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 Rules
BILL: CS/CS/SB 516
INTRODUCER: Rules Committee; Banking and Insurance Committee; and Senator DiCeglie
SUBJECT: Motor Vehicle Liability Policies
DATE: April 25, 2023
ANALYST STAFF DIRECTOR REFERENCE ACTION
1. Thomas Knudson BI Fav/CS
2. Kolich Harkness ACJ Favorable
3. Thomas Twogood RC Fav/CS
Please see Section IX. for Additional Information:
COMMITTEE SUBSTITUTE - Substantial Changes
I. Summary:
CS/CS/SB 516 amends Florida’s Financial Responsibility Law regarding the operation of a
motor vehicle to provide that risk retention groups that provide commercial auto insurance
coverage for vehicles used for “public and private construction and infrastructure projects” must
have an “A” or higher rating for financial strength and “VIII” or higher rating for financial size
from A.M. Best Company. The bill further provides that surplus lines insurers that have an “A”
or higher rating for financial strength and “VIII” or higher rating for financial size from A.M.
Best Company may provide commercial auto insurance coverage.
Risk retention groups are authorized by federal law and sell insurance to eligible members and
shareholders. Surplus lines insurers sell insurance coverage that is not available from insurers
licensed in the state. Risk retention groups, as well as surplus lines insurers, do not submit rate
and form filings to state regulators and are not members of state guaranty associations that
manage claims if an insurer becomes insolvent.
The bill has a negative, but likely insignificant, fiscal impact to the Department of Highway
Safety and Motor Vehicles.
The bill has an effective date of July 1, 2023.
REVISED: BILL: CS/CS/SB 516 Page 2
II. Present Situation:
Florida’s Motor Vehicle Financial Responsibility Law
Chapter 324, F.S., sets forth the financial responsibility laws for owners or operators of motor
vehicles in Florida, whether they be used for personal or commercial purposes. Generally, a
motor vehicle owner or operator is required to insure against losses from liability for bodily
injury, death, and property damage by 1) purchasing auto insurance from an insurance carrier
authorized by the Office of Insurance Regulation (OIR) to do business in Florida;
1
or 2)
obtaining a certificate of self-insurance from the Department of Highway Safety and Motor
Vehicles (DHSMV) after demonstrating the ability to cover potential losses arising out of the
ownership, maintenance, or use of a motor vehicle.
2
The OIR licenses insurance carriers and reviews policy contracts and premium rates of its
licensees.
3
An insurance carrier may not issue an auto insurance policy in Florida unless the
policy includes coverages for both personal injury and property damage.
4
The DHSMV administers the Financial Responsibility Law by requiring all licensed insurance
companies to provide electronic notification of all policies that are issued or cancelled.
5
Vehicle
owners must show proof of personal injury protection and property damage liability coverage to
register a vehicle,
6
and must provide proof of bodily injury liability coverage if they are involved
in an accident and charged with a moving violation.
7
A vehicle owner who fails to maintain
continuous coverage may have his or her driver’s license and registration suspended.
8
Required
coverages vary based on the use of a motor vehicle.
For individual motorists, the law requires $10,000 in personal injury protection and $10,000 for
property damage.
9
If a driver has been convicted of driving under the influence of alcohol, the
motorist must maintain liability coverage of $100,000 for bodily injury to, or death of, one
person in any one crash and in the amount of $300,000 due to bodily injury to, or death of, two
or more persons in any one crash and in the amount of $50,000 because of property damage in
any one crash per accident, for three years after the license is reinstated.
10
For leased motor vehicles, the lessor is not liable for the actions of a lessee so long as the lease
requires $100,000/$300,000 bodily injury liability and $50,000 property damage liability or not
less than $500,000 combined property damage and bodily injury liability.
11
For-hire passenger
1
Section 324.021(8), F.S.
2
Sections 324.161 and 324.171, F.S. Also see Florida Department of Highway Safety and Motor Vehicles, Self-Insurance,
https://www.flhsmv.gov/insurance/self-insurance/firm/ (last accessed March 8, 2023).
3
Sections 624.404, 627.062, 627.410, and 627.4102, F.S.
4
Section 627.7275, F.S.
5
Sections 324.0221, 324.252, F.S., and Rules 15A-3.007 and 15A-3.012, F.A.C.
6
Sections 324.022, 324.023, F.S., and Rule 15A-3.006, F.A.C.
7
Section 324.021, F.S. Also see, Florida Highway Safety and Motor Vehicles, Florida Insurance Requirements,
https://www.flhsmv.gov/insurance/ (last accessed March 8, 2023).
8
Section 324.0221, F.S.
9
Sections 324.021(7), 324.022, and 627.736, F.S.
10
Section 324.023, F.S.
