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 Appropriations
BILL: CS/CS/SB 1430
INTRODUCER: Appropriations Committee (Recommended by Appropriations Subcommittee on
Agriculture, Environment, and General Government); Banking and Insurance
Committee; and Senator Burgess
SUBJECT: Insolvent Insurers
DATE: March 2, 2022
ANALYST STAFF DIRECTOR REFERENCE ACTION
1. Arnold Knudson BI Fav/CS
2. Sanders Betta AEG Recommend: Fav/CS
3. Sanders Sadberry AP Fav/CS
Please see Section IX. for Additional Information:
COMMITTEE SUBSTITUTE - Substantial Changes
I. Summary:
CS/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). The 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. The
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 the FIGA in quarterly
installments;
Authorizes an insurer to forego recouping advances of assessments to the FIGA;
Requires insurers electing to not recoup advances of assessments made to the FIGA to either
reduce a recorded asset to zero or record as no asset, depending on the levying mechanism
prescribed under the statute;
Clarifies calculation of FIGA quarterly payments for those insurers who elect not to collect
from policyholders;
REVISED: BILL: CS/CS/SB 1430 Page 2
Requires insurers making assessment payments to the FIGA to file reconciliation reports on a
form and schedule adopted by the 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 three years to a period of two years;
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
section 624.310, Florida Statutes, demonstrating that the personal actions or omissions of the
officer or director were a significant contributing cause to the insolvency.
The bill does not impact state revenues or expenditures.
The bill takes effective July 1, 2022.
II. Present Situation:
Officers and Directors of Insolvent Insurers
In general, Florida law gives the 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 the 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 two years preceding the insolvency of the
insurer, unless the officer or director demonstrates to the OIR that his or her personal actions or
omissions were not a significant contributing cause to the insolvency.
2
1
Section 624.404(3)(a), F.S.
2
Section 624.4073, F.S. BILL: CS/CS/SB 1430 Page 3
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 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 “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
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; and
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 the 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;
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.
7
Section 627.914(1), F.S. BILL: CS/CS/SB 1430 Page 4
Manual premiums by classification;
Standard premiums by classification;
Losses by classification and injury type; and
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;
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 the NCCI and, therefore, its data is no longer reported to the
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
8
Section 627.914(2), F.S.
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. BILL: CS/CS/SB 1430 Page 5
to participate in the guaranty associations as a condition of transacting insurance business in
Florida. Florida operates four guaranty associations including the FIGA
16
and the FWCIGA.
17
Florida Insurance Guaranty Association
The 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, the FIGA takes over the claims of that insurer and pays the claims of its policyholders,
ensuring that policyholders are not left with unpaid claims.
The FIGA is funded through the liquidation of insolvent insurers. If an insurer’s assets are
insufficient to pay all claims, the FIGA can request, and the 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 the FIGA.
21
The insurer may then, in turn, recoup the advance by
applying the uniform assessment percentage levied by the OIR to all its policies of the same kind
or line of business as were considered by the OIR in determining its assessment on the insurer.
22
When the FIGA issues an assessment, it may require 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 the 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 the FIGA and provided to the insurer in
advance.
24
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.
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. BILL: CS/CS/SB 1430 Page 6
Florida Workers’ Compensation Insurance Guaranty Association
The 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
The 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, the FWCIGA takes over the claims of that
insurer and pays the claims of its policyholders, ensuring that policyholders are not left with
unpaid claims.
Like the FIGA, the 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, the FWCIGA, in conjunction with the 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 the 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 the FWCIGA can collect
assessments from workers’ compensation insurers and self-insurance funds.
30
The 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 the OIR reports; or
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, F.S., 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.
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
Nov. 4, 2019). BILL: CS/CS/SB 1430 Page 7
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 OIR to 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 two years prior to the insolvency. That prohibition 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 (FIGA), to authorize the association to request the OIR’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 requires insurers electing to not recoup advances of assessments made to the
FIGA to either reduce a recorded asset to zero or record as no asset, depending on the levying
mechanism prescribed under the statute. Furthermore, the bill clarifies calculation of FIGA
quarterly payments for those insurers who elect not to collect from policyholders.
The bill specifies 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.
34
Section 631.914(1)(d), F.S.
35
Section 631.914(1)(d)3., F.S.
36
See id. BILL: CS/CS/SB 1430 Page 8
Section 4 amends s. 631.914, F.S., related to Workers’ Compensation Insurance Guaranty
Association (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 three years to a period of two years.
The bill clarifies 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.
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. BILL: CS/CS/SB 1430 Page 9
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/CS by Appropriations on February 28, 2022:
The committee substitute:
Requires insurers electing not to recoup assessments made to the Florida Insurance
Guaranty Association (FIGA) to either reduce a recorded asset to zero or record as no
asset, depending on the levying mechanism prescribed under the statute; and
Clarifies calculation of FIGA quarterly payments for those insurers who elect not to
collect from policyholders.
CS by Banking and Insurance on January 18, 2022:
The committee substitute:
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 OIR, 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.