According to Louisiana Senate Bill 19, Louisiana Citizens Property Insurance Corporation would be required to get approval from the state House and Senate committees before rate increases of more than 25% could go into effect.  The bill, sponsored by Sen. Bret Allain, was introduced in the Senate due to large rate increases many Citizens policyholders saw in certain territories last year.  The bill would allow lawmakers the opportunity to analyze and consult experts on the necessity of rate increases proposed by Citizens before any large rate increases were implemented.

Currently, Citizens is required by law to have rates that exceed by at least 10% the higher of:

• The market rate in each parish.
• The actuarially justified rate in each parish.

Citizens performs a rate study annually that analyzes the current market rates in each parish and analyzes the actuarially indicated rates in each territory.  Rate increases proposed and approved are based on either the market rate or the actuarial indicated rate.  The result in the past has left some policyholders with large rate increases that they feel they cannot handle.  If LA SB 19 is passed, lawmakers would be given the opportunity to approve any rate increases greater than 25% and possibly implement the rate increases over a period of two to five years. 

The Bill has passed in the Senate with 36 yeas and 0 nays, and has moved to the House for consideration.

What do you think the effect of this bill would be on Citizens rates?  Would it result in lower rate increases year over year and provide relief to policyholders?  Could it hurt Citizens’ goal of being the “Insurer of Last Resort” if it results in blocking rate increases that keep Citizens rates higher than the market?  Is it a good idea to put approval of large rate increases in the hands of lawmakers rather than continuing with the current laws governing Citizens’ rating?

The US Department of Health & Human Services has recently clarified the employer requirements with respect to offering group medical coverage in 2014.  While a $2,000 per employee penalty (all employees less 30) still applies for employers with at least 50 FTE’s who do not offer any type of group medical coverage, employers have some potential to avoid the full impact of this penalty as long as they offer some type of group medical coverage…even if the plan offered has an actuarial value less than 60%.

In the event an employer offers a group medical plan with an actuarial value that is less than 60%, the applicable penalty is the lesser of:

• $3,000 for every employee who receives subsidized insurance coverage at a state exchange.
• $2,000 for every employee (less 30). 

In some cases the “$3,000 per subsidized employee” will actually be the lower penalty.  This will tend to be the case for employer groups with lower earning employees who may choose to not purchase coverage in 2014.  See the helpful employer mandate chart published by CIGNA for more information.

Fortunately, there are a variety of modeling tools available to help employers assess the impact of PPACA.  Tell us about your business.  Will you offer group medical coverage?  Do you understand the impact PPACA will have on your organization?  Have you used a PPACA modeling tool?  Let us know.

The Florida House and Senate will soon consider bills to enact portions of the NAIC Model Holding Company Act: Senate Bill 836 (SB836) and House Bill 821 (HB821).  Both bills contain almost identical language and provide the Office of Insurance Regulation (OIR) with new tools in monitoring the solvency of insurers and performing financial examinations of these entities.  

One of the main tools being added is that the OIR would be able to examine any insurer and its affiliates to ascertain the financial condition of the insurer.  This authority also allows the OIR to examine the enterprise risk of a group of affiliated companies or an insurance holding company and how that risk might affect the financial condition of the insurer.

The bills also include additional calculations and tests, for both property & casualty and life & health, to determine a company action level event, as well as revisions to the provisions for companies at the mandatory control level. They also change annual statement requirements by necessitating the actuarial opinion summary (AOS) be included in the annual statement (624.424(1)(a)2, F.S.).

