 market insurers at potentially lower premium rates so as to 262 facilitate the remediation, reconstruction, and replacement of 263 damaged or destroyed property in order to reduce or avoid harm 264 to the public health, safety, and welfare, to the economy of 265 this state, and to the revenues of state and local governments 266 which are needed to provide for the public welfare. 267 (2) As used in this section, the term “flood” means a 268 general and temporary condition of partial or complete 269 inundation of 2 acres or more of normally dry land area or of 270 two or more properties, at least one of which is the 271 policyholder’s property, from: 272 (a) Overflow of inland or tidal waters; 273 (b) Unusual and rapid accumulation or runoff of surface 274 waters from any source; 275 (c) Mudflow; or 276 (d) Collapse or subsidence of land along the shore of a 277 lake or similar body of water as a result of erosion or 278 undermining caused by waves or currents of water exceeding 279 anticipated cyclical levels which result in a flood. 280 (3) At a minimum, coverage for the peril of flood must 281 cover a flood as defined in subsection (2). Coverage for the 282 peril of flood may also include water intrusion, as defined by 283 the policy, which originates from outside the structure and is 284 not otherwise covered under the definition of flood. 285 (4) An insurer may offer a flood coverage policy, contract, 286 or endorsement: 287 (a) That has a flood deductible based on a stated dollar 288 amount or a percentage of the coverage amount. At a minimum, an 289 insurer must offer deductible amounts applicable to flood losses 290 that equal the standard deductibles offered under the National 291 Flood Insurance Program; 292 (b) That provides that any flood loss will be adjusted on 293 the basis of: 294 1. The actual cash value of the property; or 295 2. Replacement costs up to the policy limits as provided 296 under s. 627.7011(3); 297 (c) That restricts flood coverage to the principal 298 building, as defined in the applicable policy; 299 (d) In an agreed-upon amount, including coverage limited to 300 the amount of all outstanding mortgages applicable to the 301 covered property. However, if a policy, contract, or endorsement 302 does not limit flood coverage to the replacement cost of the 303 covered property, the contract or endorsement may not include a 304 provision penalizing the policyholder for not insuring the 305 covered property up to replacement cost; or 306 (e) That, as to the peril of flood, does not cover: 307 1. Additional living expenses; 308 2. Personal property or contents; or 309 3. Law and ordinance coverage. However, an insurer, must 310 offer law and ordinance coverage that is comparable to the law 311 and ordinance coverage offered in the standard NFIP policy. A 312 policy, endorsement, or contract that includes the law and 313 ordinance coverage that must be offered under this paragraph 314 must include the following disclosure in uppercase bold 315 lettering of at least 12-point type: “LAW AND ORDINANCE COVERAGE 316 UNDER THIS POLICY MIGHT HAVE LIMITATIONS ON WHAT IS COVERED IN 317 THE EVENT OF A LOSS. YOU SHOULD CONSULT WITH YOUR AGENT IF YOU 318 HAVE QUESTIONS ABOUT THE COVERAGE OFFERED UNDER THIS POLICY.” 319 (5) Any limitations on flood coverage or policy limits as 320 to the peril of flood, including, but not limited to, flood 321 deductibles or flood coverage limited to the amount of all 322 outstanding mortgages, must be prominently disclosed on the 323 declarations page or face page of the policy in uppercase bold 324 lettering of at least 12-point type and be sufficiently clear so 325 as to be readily understandable by both the agent and the 326 property owner. 327 (a) A policy that limits flood coverage to an amount less 328 than the full replacement cost of the property must include the 329 statement: “THIS POLICY LIMITS FLOOD COVERAGE TO LESS THAN THE 330 FULL COST OF REPLACEMENT FOR THE PROPERTY, WHICH MAY RESULT IN 331 HIGH OUT-OF-POCKET EXPENSES TO YOU AND MAY PUT YOUR EQUITY IN 332 THIS PROPERTY AT RISK.” 333 (b) A policy that insures a dwelling on the basis of actual 334 cash value must include the statement: “THIS POLICY PAYS YOU THE 335 DEPRECIATED VALUE OF YOUR PROPERTY THAT IS DAMAGED BY FLOOD, 336 WHICH MAY RESULT IN HIGH OUT-OF-POCKET EXPENSES TO YOU IF YOUR 337 PROPERTY NEEDS TO BE REPAIRED OR REPLACED.” 