Florida Enacts Bill Imposing Regulatory Oversight Relating to Insurer Accountability

On May 31, Gov. DeSantis signed a new law that enacts several wide-ranging regulatory requirements on insurers transacting business in Florida. The regulatory changes instituted by the new Insurer Accountability Act, which takes effect July 1, include amendments to Florida’s deceptive and unfair trade practices statute, increased fines, the imposition of potential criminal penalties, new requirements for residential property insurers, and the authorization of new oversight powers for the Office of Insurance Regulation and the Department of Financial Services.

Amendments to the Unfair Methods of Competition and Unfair or Deceptive Acts Statute

The bill provides that an insurer engages in an unfair claim settlement practice where it alters or amends an insurance adjuster’s report without:

• Providing a detailed explanation as to why any change that has the effect of reducing the estimate of loss was made; and
• Including on the report or as an addendum to the report a detailed list of all changes made to the report and the identity of the person who ordered each change; or
• Retaining all versions of the report, and including within each such version, for each change made within such version of the report, the identity of each person who made or ordered such change.

The bill also prohibits a director or an officer of an impaired insurer from receiving a bonus from an impaired or insolvent insurer, regardless of whether delinquency proceedings have begun, nor may such directors or officers receive a bonus from a holding company or an affiliate that shares common ownership or control with the insurer.

The bill defines a “bonus” for purposes of the above as “a payment, in addition to an officer’s or a director’s usual compensation, which is in addition to any amounts contracted for or otherwise legally due.”

Receipt of a bonus by an officer or director in violation of the above provisions is a third-degree felony.

Authorization to Refer Potential Criminal Violations

Section 624.115 is created to provide that the OIR will refer any potential criminal violation that it learns of during an investigation or an examination to the appropriate enforcement agency.

Increased Fines

The bill increases the fines the Division of Consumer Services may levy on entities and individuals licensed by the Department of Financial Services or the OIR for failure to timely respond to requests for documents or information from the division regarding a consumer complaint. Potential fines levied upon entities are increased from $2,500 per violation to $5,000 per violation. Potential fines levied upon individuals are now capped at $1,000 per violation, whereas the law formerly provided for a $250 fine for the first violation, $500 for the second violation, and up to $1,000 for all successive violations.

The bill also reduces the time within which a response must be provided from 20 days after receipt of the written request to 14 days after receipt. Lastly, the bill authorizes the entity or individual to provide its response electronically or in writing, rather than in writing only.

The bill also amends section 624.4211, relating to administrative fines imposed in lieu of suspension or revocation. The bill authorizes the ORI to impose fines for nonwillful violations that do not exceed:

• $25,000 per violation, up to an aggregate amount of $100,000, for all nonwillful violations arising out of the same action, related to a covered loss or claim caused by an emergency covered by a governor’s declaration of a state of emergency; or
• $12,500 per violation, up to an aggregate amount of $50,000, for all other nonwillful violations arising out of the same action.

The bill also authorizes the OIR to impose the following fines for knowing and willful violations of a lawful order or rule of the OIR or Financial Services Commission, or a provision of Florida’s insurance code:

• $200,000 for each such violation, up to an aggregate amount of $1 million, for all knowing and willful violations arising out of the same action, related to a covered loss or claim caused by an emergency covered by a governor’s declaration of a state of emergency; or
• $100,000 for each such violation, up to an aggregate amount of $500,000, for all other knowing and willful violations arising out of the same action.

The bill also amends section 626.9521, related to unfair methods of competition and unfair or deceptive acts or practices, to increase the limit on a number of potential fines for violations.

New Quarterly and Annual Insurance Regulatory Action Reports

The bill requires the OIR to annually post on or before January 31 a report on its website detailing all actions taken by the office to enforce insurer compliance with Florida’s insurance code, regulations, and orders of the OIR or Department of Financial Services during the previous year. The report must detail the insurer, licensee, or registrant against whom an enforcement action was taken, specify the violation, and provide the resolution of the enforcement action, including any penalties imposed by the OIR. The report must include:

• The revocation, denial, or suspension of any license or registration issued by the OIR;
• All actions taken pursuant to section 624.310 (providing enforcement authority to the OIR and the Department of Financial Services);
• Fines imposed by the OIR for violations of Florida’s insurance code;
• Consent orders entered into by the OIR;
• Examinations and investigations conducted and completed by the OIR pursuant to sections 624.316 and 624.3161 (providing for examinations generally and for market conduct examinations, respectively); and
• Investigations conducted and completed, by line of insurance, for which the OIR found violations of law or rule but did not take enforcement action.

