Last week we discussed reactions to Biggert-Waters (BW-12), most specifically the effects of the federal Homeowner Flood Insurance Affordability Act (HFIAA), which was passed in March. This week we’re taking a look at how Florida reacted to BW-12, and what HFIAA might mean for them.
After BW-12 came into effect and Floridians started getting massive increases in their flood insurance premiums, the Florida government started moving to allow the sale of flood insurance by the private market. After all, if NFIP were going to be offering actuarially sound rates, then there was the opportunity for competition from the private sector. So, the Florida Office of Insurance Regulation (OIR) issued bulletin OIR-13-03M so that companies could begin to move into the flood market. According to the bulletin:
- Flood Insurance can be offered as either:
- A stand-alone, allied lines policy
- An endorsement on an existing property policy, or
- It can be incorporated into an existing policy as a covered peril
- Requirements for a company wishing to issue flood insurance policies under this bulletin are a plan of operations, the relevant Certificate of Authority, the appropriate forms, and rates made from one of three approvable methods. Those methods are:
- Use NFIP experience from 1978-2012 to derive rates
- Use competitive analysis, or
- Use surplus lines data or flood models
The flood insurance program produced by the bulletin’s process need only be filed with the OIR for informational purposes. The company does have to keep support for the program and its rates on hand for two years, though, in case of an exam.
Meanwhile, lawmakers were piecing together Senate Bill 542 (SB 542), a bill devoted to establishing a private flood insurance market in Florida. Details of the bill are:
- The OIR is established as reviewing projected flood losses, but only on personal residential properties.
- Unlike the rule for hurricane models, the projected flood losses may be a straight average of model results or output ranges. Like the hurricane model rule, all models must be reviewed by the Florida Commission on Hurricane Loss Projection Methodology (FCHLPM), separately from any associated hurricane models.
- “Flood” is defined as an overflow, flash flood, mudflow, or land collapse/sinking along a shore.
- “Flood Insurance” is defined as insurance covering any structure or contents in personal lines, not commercial lines.
- There are four kinds of flood insurance allowed:
- Standard insurance is a policy whose coverages are equivalent to those offered under NFIP
- Preferred insurance covers everything under an NFIP policy, plus other water intrusions from outside the structure, additional living expenses, and replacement cost on contents
- Customized insurance is loosely defined as “broader than…standard”
- Supplemental insurance cannot be excess coverage, but otherwise supplements a standard or preferred policy for things like valuables, deductibles, or additional living expenses.
- Notably, the bill specifically disallows Florida’s Citizens Property Insurance Corporation from providing flood coverage.
- It also disallows the Florida Hurricane Catastrophe Fund from providing reimbursement for flood losses, even those caused by flood during a hurricane.
- The bill also sets up some deadlines and effective dates. Upon getting signed into law, the bill will take effect, except for the FCHLPM’s new rules on models (i.e., the methods, models, principles, standards, and output ranges). Those will need to be adopted by the FCHLPM by 7/1/2017.
This creates a gap, though, because companies won’t have anything with which to comply when making filings before 7/1/2017. Therefore, until 10/1/2019, flood filings will essentially be informational filings.
Right now the bill has passed both houses, but is stalled out on the Governor’s desk, awaiting his signature to become law. However, with HFIAA having taken effect during this bill’s lifetime, the need for SB 542 has waned and the public outcry that fueled its progress through the legislative process has fizzled. Without the public push, one has to wonder if there is any reason at all for Governor Scott to sign it into law, especially since it mandates more work for OIR. What odds do you give this former wonder-bill?