Florida 2022 2022 Regular Session

Florida Senate Bill S1430 Analysis / Analysis

Filed 01/19/2022

                    The Florida Senate 
BILL ANALYSIS AND FISCAL IMPACT STATEMENT 
(This document is based on the provisions contained in the legislation as of the latest date listed below.) 
Prepared By: The Professional Staff of the Committee on Banking and Insurance  
 
BILL: CS/SB 1430 
INTRODUCER:  Banking and Insurance Committee and Senator Burgess 
SUBJECT:  Insolvent Insurers 
DATE: January 19, 2022 
 
 ANALYST STAFF DIRECTOR  REFERENCE  	ACTION 
1. Arnold Knudson BI Favorable 
2.     AEG   
3.     AP  
 
Please see Section IX. for Additional Information: 
COMMITTEE SUBSTITUTE - Substantial Changes 
 
I. Summary: 
CS/SB 1430 amends several provisions of the Florida Insurance Code related to the Office of 
Insurance Regulation (OIR) and the Florida Insurance Guaranty Association (FIGA), and the 
Florida Workers’ Compensation Insurance Guaranty Association (FWCIGA). FWCIGA 
provides a mechanism for the payment of covered workers’ compensation claims to avoid” delay 
and financial loss to claimants due to the insolvency of a workers’ compensation insurer. FIGA 
provides a mechanism for the payment of covered claims under certain lines of property and 
casualty insurance policies to avoid delay and financial loss due to the financial insolvency of an 
insurer. Specifically, the bill: 
 
 Provides that past loss experience and prospective loss experience for insolvent insurers must 
be used in the determination and fixing of workers’ compensation rates, and that data 
previously reported by insolvent insurers may be used to assess the impact on rates; 
 Authorizes insurers to make advance assessment payments to FIGA in quarterly installments; 
 Authorizes an insurer to forego recouping advances of assessments to FIGA; 
 Requires insurers making assessment payments to FIGA to file reconciliation reports on a 
form and schedule adopted by FIGA regardless of assessment payment method; 
 Authorizes the Workers’ Compensation Insurance Guaranty Association (WCIGA) to allow 
an insurer to make advance assessment payments in a single payment or on a quarterly basis 
based on cash-flow needs; 
 Reduces the frequency of annual reconciliation reports subsequently filed with the WCIGA 
after the assessment year from a period of 3 years to a period of 2 years; 
REVISED:   BILL: CS/SB 1430   	Page 2 
 
 Clarifies that an assessment paid before surcharges are collected is an advance; and  
 Makes additional technical and conforming changes. 
 
The bill provides that the officers and directors of an insolvent insurer may thereafter serve as an 
officer or director of an authorized insurer unless the OIR enters an order under s. 624.310, F.S., 
demonstrating that the personal actions or omissions of the officer or director were a significant 
contributing cause to the insolvency.  
 
The bill takes effective July 1, 2022. 
II. Present Situation: 
Officers and Directors of Insolvent Insurers 
In general, Florida law gives OIR broad authority to deny, suspend, or revoke an insurer’s 
authority to transact insurance in Florida if it finds the insurer’s officers and directors to be: 
 Incompetent or untrustworthy; 
 So lacking in insurance company managerial experience as to make the proposed operation 
hazardous to the insurance-buying public; 
 So lacking in insurance experience, ability, and standing as to jeopardize the reasonable 
promise of successful operation; or 
 Affiliated directly or indirectly through ownership, control, reinsurance transactions, or other 
insurance or business relations, with any person or persons whose business operations are or 
have been marked, to the detriment of policyholders, stockholders, investors, creditors, or the 
public, by manipulation of assets, accounts, or reinsurance or by bad faith.
1
 
 
When an insurer becomes insolvent, current law requires OIR to deny an officer or director of 
the insolvent insurer from thereafter serving in the same capacity for another insurer if the officer 
or director served in that capacity within 2 years preceding the insolvency of the insurer, unless 
the officer or director demonstrates to OIR that his or her personal actions or omissions were not 
a significant contributing cause to the insolvency.
2
  