11
Section 324.021(9), F.S. BILL: CS/CS/SB 516 Page 3
vehicles like taxicabs and limousines must have bodily injury liability coverage of $125,000 per
person and $250,000 per occurrence, and $50,000 property damage coverage.
12
Commercial motor vehicles operating on Florida’s highways are subject to state and federal
regulations related to size and weight limits, safety standards, and registration requirements.
Commercial vehicles that weigh 10,001 pounds or more, and engage in interstate commerce or
haul hazardous materials, are subject to federal law, where required coverages range from
$750,000 to $5 million.
13
Commercial vehicles that weigh 26,001 pounds or more, operate only
within Florida, and do not transport hazardous materials are subject to Florida law, where
required coverages range from $50,000 to $300,000.
14
When the owner or operator of a motor vehicle purchases liability insurance to satisfy the
financial responsibility law, the policy must be issued by an insurance company authorized to do
business in Florida.
15
When an owner or operator self-insures a vehicle or fleet of vehicles, the
owner or operator must obtain a certificate of self-insurance from the DHSMV.
16
Risk Retention Groups
Federal law treats risk retention groups, which may sell insurance only to eligible members,
differently than traditional insurance companies. Members of a risk retention group must be
engaged in similar businesses or activities that have similar exposures due to the type of
business, trade, product, service, premises, or operations.
17
Authorized insurers must be licensed in every state in which they operate and the domicile state
serves as the primary regulator. Risk retention groups need to be licensed as a liability insurer in
only one state; further, those that were chartered prior to 1985 may operate under the laws of
Bermuda or the Cayman Islands.
18
State regulators may require risk retention groups to comply
with state laws relating to claim settlement and false or fraudulent acts, pay premium taxes,
register with the designated state agent for service of process, and submit to financial exams if
such exam has not been completed by the state in which the risk retention group is chartered.
19
States may not require a risk retention group to participate in any insolvency guaranty
association.
20
However, states may require notice that insurance provided by a risk retention
group is not protected by an insolvency guaranty association.
21
Unlike authorized insurers, risk
retention groups do not submit rate and form filings with a state regulator. Instead, risk retention
12
Sections 324.032, F.S.
13
49 CFR § 387.9.
14
Sections 207.002(1), 320.01(25), and 627.7415, F.S.
15
Section 324.021(8), F.S.
16
Section 324.171, F.S.
17
15 U.S.C. §3901(a)(4)(F) and s. 627.942(9), F.S.
18
15 U.S.C. § 3901(a)(4) and s. 627.942(9), F.S.
19
15 U.S.C. § 3902(a)(1).
20
15 U.S.C. § 3902(a)(2).
21
15 U.S.C. § 3902(a)(1). BILL: CS/CS/SB 516 Page 4
groups apportion risk among their members; thus, rates are based on an actuarial analysis of the
membership and policies can be tailored to suit the needs of the membership.
22
Risk retention groups may only provide liability insurance; the law defines liability insurance as
coverage for liability for damages to persons or property arising out of any business, trade,
product, professional service, premise, operation, or activity of a state or local government.
23
Liability insurance does not include an employer’s liability to its employees; thus, risk retention
groups may not issue workers’ compensation insurance policies to their members.
24
Risk retention groups may operate in Florida if they obtain a certificate of authority as a liability
insurer, or are licensed in another state and provide a copy of their business plan and annual
financial statement to the OIR and designate the Chief Financial Officer as agent for service of
process.
25
According to the OIR, 140 risk retention groups are licensed in a state other than
Florida and registered to do business in Florida.
26
Risk retention groups licensed in Florida pay the same premium taxes as Florida-licensed
insurers.
27
Risk retention groups registered to operate in Florida but licensed in another state pay
the same premium taxes as surplus lines insurers that are allowed to sell lines of insurance that
consumers cannot obtain from Florida-licensed insurers.
28
All risk retention groups operating in
Florida must use agents who are licensed and appointed in Florida.
29
The International Risk Management Institute describes “fronting” as the use of a licensed,
admitted insurer to issue an insurance policy on behalf of a self-insured organization or captive
insurer without transferring any risk.
30
The risk of loss under the policy remains with the self-
insured entity or captive insurer, but the authorized insurer (and, in the event of insolvency, the
guaranty association the insurer belongs to) assumes a credit risk because it would be required to
honor the policy if the insured fails to honor the policy. This provides proof of coverage that is
needed to satisfy financial responsibility laws.
Under the Florida Insurance Code, a “fronting company” is defined as “an authorized insurer
which by reinsurance or otherwise generally transfers more than 50 percent to one unauthorized
insurer which does not meet the requirements” to be an accredited or trusteed reinsurer in
22
National Association of Insurance Commissioners, Risk Retention Groups, Risk Retention Groups (naic.org) (last accessed
March 8, 2023).
