Florida Dept of Financial Services Regarding Insurance

TALLAHASSEE, FL: The Florida Insurance Council (FIC) is seeking to invalidate an Emergency Rule adopted by the Florida Financial Services Commission. That rule prohibits all insurance company rate increases regardless of whether a lawful filing has previously been made, and it retroactively prohibits insurers from canceling or non-renewing homeowner insurance policies. Several companies, in the weeks prior to the adoption of the emergency rule, had followed Florida law by providing a 90 day notice of non-renewal to some policyholders. That meant that non-renewals would have been occurring during the period of time that the emergency rule covered. However, the clarification letter sent out by OIR a week later interpreted the rule retroactively. That means even the non-renewal notices that had been sent to some policyholders were voided. Contrary to some media reports, FIC’s challenge of the emergency rule will have not create a new window for companies to non-renew policyholders. Under the change to law made in the January special session, companies may not non-renew during hurricane season, June 1-November 30, nor may they non-renew policyholders 100 days—a change from 90 days—prior to the start of hurricane season. One hundred days from June 1 is February 20. Attorneys representing FIC filed a petition for an expedited administrative determination with the state Division of Administrative Hearings (DOAH) following a petition for judicial review filed late Monday in the First District Court of Appeal, and an emergency motion for immediate relief pending a judicial review of the rule.

“We are asking the court to stay the effectiveness of the emergency rule pending a judicial review of the rule,” said Guy Marvin, President of FIC, the state’s largest not-for-profit insurance trade association representing 42 insurer groups consisting of 245 insurance companies. “We firmly believe that this rule is invalid, and concurrently we have filed a petition with DOAH to invalidate the rule” he added. In an affidavit filed along with the petitions, Marvin stated the rule “disrupts insurer operations and creates unnecessary havoc and confusion for insurers and policyholders.” The affidavit further states: “Many of our members have high exposures to hurricane risk in the state of Florida. Many of our members have sought to reduce their exposure by nonrenewing policies. In some cases these companies have entered into agreements with other insurers to offer coverage to the policyholders they are nonrenewing. These programs have been in existence for more than a year, and have been often undertaken with the OIR’s knowledge and approval.” “To stop these exposure reductions in some cases would expose insurers to solvency and rating agency concerns. Strong ratings by ratings agencies are important for insurers to continue to attract capital from investors.” “Additionally, most lines of insurance for which insurers have nonrenewals planned are inadequately priced. If an insurer is required to stay on a book of business longer than expected, it is likely to have higher underwriting losses for the company, negative cash flow and a decline in capital.” Insurers’ projected probable maximum hurricane loss will be higher as a result of the nonrenewal prohibitions, requiring the insurer to purchase more reinsurance than planned for or alternatively leading to a rating agency valuation drop.”

“According to the emergency rule clarification letter issued by the Office of Insurance Regulation, the Emergency Rule prohibits nonrenewals and cancellations even when the notices were sent out 90 days before the Emergency Rule was adopted. The rule, therefore, would prohibit such a nonrenewal or cancellation from becoming effective on the day the Emergency Rule was adopted without providing any advance notice to an insurer. This disrupts insurer operations and creates unnecessary havoc and confusion for insurers and policyholders. At best insurers are forced to track down thousands of policyholders and advise them their nonrenewals have been rescinded. At worst it leaves insurers unable to determine which insurer is responsible for paying losses if the policyholder has found new coverage. It will be difficult in most cases to determine whether a policyholder desires to continue coverage or has found replacement coverage. Many, if not the majority of policyholders, will have secured alternative coverage, will not respond to insurer inquiries, will not pay for coverage and will ultimately be canceled for non-payment.” “Member insurers will have policies for which the risks have become substantially different than they were at the time the policy was issued. This could be caused by illegal activity occurring on the premises, failure to follow underwriting guidelines, adding legal but more risky conduct on the premises. They will not be able to cancel or nonrenew these risks. The petitions to DOAH and to the 1st DCA maintain that FIC members are “substantially and adversely affected” by the rule. Furthermore, the petitions state: “the emergency rule fails to set forth specific facts that would show the requisite immediate danger to the public health, safety or welfare.” “There has been no sudden or unforeseeable event to justify emergency rulemaking,” Marvin said. FIC exercised these legal options after discussing the matter among its member companies and after consulting with counsel in the days since the FSC approved the emergency rule, and issued the subsequent ‘clarification’ letter.