Some specifics relevant to the P&C industry are:

• Establishes a new additional trigger for a company action level event, as follows: (Three times the Authorized Control Level Risk-Based Capital) > (Total Adjusted Capital) >= (Company Action Level Risk-Based Capital) AND The “Trend Test” is triggered.
• After the mandatory control level is passed, the OIR now can forego taking action if the company MAY (not “will”) eliminate the control event within 90 days.
• The AOS must be completed in accordance with the NAIC P&C annual statement instructions.
• Every insurer must file an enterprise-risk report by April 1^st.  Exceptions may be granted by the OIR for domestic subsidiary insurers of compliant insurers or domestic insurers writing only in Florida with less than $300 million premium that can demonstrate that there’s no substantial regulatory or consumer benefit. Note that a waiver is valid for two years.
• Supervisory colleges may now be formed to assess a company under ss. 608.801 and 624.316.  The OIR can decide its powers and the company is billed for its expenses.

HB821 bill is set to take effect 10/1/2013 if it passes and SB836 is set to take effect on 1/15/2015.  The text of HB821 can be found here and the text of SB836 can be found here.

What effects would these law changes have on your insurance company and its interactions with the OIR?  What would be your most pressing questions for regulators if these changes are made?  What are the hurdles you might face if these changes are effective by the end of the year?  Let us know.

Compliance to regulatory bureau statistical reporting demands is often done as an afterthought or not addressed until the insurer is forced to do so in response to fines or assessments for timeliness or data quality issues from the Bureau or, worse yet, from the regulator.  There are a lot of good reasons why insurers have problems complying with stat reporting requirements in a timely or effective manner.  Here are four of them: 

• “It does nothing to drive new business.”
•  “We are saddled with a variety of legacy systems and different platforms making it difficult to capture and retain data in a format that can be reported accurately.” 
• “Our technology budgets are under pressure to keep up with changing products and maintaining ‘front end’ systems.” 
• “Statistical reporting is largely invisible and few of our personnel are aware of what it is and why it is required.” 

However, all insurers must collect data to issue policies and handle claims, as well as comply with regulatory requirements.  Insurers with the ability to quickly comply with bureau statistical reporting regulations have a competitive advantage.  These insurers tend to be compliant by design, and they proactively utilize their data to identify changing trends and business opportunities.  Careful design of front-end systems enables the efficient collection of the “right” data which reduces operational costs while enhancing the customer and agency experience.  It also builds-in the ability to quickly meet new demands created by ever changing business and regulatory environments. 

If you want to conquer the statistical reporting challenge, here are five things you should consider:

• Don’t limit your thinking to only bureau or regulatory requirements.  The same tools used to produce required statistical reporting can also produce vital strategic reports for use internally.
• Be mindful of statistical reporting requirements as existing data/claims systems are enhanced or new systems are implemented. 
• Consider all aspects of how data is to be utilized as “front end” administrative and claim systems are being developed or implemented to ensure “back end” requirements such as financial and statutory reporting requirements are addressed. 
• Develop data warehouses to consolidate experience from legacy systems regardless of their platform or formats to build a central repository for reporting needs.
• Work to ensure the data is accurately flowing through all systems and is mapped correctly to enable accurate reporting.

On March 25th, Florida State Senator Joe Negron filed SB 7132 dealing with motor vehicle registration fees and the elimination of a long-standing tax credit provided to insurance companies. The Appropriations Committee is currently scheduled to discuss the bill on March 28^th.  Under the bill, revenue lost from a reduction in vehicle registration fees would be offset by the elimination of tax credit.  Sen. Negron estimated the elimination of the tax credit could generate $220 million of additional revenue that could then be used to offset the revenue lost by reducing vehicle registration fees. 

The bill seeks lower vehicle registration fees that were just increased in 2009. Specifically, the bill looks to, among other things, lower the fee for issuance of an original licenses plate from $5 to $2.50, lower the service charge for issuance of license plate validation sticker from $3 to $1, and lower the surcharge of license tax from $4 to $2.  To give some context to the amount of savings for individuals, the estimated savings of $220 million would be spread out over the roughly 18 million registered vehicles in Florida^1, amounting to around $12 per vehicle.