 
Regulation of Property Insurance Rates 
Part I of ch. 627, F.S., is the Rating Law
3
 governing property, casualty, and surety insurance that 
covers subjects of insurance resident, located, or to be performed in this state.
4
 The Rating Law 
provides that the rates for all classes of insurance it governs may not be excessive, inadequate, or 
unfairly discriminatory.
5
 Though the terms “rate” and “premium” are often used interchangeably, 
the rating law specifies that “rate” is the unit charge that is multiplied by the measure of 
exposure or amount of insurance specified in the policy to determine the premium, which is the 
consideration paid by the consumer.
6
 
                                                
1
 Section 624.404(3)(a), F.S. 
2
 Section 624.4073, F.S. 
3
 Section 627.011, F.S. 
4
 Section 627.021, F.S. 
5
 Section 627.062(1), F.S. 
6
 Section 627.041, F.S.  BILL: CS/SB 1430   	Page 3 
 
 
All insurers or rating organizations must file rates with the OIR either 90 days before the 
proposed effective date of a new rate, which is considered a “file and use” rate filing, or 30 days 
after the effective date of a new rate, which is considered a “use and file” rate filing. 
 
Upon receiving a rate filing, the OIR reviews the filing to determine if the rate is excessive, 
inadequate, or unfairly discriminatory. The OIR makes that determination in accordance with 
generally acceptable actuarial techniques and, in a property insurance rate filing, considers the 
following: 
 Past and prospective loss experience. 
 Past and prospective expenses. 
 The degree of competition among insurers for the risk insured. 
 Investment income reasonably expected by the insurer. 
 The reasonableness of the judgment reflected in the rate filing. 
 Dividends, savings, or unabsorbed premium deposits returned to policyholders. 
 The adequacy of loss reserves. 
 The cost of reinsurance. 
 Trend factors, including trends in actual losses per insured unit for the insurer. 
 Conflagration and catastrophe hazards. 
 Projected hurricane losses. 
 Projected flood losses, if the policy covers the risk of flood. 
 A reasonable margin for underwriting profit and contingencies. 
 Other relevant factors that affect the frequency or severity of claims or expenses. 
 
Workers’ Compensation Reporting Requirements and Rating Factors 
Florida law currently requires workers’ compensation insurers to record and report certain loss, 
expense, and claims experience to aid OIR in making determinations concerning the adequacy of 
worker’s compensation experience for ratemaking purposes.
7
 Additionally, insurers are required 
to provide the following information annually on both Florida experience and nationwide 
experience separately: 
 Payrolls by classification. 
 Manual premiums by classification. 
 Standard premiums by classification. 
 Losses by classification and injury type. 
 Expenses.
8
   
 
Section 627.072, F.S., in turn governs the admissibility of factors to be used in the determination 
and fixing of workers’ compensation insurance rates. The following factors are used for such 
purpose: 
 The past loss experience and prospective loss experience within and outside Florida; 
 The conflagration and catastrophe hazards; 
 A reasonable margin for underwriting profit and contingencies; 
                                                
7
 Section 627.914(1), F.S. 
8
 Section 627.914(2), F.S.  BILL: CS/SB 1430   	Page 4 
 
 Dividends, savings, and unabsorbed premium deposits allowed or returned by insurers to 
their policyholders, members, or subscribers; 
 Investment income on unearned premium reserves and loss reserves; 
 Past expenses and prospective expenses, both countrywide and those specifically applicable 
to Florida; and 
 All other relevant factors, including judgment factors, within and outside of Florida.
9
 
 
Insurers satisfy the reporting requirements above by providing their data to the National Council 
on Compensation Insurance, Inc. (NCCI).
10
 When an insurer goes into receivership due to 
insolvency, it ceases reporting to NCCI and, therefore, its data is no longer reported to OIR and 
not used in the determination and fixing of rates. 
 
