Legislation & Honesty!

Honesty: 1. the quality or fact of being honest;  uprightness and fairness.  2. truthfulness, sincerity, or frankness. 3.freedom from deceit or fraud.
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First, to be honest I should clarify my stance on the so called “Depopulation Bill” which allows E&S carriers to take policies out of Citizens.

Like others who first heard the concept, I was skeptical.  I thought the proposal,  (Hb-245 and Sb-578 by Representative Boyd and Senator Richter respectively) created a regulatory non-sequitur–in essence, rebuking regulation without eliminating it.  It allowed carriers who aren’t regulated to bid on policies that “regulated” carriers couldn’t write because they were, well… regulated!

I also knew Citizens overpopulation was due, in part, to it’s circumvention of the FIGA payment limitation ($300/$500K). It provides a guaranty of claim payment without such limit; meanwhile, E&S carriers aren’t covered by FIGA at all.

Anyway, that’s when I found out how helpful it could be to actually “read the bill”–it does wonders in forming accurate opinions and…in speaking honestly about the merits (or lack thereof) of legislation.  

While I may still have concerns about the efficacy of the proposal, I no longer have concerns about it’s impact on consumers.  It’s obvious that its sponsors have done a good job addressing every concern about  E&S takeouts from Citizens; including the lack of FIGA protection.

Now, here’s the honesty part.

Some who oppose the concept either haven’t read the bill or are intentionally misrepresenting it; making it seem sinister–I presume as a means of defeating it. Here’s just a sample of what I’ve read in the media:

  • this proposal would allow “unregulated, out of state carriers to”,  “seize” your Citizens policy; or…
  • after takeout the insurer can “increase your rates without limitation”;  or…
  • “the state would be powerless to help if there was an insolvency.”

These statements are all false, but…it’s the media, it’s a complicated issue and, what the heck…we’re used to it.

But, it’s not so complicated that trial lawyers, especially those claiming to be “experts” in property insurance can’t,  be honest (those needing to know what the word means, see above definition) when publishing explanations for consumers

Read Chip Merlin’s recent opinion piece  titled: “More bad medicine from Tallahassee.”  and tell me if you think it meets the margin. To help I numbered every paragraph, all but two of which are off-point rants that either degrade lawmakers, blame politics and the industry and/or stakeout the moral high ground for  his firm but, none of which mention even one provision in either the senate or house bill.

In fact, the only two sentences that speak to the bill are both false, as follows…

…allow unregulated surplus lines insurers to cherry-pick Citizens Property Insurance Corp. policyholders, without approval, and subject them to unlimited future rate hikes and diminished coverage.”

and, it will…

“… leave Citizens with even more risky policies, with fewer premium dollars to pay claims.”

That’s it! Two false statements. That’s all Merlin said about the bill(s) he urged consumers to oppose.

Indeed, the truth, which doesn’t require much effort to find,  is almost exactly the opposite!

Policies cannot be cherry-picked. The E&S carrier must be “approved” and so must the takeout plan. The rate must be approved by the OIR for the takeout which also must be approved by the OIR. And, consumers don’t have to accept the offer and neither do their agents. And, the coverage must be similar (and approved) and the carrier, with respect to the policies taken out, must follow all the laws that regulated carriers must follow.

But, don’t trust me…read the staff analysis by clicking here(Or, see NOTE #1 below for bullets)

The question is why would someone so publicly, er, um, well…tell a lie?

I can only think of three reasons. The first is, they didn’t know it was a lie which, for the media is forgivable but not so much for an “expert” with a law degree.

The next two reasons are wrong no matter what;  either they have so much to gain that being caught in a lie is worth the risk, or   they think nobody will point it out.

For the record, beginning now…I’m going to be pointing it out.

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NOTE #1–Provisions in the bill do the following:

  • Require the surplus lines insurer to maintain $50 million in surplus. Current law requires admitted carriers to maintain surplus of only $15 million in order to be eligible to write insurance in Florida.
  • Require the E&S insurer to  maintain an A.M. Best Financial Strength Rating of A- or better. Admitted carriers don’t need an AM Best Rating; which contemplates a 1-in-250 year claim paying capacity.  The OIR requires less than a 1-in-100 year claim paying capacity for admitted carriers with a Demotech rating.
  • Requires insurer to offer  similar coverage as   Citizens’ policy and it must notify the Citizens’ policyholder of any differences.
  • The insurer must comply with the requirements in current law for licensed insurers that take policies out of Citizens.
  • If the Citizens’ policyholder receives an offer for insurance from both a Florida licensed insurer and a surplus lines insurer, then the offer from the Florida licensed insurer has priority.
  • Surplus lines insurers assuming policies must deposit premium from the assumed policies with the Bureau of Collateral Management in the Department of Financial Services. The premium deposit can be used to pay claims of Citizens’ policyholders assumed by the insurer if the surplus lines insurer becomes insolvent.
  • Requires a surplus lines insurer to have financial resources to cover the insurer’s 100-year probable maximum loss at least twice in a hurricane season. Historically, the OIR has required authorized insurers to cover only one 100-year probable maximum loss.
  • The policyholder is only offered a choice and does not have to accept the offer and can either stay or return to Citizens later if he/she chooses.  The Agent can also reject the appointment offer as well and must be offered an appointment and provisions of consumer choice and other portions of the insurance code regarding appointments apply.
  • With respect to the policies removed, the carrier must comply with all provisions of law applying to admitted carriers; including unfair trade practices and cancellation and non-renewal provisions.

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Comments

  1. Scott,

    I don’t think being “approved” by OIR is the same as being “regulated for solvency.” “Approved” means the surplus lines company meets the requirements you have outlined above. Approved does not mean that OIR has ruled that the company will remain solvent given its portfolio of policies vs. a 100 year storm.

    It would be a mistake for consumer to rely more on ratings companies like AM Best than regulators. The rating companies lost some credibility in the recent market madness, when they rated financial instruments that were crap and said they were good. They have different customers than OIR. OIR works for the citizens of Florida. AM Best works for those that pay its fees.

    The problem with the surplus lines takeouts is that consumers usually aren’t that sophisticated about insurance and are more likely to base a decision on price, without respect to risk. Most consumers won’t know the difference between “approved” and “regulated for solvency.”

    So, a consumer could accept a surplus lines policy, and then a storm could hit, and the company could become insolvent and the consumer’s claim would not be paid and the consumer would have no recourse. A consumer buying a policy from a company regulated by OIR is assured that OIR has ruled that the company should be solvent in the event of a 100 year storm, and the state, through FIGA, will pay the claim if OIR is wrong or the storm or storms exceed expectations.

    The consumer that attempts to save money with the “unregulated for solvency, etc” company could end up losing everything, and saving nothing. The consumers don’t know that and are walking into the trap blind, protected only by the warning: “Buyer Beware!”

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