On the other hand, the bill looks to remove the allowance for an insurer to take credit against their premium tax for up to 15% of the salaries of non-licensed employees located in the state of Florida. This tax credit has been in place since 1987, and it acts as an incentive for the state to attract more jobs in the insurance sector. It also provides for carriers who employ more Floridians to enjoy a cost advantage over those who employ fewer.

While lowering front end fees on all individuals who operate a licensed vehicle, the bill puts additional hindrances on the domestic insurance market. These domestic carriers have made significant financial commitments to Florida, and have dedicated management teams, operations, and facilities in the state that employ Floridians. If this tax credit is removed, these carriers will be faced with increased costs that will hamper their competitive positions against carriers who do not employee Floridians.

Any insurance carrier operating in the state who employees Floridians will be affected. The domestic carriers, who tend to have a large percentage of their employees within the state, will be most affected. These include domestic carriers who write automobile, commercial insurance, workers compensation, medical malpractice, etc.  Ultimately, these costs will be passed back down to Floridians in the form of higher insurance rates. What may not be understood by some is how many Floridians are dependent on insurance from domestic carriers. To provide some insight, around 40% of households in Florida receive property insurance from a domestic private insurance company. When all lines of business are considered, this percentage is sure to grow and the pool of people receiving benefits becomes more and more aligned with those paying the costs. Is this proposal just robbing Peter to pay Paul?

What are your thoughts on this bill? How would this proposal affect your business and tax burdens?

Credit insurance is not as well-known or well-understood as Auto or Homeowners insurance, even though the typical consumer will be bombarded with credit insurance offers every time they purchase a car, open a new credit card, purchase a home, or participate in many other financial transactions.  Unlike Auto property or Homeowners property, these coverages do not pay to repair the property.  Instead, they are related more to the amount you owe rather than the value of the property.

Guaranteed Auto/Asset Protection (GAP) Insurance — GAP insurance covers the “gap” between what your regular insurance will pay and what you actually owe on a vehicle.  As an extreme example, you go to the Ferrari dealer and finance the purchase of a brand new 458 Italia Coupe for about $240,000.  You call your insurance agent after the purchase and get a standard auto policy for this vehicle.  A month later you total the vehicle.  Because the 458 is only actually worth about $210,000 (because of depreciation) you are out $30,000.  Even though the vehicle is no longer operable, you still owe the bank the $30,000.  If you have GAP coverage on this vehicle, the GAP insurance pays the $30,000 to the bank and you are in the clear to purchase a new Ferrari!

Involuntary Unemployment Insurance (IUI) – Every time I call my credit card company, regardless of the reason, I have to hear them pitch the purchase of insurance that will pay my bills if I lose my job.  In light of the recent recession, this coverage made more sense as the national unemployment rates increased and maintained higher than normal levels.  There are a wide variety of coverages and many options available for IUI – some that provide coverage in the event of a strike or lockout, some make payments for only a couple of months and some make payments for up to a year.   Upon experiencing an involuntary unemployment event, IUI will make your minimum payments to your lender and by doing so can help protect your credit rating and alleviate some of the burden of being without a job.

Mortgage Credit Insurance (MCI) – MCI should not be confused with Mortgage Insurance (PMI), which is intended to make payments to the lender in the event of a borrower default.  Unlike GAP or IUI, MCI is considered a credit life type of insurance.  This is because the coverage is intended to provide a benefit should you experience a serious disability, injury, or death.  In the event of a triggering event, the benefit makes payments to the lender on behalf of the insured.

There are many other types of credit insurance products that provide coverage for many types of loans, life events, and collateral.  In common among the majority of credit-related insurances is that the lender (not insurer), is typically the direct marketer of the insurance product.  In addition, in most instances, the purchase of these policies cannot be a determining factor in whether or not the bank will give you a loan.  It is important that the consumer understand the coverages that they will be presented with and possibly purchase.  In some instances, such as when the consumer has an amount of savings sufficient to cover the losses that the credit coverage is intended to provide, it may not make sense to purchase the credit coverage.  In other instances, there may be insurance alternatives that make more sense to purchase.