Guaranty Associations 
Under federal law, insurance companies cannot file for bankruptcy.
11
 Instead, they are either 
rehabilitated or liquidated by their state of domicile. Florida law establishes the system for the 
treatment of impaired or insolvent insurers
12
 in Florida and sets up guaranty payments where 
necessary.
13
 Florida law provides for guaranty associations to ensure policyholders of insolvent 
insurers are protected with respect to insurance premiums paid and settlement of outstanding 
claims, up to limits provided by law.
14
 A guaranty association is a not-for-profit corporation 
created by law and directed to protect policyholders from financial losses and delays in claims 
payment and settlements due to the insolvency of an insurer.
15
 Authorized insurers are required 
to participate in the guaranty associations as a condition of transacting insurance business in 
Florida. Florida operates four guaranty associations including FIGA
16
 and FWCIGA.
17
 
 
Florida Insurance Guaranty Association 
FIGA provides a “mechanism for the payment of covered claims under certain insurance policies 
to avoid” delay and financial loss due to the financial insolvency of an insurer.
18
 It issues 
guaranty fund payments and provides related services for all lines of property and casualty 
insurance with certain exceptions.
19
 When a Florida property and casualty insurer becomes 
insolvent, FIGA takes over the claims of that insurer and pays the claims of its policyholders, 
ensuring that policyholders are not left with unpaid claims.  
 
                                                
9
 Section 627.072(1), F.S. 
10
 See Rule 69O-189.0055, F.A.C. 
11
 11 U.S.C. s. 109(b)(2). 
12
 An “insolvent insurer” means an insurer that was authorized to transact insurance in this state, either at the time the policy 
was issued or when the insured event occurred, and against which an order of liquidation with a finding of insolvency has 
been entered by a court of competent jurisdiction if such order has become final by the exhaustion of appellate review. 
Section. 631.904(4), F.S. 
13
 Chapter 631, F.S. 
14
 See id. 
15
 See e.g., ss. 631.51 and 631.902, F.S. 
16
 Chapter 631, part II, F.S. 
17
 Chapter 631, part V, F.S. 
18
 Section 631.51, F.S. 
19
 Section 631.52, F.S.  BILL: CS/SB 1430   	Page 5 
 
FIGA is funded through the liquidation of insolvent insurers. If an insurer’s assets are 
insufficient to pay all claims, FIGA can request, and OIR can levy post-insolvency assessments 
against property and casualty insurers to obtain funds to pay the remaining claims.
20
 All 
assessments paid by the insurer pursuant to the levied assessment constitute advances of funds 
from the insurer to FIGA.
21
 The insurer may then, in turn, recoup the advance by applying the 
uniform assessment percentage levied by OIR to all its policies of the same kind or line of 
business as were considered by OIR in determining its assessment on the insurer.
22
  
 
When FIGA issues an assessment, it may require that each member insurer pay the assessment 
either in a single payment before policy surcharges are collected (pay and recover), or in 
quarterly installments after the policy surcharges are collected (collect and remit).
23
  
 
Assessments paid before policy surcharges are collected result in a receivable for policy 
surcharges collected in the future. Insurers under this assessment methods are further required to 
file a reconciliation report with FIGA within 90 days of the end of the assessment year that 
indicates: 
 The amount of the initial payment before the assessment year; 
 Whether such amount was based on direct written premium contained in a previous calendar 
year annual statement or a good faith projection; 
 The amount actually collected during the assessment year; and 
 Such information contained on a form adopted by FIGA and provided to the insurer in 
advance.
24
 
 
Florida Workers’ Compensation Insurance Guaranty Association 
FWCIGA “provides a mechanism for the payment of covered claims under chapter 440, F.S., to 
avoid” delay and financial loss to claimants due to the insolvency of a workers’ compensation 
insurer.
25
 FWCIGA services workers’ compensation claims against insolvent workers’ 
compensation insurers
26
 and self-insurance funds.
27
 When a workers’ compensation insurer or 
self-insurance fund becomes insolvent, FWCIGA takes over the claims of that insurer and pays 
the claims of its policyholders, ensuring that policyholders are not left with unpaid claims. 
 
