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 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. 41 42 Be It Enacted by the Legislature of the State of Florida: 43 44 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 71which producea 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 toFloridapolicyholders, 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. 100 101 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.— 109 (3) ADOPTION AND EFFECT OF STANDARDS AND GUIDELINES.— 110 (a) The commission shall consideranyactuarial methods, 111 principles, standards, models, or output ranges that have the 112 potential for improving the accuracyofor 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 consideranyactuarial methods, 119 principles, standards, or models that have the potential for 120 improving the accuracyofor 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 reviseadopt revisions to147 previously adopted actuarial methods, principles, standards, 148 models, or output ranges every odd-numberedoddyear. 149 (g)(f)1. A trade secret, as defined in s. 688.002, which 150thatis used in designing and constructing a hurricane loss 151 model and whichthatis 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: 171 627.715 Flood 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 281 THIS POLICY MIGHT HAVE LIMITATIONS ON WHAT IS COVERED IN THE 282 EVENT OF A LOSS. YOU SHOULD CONSULT WITH YOUR AGENT IF YOU HAVE 283 QUESTIONS ABOUT THE COVERAGE OFFERED UNDER THIS POLICY.” 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 295 THAN THE FULL COST OF REPLACEMENT FOR THE PROPERTY, WHICH MAY 296 RESULT IN HIGH OUT-OF-POCKET EXPENSES TO YOU AND MAY PUT YOUR 297 EQUITY IN THIS PROPERTY AT RISK.” 298 (b) A policy that insures a dwelling on the basis of actual 299 cash value must include the following statement: “THIS POLICY 300 PAYS YOU THE DEPRECIATED VALUE OF YOUR PROPERTY THAT IS DAMAGED 301 BY FLOOD, WHICH MAY RESULT IN HIGH OUT-OF-POCKET EXPENSES TO YOU 302 IF YOUR PROPERTY NEEDS TO BE REPAIRED OR REPLACED.” 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 379 INSURANCE POLICY, YOU MAY LOSE YOUR SUBSIDIZED RATE IN THE 380 NATIONAL FLOOD INSURANCE PROGRAM WHEN RETURN TO THE NATIONAL 381 FLOOD INSURANCE PROGRAM AT A LATER TIME.” 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.