23
15 U.S.C. 3901(a)(2)(A) and s. 627.942(9)(g), F.S.
24
15 U.S.C. 3901(a)(2)(B) and s. 627.942(4), F.S.
25
Sections 627.943 and 627.944, F.S.
26
Florida Office of Insurance Regulation, Active Company Search, https://companysearch.myfloridacfo.gov/ (last accessed
March 8, 2023).
27
Section 627.943(4), F.S. Pursuant to s. 624.509, F.S., premium taxes (typically 1.75 percent of the premium) are collected
by the licensed insurer and paid to the Department of Revenue on or before March 1 of each year.
28
Section 627.944 (3), F.S. Pursuant to s. 626.932, F.S., premium taxes (4.94 percent of the premium) are collected by the
licensed insurance agent and paid to the Department of Financial Services on a quarterly basis; premiums are also reported to
the Florida Surplus Lines Service Office (FSLSO) which oversees the reporting requirements of eligible surplus lines
insurers. The FSLSO website is https://www.fslso.com/.
29
Sections 627.943(5) and 627.944(12), F.S.
30
International Risk Management Institute, Glossary, https://www.irmi.com/term/insurance-definitions/fronting (last
accessed March 8, 2023). BILL: CS/CS/SB 516 Page 5
Florida.
31
Section 624.404(4)(a), F.S., provides that “[n]o authorized insurer shall act as a
fronting company for any unauthorized insurer which is not an approved reinsurer.”
Florida law explicitly prohibits:
An authorized insurer or licensed motor vehicle service agreement company from acting as a
fronting company for any unauthorized insurer or unlicensed motor vehicle service
agreement company.
32
An authorized insurer or licensed home warranty association from acting as a fronting
company for any unauthorized insurer or unlicensed home warranty association.
33
An authorized insurer or licensed service warranty association from acting as a fronting
company for any unauthorized insurer or unlicensed service warranty association.
34
Surplus Lines Insurance
Surplus lines insurance refers to a category of insurance for which the admitted market is unable
or unwilling to provide coverage.
35
There are three basic categories of surplus lines risks:
Specialty risks that have unusual underwriting characteristics or underwriting characteristics
that admitted insurers view as undesirable;
Niche risks for which admitted carriers do not have a filed policy form or rate; and
Capacity risks that are risks where an insured needs higher coverage limits than those that are
available in the admitted market.
Surplus lines insurers are not “authorized” insurers as defined in the Florida Insurance Code,
36
which means they do not obtain a certificate of authority from the OIR to transact insurance in
Florida.
37
Rather, surplus lines insurers are “unauthorized” insurers,
38
but may transact surplus
lines insurance if they are made “eligible” by the OIR. To be made eligible to transact insurance,
a surplus lines insurer must meet the following requirements related to regulatory oversight in
other jurisdictions and solvency:
39
The surplus lines insurer is authorized in the state or country of its domicile as to the kind or
kinds of insurance proposed to be placed with the insurer.
o The insurer must have been an authorized insurer for at least the 3 preceding years. The
OIR may waive the 3-year requirement if the insurer provides a product or service not
readily available to Florida consumers or has operated successfully for a period of at least
1 year and has capital and surplus of not less than $25 million.
The surplus lines insurer or an agent requesting to export a policy to the surplus lines insurer
must provide the OIR with a duly authenticated copy of the surplus lines insurer’s current
31
Section 624.404(4)(b), F.S.
32
Section 634.241, F.S.
33
Section 634.326, F.S.
34
Section 634.429, F.S.
35
The admitted market is comprised of insurance companies licensed to transact insurance in Florida. The administration of
surplus lines insurance business is managed by the Florida Surplus Lines Service Office. S. 626.921, F.S.
36
Section 624.01, F.S., provides that the Florida Insurance Code is chapters 624-632, 634, 635, 636, 641, 642, 648, and 651,
F.S.
37
Section 624.09(1), F.S.
38
Section 624.09(2), F.S.
39
Section 626.918, F.S. BILL: CS/CS/SB 516 Page 6
annual financial statement, and also must provide any additional information regarding the
insurer that the OIR requests.
The surplus lines insurer must maintain a surplus as to policyholders of at least $15 million.
o Alien surplus lines insurers (insurers formed under laws other than those of Florida or
any state, district, territory, or commonwealth of the United States) must also maintain in
the United States a trust fund for the protection of policyholders deemed adequate by the
OIR of at least $5.4 million.
o A surplus lines insurer which is a member of an insurance holding company that includes
a member which is a Florida domestic insurer may elect to maintain surplus as to
policyholders in an amount equal to the requirements of s. 624.408, F.S., and must be in
compliance with ch. 625, F.S.
The insurer must be of good reputation as to the providing of service to its policyholders and
the payment of losses and claims.
The officers and directors of the insurer must be competent and trustworthy, meeting the
requirements of s. 624.404(3), F.S.
