Insurers appear split over a Florida state House bill that gives the Florida Insurance Guaranty Association new options to collect assessments.
The bill, sponsored by Republican Rep. Jake Raburn, cleared the House insurance and banking subcommittee unanimously and awaits action by the government operations subcommittee. FIGA is the guaranty association for property/casualty insurers in Florida. FIGA takes over the claims of insolvent insurers and pays policyholder claims.
FIGA generates its funding by liquidating insolvent insurers and collecting assessments. The bill expands FIGAs options for collecting both regular and emergency assessments, with much of the debate over the bill occurring on the latter.
Emergency assessments occur in case of an insurers insolvency resulting from a hurricane or other disaster. The bill gives FIGA the option in both the regular and emergency arenas to create a pass-through by collecting assessments directly from policyholders. Currently, FIGA can certify emergency assessments on insurers writing lines of business in the account impacted by an insolvency up to 2% of an insurers net direct premium, payable 30 days after the date of the order. FIGA can allow an insurer to make the payment in installments over one year, but the 30-day payment is the default. FIGA has authority to issue bonds if it must fund accounts arising from insolvency caused by a hurricane. But the bill would require FIGA to certify the need for an assessment and for the state Office of Insurance Regulation to order a levy of assessment directly on insureds no earlier than 90 days from the date of the order.
In the case of emergency assessments, the bill says that while FIGA can still collect up front from insurers, it can only recover claims from policyholders in instances where it must immediately pay claims and cannot either borrow or issue bonds to raise funds. As in the case of regular assessments, the bill allows FIGA to levy emergency P/C assessments directly against policyholders, the House analysis said.
Among those objecting to the changes to the emergency assessment is the Personal Insurance Federation of Florida, said Executive Director Michael Carlson. PIFF represents companies in personal insurance lines and the property/casualty trade such as State Farm, Allstate Insurance and the Progressive Group. Carlson and PIFF argue that the provisions are more costly and take more time to process.
The bill does not allow FIGA to use the current process of levying an emergency assessment on insurers to be paid in 30 days, unless it determines that it must pay the claims and that financing is not reasonably available, a provision a PIFF summary of the bill said is not defined. The latter provision is seen by PIFF as requiring FIGA to borrow money. You will delay the process by which FIGA will be able to assess on one hand, and increase the cost of the assessment because of [FIGA] basically having to borrow, Carlson said. FIGA conducted an analysis that shows the borrowing costs applied to a single 2006 insolvency would be $24 million, which would raise the total assessment.
The intent of the bill is to help FIGA pay claims, Raburn said in a statement. FIGA currently can charge against an insurers surplus immediately. Allowing FIGA to collect from policyholders would wipe out the usual impact on insurer net worth resulting from up-front payments and help them play claims. The impact of the bill is to allow solvent insurance companies to keep more surplus and allowing them to pay claims to customers in a timely fashion, Raburn wrote. The bill also differs from the current setup by having policyholders pay the same assessment instead of having each company's share of assessments be determined by the prior years market share.
Florida Insurance Council members have taken a neutral stance on the bill, because members are divided, said Executive Vice President Sam Miller. The division is over the emergency assessment issue, as some members are concerned about possible rate hikes resulting from additional borrowing costs in instances where FIGA issues bonds to cover insolvent insurers claims instead of going through the assessment process.
Raburn said only two insurance companies have raised concerns about the bill and that he is working to see if they can be accommodated while preserving the bills integrity, he said in a written statement to Bests News Service. I believe the chances are great that this bill will move forward in the process, Raburn wrote. There likely will be some changes in the bill as we move forward. We are working on language that clarifies OIR and FIGAs authority to regulate policyholders, ensuring that they have the ability to collect assessments directly from policyholders.