Senate Insurance Committee Meeting Reports--Feb. 19
Date Published: 02-19-2008
On Tuesday, February 19, 2008, the Florida Senate held two committee meetings regarding insurance matters: The Select Committee on Property Insurance Accountability (“Select Committee”) and the Banking and Insurance Committee.
The Select Committee discussed reinsurance issues and hurricane modeling issues. The Banking and Insurance Committee considered two proposed committee bills: one relating to the public records exemption for credit scoring methodologies and another related to reducing the Florida Hurricane Catastrophe Fund (“FHCF”).
Select Committee on Property Insurance Accountability
Co-Chair Steven Geller provided brief introductory remarks and then recognized Paul Walther, Chief Executive Officer of Reinsurance Directions, Inc. who discussed reinsurance issues. Mr. Walther's overview included discussions on reinsurers' involvement with the Florida Office of Insurance Regulation ("OIR") and the general state of the reinsurance market.
Noting that reinsurance is "the tail that walks the dog" in the insurance industry, Mr. Walther explained his role in assisting the OIR with establishing the presumed factors and that, on average, insurance companies could have expected an average savings of 20 percent based on the increase in the FHCF capacity. He opined that those savings were not passed along to policyholders because insurance companies purchased additional reinsurance (to cover multiple events) and were concerned with the ability of the FHCF to cover future losses.
Mr. Walther also spoke about reinsurance and modeling companies, noting that reinsurance companies use multiple models and pay close attention to companies' exposure in establishing rates. As a recommended solution to increased reinsurance costs, Mr. Walther suggested that the State could provide reinsurance companies with incentives similar to the tax-exempt status enjoyed by the FHCF.
The Committee Members posed several questions to Mr. Walther regarding possible collusion and related communications among insurers and reinsurers. Legislators expressed concerns regarding the lack of oversight in the reinsurance market. Senator Bill Posey, Vice Chair, noted that Florida may be better off assessing actual losses rather than paying the up-front costs of reinsurance at an inflated rate. Mr. Walther suggested that the private market must be allowed to function without excessive regulatory intrusion. As time expired, many Committee members were frustrated that they did not have an opportunity to ask questions.
Following Mr. Walther’s testimony, the members of the Florida Commission on Hurricane Loss Projection Methodology (“FCHLPM”) provided a report to the Committee. Dr. Randy Dumm and Dr. Mark Johnson gave an overview of the FCHLPM, an overview of hurricane loss models, model comparisons, the 2007 model acceptability review process, and current and future areas of investigation. The Committee members expressed concerns with the use of short-term models. The FCHLPM members noted that they have not approved or disapproved any short-term or medium-term models.
Finally, representatives of AIR Worldwide Corporation (“AIR”) testified before the Select Committee. During their testimony, the Committee members focused on the fact that model approval is good public policy. The AIR representatives concurred with Select Committee members.
At the conclusion of the meeting, Co-Chairman Jeff Atwater briefly reviewed the events of the Select Committee hearings. He noted that legislative proposals would be forwarded to Senate President Ken Pruitt for his consideration and proposed legislation likely would be forthcoming through the Senate’s substantive committees.
To view the Select Committee packet for the February 19 meeting, click here.
Banking and Insurance Committee
Also on February 19, 2008, the Senate Banking and Insurance Committee ("Committee") discussed several insurance-related proposed committee bills. The Committee moved directly into their consideration.
The Committee considered a proposed committee bill regarding extending the public records exemption for the use of credit scoring methodologies. The exemption is set to repeal on October 2, 2008.
Several representatives from the insurance industry spoke in favor of extending the exemption. However, OIR General Counsel Steve Parton spoke against the bill because it does not serve a "public necessity" and noted that several studies demonstrate an adverse and disparate use of credit scoring on minorities.
Chairman Bill Posey acknowledged that the OIR has access to the information and engaged in some charged dialogue about the exemption for credit scoring. Chairman Posey's comments suggested that he would support the exemption.
Mr. Parton stated that the OIR has some, but not all, of the credit scoring information. Senators Al Lawson, Ronda Storms, and Mike Bennett expressed concerns with the exemption during the hearing. There was substantial discussion regarding the negative impact of the issue upon minorities, church members, elderly and other affected groups.
The Committee members largely were concerned about protecting the public and noted that open government is the best government. An insurance representative argued that open competition is the best protector of the public and repealing this exemption would reduce industry innovation.
Following the public testimony and questions of the presenters, the Committee members did not debate the bill, but instead, immediately voted AGAINST the introduction of the bill. Following this defeat, it is unclear if the Committee will reconsider the proposal.
Mr. Deffenbaugh next explained a proposed committee bill relating to reducing the risk of the FHCF--the same bill that is being promoted by Alex Sink, Florida’s Chief Financial Officer (CFO). The bill reduces the amount of optional TICL coverage to a maximum of $9 billion and changes the TICL option so that only 70 percent of an insurer's loss is recoverable.
Senator Lawson asked whether the proposal would cause rates to increase. OIR Deputy Commissioner Belinda Miller stated that rates may go up 1.5 to 3.5 percent, but reinsurance market pricing may be lower, thereby mitigating against the increase. Other members expressed concerns about the potential rate increase.
John Forney with Raymond James discussed the ability of FHCF to meet its current potential exposure of $28 billion. He defended the capacity of the FHCF by noting that it would not have to issue bonds at once, and that the maximum assessment would be five percent annually, and that the FHCF has $10 billion in surplus. He also spoke favorably about the bill, noting that a moderate reduction in exposure is positive for the ability of FHCF to pay claims.
Finally, Michael Carlson with the CFO's office spoke in favor of the bill.
The bill passed favorably, and a substantive version likely will be considered at the next Committee meeting.
The Committee also heard Senate Bill 1012 by Senator Don Gaetz. This bill substantially amends sections of law regarding health insurance contracts and health maintenance organization (HMO) contracts.
Senator Lawson introduced two business-friendly amendments that were not adopted. The attendant business community expressed concerns that this bill would increase premiums. Senator Gaetz offered a substitute amendment that passed favorably. The bill is supported by the Florida Medical Association, several county EMS providers, chiropractors and others. The bill passed as amended.
To view the meeting packet for the Committee, click here.
The above information is a brief review of the activities and actions that took place during the two Senate Committee Meetings. It is not intended to be a comprehensive review of the issues contained therein. Should you have questions or comments related to these matters, please do not hesitate to contact this office.
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