338 (6) An insurer may establish and use flood coverage rates 339 in accordance with the rate standards under s. 627.062. For 340 flood coverage rates filed with the office before July 1, 2017, 341 the insurer may also elect one or more of the following options: 342 (a) In accordance with the rates, rating schedules, or 343 rating manuals filed by the insurer with the office which allow 344 the insurer a reasonable rate of return on flood coverage 345 written in this state. Flood coverage rates established under 346 this paragraph are not subject to s. 627.062(2)(a) and (f). An 347 insurer shall notify the office of any change to rates within 30 348 days after the effective date of the change. The notice must 349 include the name of the insurer and the average statewide 350 percentage change in rates. Actuarial data with regard to rates 351 for flood coverage must be maintained by the insurer for 2 years 352 after the effective date of such rate change and is subject to 353 examination by the office. The office may require the insurer to 354 incur the costs associated with an examination. Upon 355 examination, the office, in accordance with generally accepted 356 and reasonable actuarial techniques, shall consider the rate 357 factors and standards specified in s. 627.062 to determine if 358 the rate is excessive, inadequate, or unfairly discriminatory. 359 (b) Through individual risk rating as provided in s. 360 627.062(3)(a) and (b). 361 (c) With the written consent of the insured signed before 362 the policy inception date and filed with the insurer, using a 363 flood coverage rate that has not been approved by the office. 364 The signed consent form must notify the insured that the rate is 365 not subject to the approval of the office. A copy of the form 366 shall be maintained by the insurer for 3 years and must be 367 available for review by the office. An insurer is not required 368 to obtain subsequent written consents upon renewal, but shall 369 provide notice at each renewal that the rate is not subject to 370 office approval. 371 (7) A policy, endorsement, or contract providing coverage 372 for the peril of flood must provide notice that flood insurance 373 coverage is available from the NFIP. 374 (8) A surplus lines agent may export a contract or 375 endorsement providing flood coverage of $1 million or more to an 376 eligible surplus lines insurer without making a diligent effort 377 to seek such coverage from three or more authorized insurers 378 under s. 626.916(1)(a). This subsection expires July 1, 2017. 379 (9) A policy, endorsement, or contract providing coverage 380 for the peril of flood must require the insurer to give 45 days’ 381 prior written notice of cancellation or nonrenewal to the 382 insured and any regulated lending institution or federal agency 383 that is a mortgagee. An insurer or insured may cancel during the 384 term of the policy or upon renewal if the cancellation is for a 385 valid reason under the NFIP. 386 (10) In addition to any other applicable requirements, an 387 insurer providing flood coverage in this state must: 388 (a) Notify the office at least 30 days before writing flood 389 insurance in this state; and 390 (b) File a plan of operation and financial projections or 391 revisions to such plan, as applicable, with the office, unless 392 the insurer maintains at least $35 million in surplus and 393 provides coverage as an endorsement to an existing property 394 insurance form. 395 (11) With respect to the regulation of flood insurance 396 coverage written in this state by private insurers, this section 397 supersedes any other provision in the Florida Insurance Code in 398 the event of a conflict. 399 Section 4. If federal law or rule requires a certification 400 by a state insurance regulatory official as a condition of 401 qualifying for private flood insurance or disaster assistance, 402 the Commissioner of the Office of Insurance Regulation shall 403 provide such certification, and such certification is not 404 subject to review under chapter 120. 405 Section 5. This act shall take effect upon becoming a law.