                                                
20
 Section 631.57, F.S. 
21
 Section 631.57(3)(c), F.S. 
22
 See id. 
23
 See id. 
24
 Section 631.57(3)(f)1.d, F.S. 
25
 Section 631.902, F.S. 
26
 “‘Insurer’ means an insurance carrier or self-insurance fund authorized to insure under ch. 440, F.S. For purposes of this 
act, “insurer” does not include a qualified local government self-insurance fund, as defined in s. 624.4622, F.S., or an 
individual self-insurer as defined in s. 440.385, F.S.” Section 631.904(5), F.S. 
27
 “‘Self-insurance fund’ means a group self-insurance fund authorized under s. 624.4621, F.S., a commercial self-insurance 
fund writing workers’ compensation insurance authorized under s. 624.462, F.S., or an assessable mutual insurer authorized 
under s. 628.6011, F.S. For purposes of this act, the term “self-insurance fund” does not include a qualified local government 
self-insurance fund, as defined in s. 624.4622, F.S., an independent educational institution self-insurance fund as defined in 
s. 624.4623, an electric cooperative self-insurance fund as described in s. 624.4626, F.S., or an individual self-insurer as 
defined in s. 440.385, F.S.” Section 631.904(6), F.S.  BILL: CS/SB 1430   	Page 6 
 
Like FIGA, FWCIGA is funded through the liquidation of insolvent insurers, including a portion 
of the estates of insolvent insurers in other states. If the assets of the liquidated insurer are 
insufficient to pay claims, FWCIGA, in conjunction with OIR, may order assessments of 
workers’ compensation insurers and self-insurance funds writing workers’ compensation 
coverage in Florida.
28
 
 
In 2016, the method of assessment for FWCIGA was amended to be more consistent with the 
methods used to levy assessments by the other Florida guaranty associations.
29
 Since the 2016 
amendments, the law has provided for two methods by which FWCIGA can collect assessments 
from workers’ compensation insurers and self-insurance funds.
30
 FWCIGA may choose to fund 
an assessment by either of the following methods:
31
 
Single payment, subject to true-up (pay and recover)
32
 – under this method, the insurer pays the 
assessment to the FWCIGA and then recovers its payment from its insureds through policy 
surcharges. The assessment payment is due and payable no earlier than 30 days following written 
notice of the assessment order. For accounting purposes, the billed surcharges are a receivable 
and an asset for the purposes of the National Association of Insurance Commissioners’ 
Statement of Statutory Accounting Principles Number 4
33
 and would be recorded separately from 
the liability for OIR reports. 
Installment (collect and remit or pass-through) – under this method, the insurer would bill the 
insured for the surcharge as policies are written and remit the collected surcharges to the 
FWCIGA quarterly.
34
 
 
The insurer is required to submit a reconciliation report within 120 days following the end of the 
12-month assessment recovery period showing the amount initially paid and the amount of the 
surcharge collected.
35
 This results in a “true-up” of the actual assessment amount if the initial 
calculation and payment was too low or too high.
36
 
III. Effect of Proposed Changes: 
Section 1 amends s. 624.4073, F.S., related to officers and directors of insolvent insurers, to 
require the Office of Insurance Regulation enter an order pursuant to s. 624.310, F.S., 
demonstrating the personal actions or omissions of the officer or director of an insolvent insurer 
were a significant contributing cause of the insolvency, in order to prevent the officer or director 
from serving in the same capacity for another insurer. The bill thus eliminates an automatic 
prohibition against a person serving as an officer or director of an authorized insurer, or having 
direct or indirect control over selecting or appointing an officer or director, if such person was an 
officer or director of an insolvent insurer in the 2 years prior to the insolvency. That prohibition 
                                                