Policies issued by an impaired or insolvent surplus lines insurer are not covered by any of
Florida’s guaranty associations.
A.M. Best Credit Rating Agency
A.M. Best, founded in 1899, is a credit rating agency and is the largest credit rating agency in the
world specializing in the insurance industry. Headquartered in the United States, A.M. Best
assesses the creditworthiness of and/or reports on over 16,000 insurance companies worldwide.
The company
40
reports that its ratings are independent and summarize the insurance company’s
ability to pay claims, debts and other financial obligations in a timely manner.
41
A Best's Credit Rating (BCR) is given by A.M. Best and is based on its opinion regarding an
insurer's relative creditworthiness. According to A.M. Best:
The opinion represents a comprehensive analysis consisting of a quantitative and
qualitative evaluation of balance sheet strength, operating performance, and
business profile or, where appropriate, the specific nature and details of a
security… A BCR is developed considering relevant aspects of Best's Rating
Methodologies (BRMs).
42
A.M Best assigns each rated insurance company a Financial Strength Rating (FSR). The FSR is
an opinion of an insurer's financial strength and ability to meet its on-going insurance policy and
contract obligations.
43
The lowest FSR ranking is “D” (Poor) – the highest ranking is “A+”
(Superior).
44
A ranking of “A” (Excellent) is the second highest ranking.
40
A.M. Best is registered as a Nationally Recognized Statistical Rating Organization (NRSRO) by the Securities & Exchange
Commission and as a Credit Rating Provider by the National Association of Insurance Commissioners in the US. A.M. Best –
About Us, https://web.ambest.com/about/ (last accessed March 8, 2023).
41
Id.
42
A.M. Best – Guide to Best’s Credit Ratings - Summary, https://web.ambest.com/ratings-services/guide-to-best-s-credit-
ratings (last accessed March 8, 2023).
43
A.M. Best – Guide to Best’s Credit Ratings, p. 20, file:///C:/Users/thomas.tom/OneDrive%20-
%20Florida%20Senate/Documents/SB%20516/AM%20Best%20Ratings.pdf (last accessed March 8, 2023).
44
Id. BILL: CS/CS/SB 516 Page 7
A.M. Best assigns each rated insurance company a Financial Size Category (FSC). The FSC is
based on adjusted policyholders' surplus in U.S. dollars and is designed to provide an indicator of
the size of a company in terms of its statutory surplus and related accounts.
45
The FSC rankings
start at “I” for a company with a surplus of less than $1 million to a ranking of “XV” for a
company with a surplus of greater than $2 billion.
46
A ranking of “VIII” is for a company with a
surplus of $100,000 up to $250 million.
III. Effect of Proposed Changes:
The bill amends s. 324.021, F.S., to provide that risk retention groups that provide commercial
auto insurance coverage for vehicles used for “public and private construction and infrastructure
projects” must have an “A” or higher rating for financial strength and “VIII” or higher rating for
financial size from A.M. Best Company. The bill further provides that surplus lines insurers that
have an “A” or higher rating for financial strength and “VIII” or higher rating for financial size
from A.M. Best Company may provide commercial auto insurance coverage.
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.
45
A.M. Best – Financial Size Category, https://web.ambest.com/ratings-services/financial-size-category-(fsc) (last accessed
March 8, 2023).
46
Id. BILL: CS/CS/SB 516 Page 8
B. Private Sector Impact:
The bill may benefit members of risk retention groups who are able to buy their motor
vehicle policies through the group at a lower rate and operators of commercial vehicles
that are unable to obtain commercial vehicle coverage in the authorized market.
C. Government Sector Impact:
The bill has a negative, but likely insignificant, fiscal impact to the DHSMV. The
DHSMV will have to engage in structural testing to confirm successful file transfers with
any risk retention group that directly insures its members in Florida or with any surplus
lines insurer that provides automobile insurance coverage for commercial motor vehicles.
This is needed to ensure that HSMV receives timely insurance information about policies
that are issued or cancelled. This administrative cost would be absorbed within existing
resources.
VI. Technical Deficiencies:
None.
VII. Related Issues:
None.
VIII. Statutes Affected:
This bill substantially amends section 324.021 of the Florida Statutes.
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 Rules on April 24, 2023:
The committee substitute limits the application of the risk retention group portion of the
bill to those risk retention groups that provide coverage for vehicles used for “public and
private construction and infrastructure projects.”
CS by Banking and Insurance on March 22, 2023:
The committee substitute provides that a surplus lines insurer as defined in s. 626.914(2),
F.S., which is rated “A” or higher by A.M. Best Company may provide automobile
insurance coverage for commercial motor vehicles.
B. Amendments:
None.
This Senate Bill Analysis does not reflect the intent or official position of the bill’s introducer or the Florida Senate.