28
 Section 631.914, F.S. 
29
 Chapter 16-170, L.O.F.  
30
 See s. 631.914, F.S. 
31
 See id. 
32
 Section 631.914(1)(d), F.S. 
33
See National Association of Insurance Commissioners & The Center for Insurance Policy and Research, Statutory 
Accounting Principles, http://www.naic.org/cipr_topics/topic_statutory_accounting_principles.htm (last visited November 4, 
2019). 
34
 Section 631.914(1)(d), F.S. 
35
 Section 631.914(1)(d)3., F.S. 
36
 See id.  BILL: CS/SB 1430   	Page 7 
 
under current law does not apply if the officer or director can demonstrate to the OIR that his or 
her personal actions or omissions were not a significant contributing cause to the insolvency. 
 
Section 2 amends s. 627.072, F.S., to provide factors used in the determination and fixing of 
workers’ compensation rates must include past loss experience and prospective loss experience 
for insolvent insurers. The prior reported data for such insurers and other relevant information 
may be used to assess the impact on rates. 
 
Section 3 amends s. 631.57, F.S., related to the powers and duties of the Florida Insurance 
Guaranty Association, to authorize the association to request the Office of Insurance 
Regulation’s assessment order authorize insurers to make advance assessment payments in 
quarterly installments.  
 
The bill provides an insurer discretion to forego recouping advances of assessments made to the 
association. 
 
The bill specifies that insurers, regardless of the required assessment payment method, must file 
one or more reconciliation reports with the association. Each reconciliation report must indicate 
the amount actually collected during the assessment year and such other information using a 
form and schedule adopted by the association and provided to the insurer in advance. 
 
The bill makes additional technical changes specific to surcharges.  
 
Section 4 amends s. 631.914, F.S., related to Workers’ Compensation Insurance Guaranty 
Association assessments, to provide the association with discretion to authorize an insurer that is 
required to pay an assessment before surcharges are collected, to pay the assessment either in a 
single payment or on a quarterly basis based on cash-flow needs.  
 
The bill reduces the frequency of annual reconciliation reports subsequently filed after the 
assessment year from a period of 3 years to a period of 2 years. 
 
The bill clarifies that an assessment paid before surcharges are collected is an advance.  
 
The bill provides technical changes by replacing the term “installment method” with “pass-
through method” to reflect current operational terminology of the association.   
 
The bill makes additional conforming changes. 
 
Section 5 provides an effective date of July 1, 2022. 
 
IV. Constitutional Issues: 
A. Municipality/County Mandates Restrictions: 
None.  BILL: CS/SB 1430   	Page 8 
 
B. Public Records/Open Meetings Issues: 
None. 
C. Trust Funds Restrictions: 
None. 
D. State Tax or Fee Increases: 
None. 
E. Other Constitutional Issues: 
None. 
V. Fiscal Impact Statement: 
A. Tax/Fee Issues: 
None. 
B. Private Sector Impact: 
None. 
C. Government Sector Impact: 
None. 
VI. Technical Deficiencies: 
None. 
VII. Related Issues: 
None. 
VIII. Statutes Affected: 
This bill substantially amends the following sections of the Florida Statutes: 624.4073, 627.072, 
631.57, and 631.914   
IX. Additional Information: 
A. Committee Substitute – Statement of Changes: 
(Summarizing differences between the Committee Substitute and the prior version of the bill.) 
CS by Banking and Insurance on January 18, 2022: 
The committee substitute:  BILL: CS/SB 1430   	Page 9 
 
 Amends s. 624.4073, F.S., related to officers and directors of insolvent insurers, shifts 
the burden for demonstrating the personal actions or omissions of the officer or 
director of an insolvent insurer were a significant contributing cause of the insolvency 
to the Office of Insurance Regulation, rather than on the officer or director to 
demonstrate his or her personal actions or omissions were not a significant 
contributing cause of the insolvency.  
B. Amendments: 
None. 
This Senate Bill Analysis does not reflect the intent or official position of the bill’s introducer or the Florida Senate.