The bill also requires the OIR to create a report providing all of the same information listed above on a quarterly basis. The quarterly report must be submitted to the Financial Services Commission, the president of the Florida Senate, the speaker of the Florida House of Representatives, and the legislative committees with jurisdiction over matters of insurance, but it is not required to be posted to the OIR’s website.

The bill provides that the OIR need not include within the report any information that would violate a confidentiality provision included within any agreement, order, or consent order entered into or adopted by the office.

Institution of Required Insurer Examination Schedule

The bill requires the OIR to examine “high-risk” insurers at least once every three years and “average” and “low-risk” insurers at least once every five years. The examination is required to cover the number of fiscal years since the last examination of the insurer, except for investigations of low-risk insurers, in which case the examination need only cover at least the preceding five fiscal years. The bill clarifies, however, that the above provides the minimum requirements, and the OIR may examine any insurer as often as it deems advisable.

The bill requires the office to create, and the Financial Services Commission to adopt by rule, a risk-based selection methodology for scheduling examinations of insurers. The methodology must include all of the following:

• Use of a risk-focused analysis to prioritize financial examinations of insurers when such reporting indicates a decline in the insurer’s financial condition;
• Consideration of:
  • The level of capitalization and identification of unfavorable trends;
  • Negative trends in profitability or cash flow from operations;
  • National Association of Insurance Commissioners (NAIC) Insurance Regulatory Information System ratio results;
  • Risk-based capital and risk-based capital trend test results;
  • The structure and complexity of the insurer;
  • Changes in the insurer’s officers or board of directors;
  • Changes in the insurer’s business strategy or operations;
  • Findings and recommendations from an examination made pursuant to section 624.316 or section 624.3161;
  • Current or pending regulatory actions by the OIR or the Department of Financial Services;
  • Information obtained from other regulatory agencies or independent organization ratings and reports; and
  • The impact of an insurer’s insolvency on policyholders of the insurer and the public generally;
• Prioritization of property insurers for which the OIR identifies significant concerns about the insurer’s solvency pursuant to section 627.7154; and
• Any other matters the OIR deems necessary to consider for the protection of the public.

The OIR must present any proposed rules to implement the above requirements to the Financial Services Commission no later than October 1, 2023. The bill authorizes the commission to adopt by rule the NAIC Financial Analysis Handbook to facilitate the development of the above-described methodology, to the extent the handbook is consistent with and does not negate the requirements of the bill.

Market Conduct Examinations of Residential Property Insurers

The bill provides that residential property insurers:

• May be subject to an additional market conduct examination if, at any time more than 90 days after the end of a hurricane, the insurer is among the top 20% of insurers based on the ratio of hurricane-related property insurance claims filed to the number of property insurance policies in force; and
• Must be subject to a market conduct examination after a hurricane if, at any time more than 90 days after the end of the hurricane, the insurer:
  • Is among the top 20% of insurers based on the ratio of hurricane claim-related consumer complaints made about the insurer to the Department of Financial Services compared to the insurer’s total number of hurricane-related claims;
  • Is among the top 20% of insurers based upon the ratio of hurricane claims closed without payment compared to the insurer’s total number of hurricane claims on policies providing wind or windstorm coverage;
  • Has made significant payments to its managing general agent since the hurricane; or
  • Is identified by the OIR as necessitating a market conduct exam for any other reason.

The bill clarifies that it does not require the OIR to conduct multiple market conduct examinations of the same insurer when multiple hurricanes make landfall in Florida in a single calendar year.

The bill requires the OIR to create, and the Financial Services Commission to adopt by rule, a selection methodology for scheduling and conducting market conduct examinations of insurers and other entities regulated by the OIR. The bill clarifies that this requirement does not restrict the authority of the OIR to conduct market conduct examinations as often as it deems necessary.

The selection methodology must prioritize market conduct examinations of entities to whom any of the following conditions apply:

• An insurance regulator in another state has initiated or taken regulatory action against the insurer or entity regarding an act or omission of the insurer or entity which, if committed in Florida, would constitute a violation of the laws of Florida or any rule or order of the OIR or Department of Financial Services;
• Given the insurer’s market share in Florida, the OIR or Department of Financial Services has received a disproportionate number of the following types of claims-handling complaints against the insurer:
  • Failure to timely communicate with respect to claims;
  • Failure to timely pay claims;
  • Untimely payments giving rise to the payment of statutory interest;
  • Failure to adjust and pay claims in accordance with the terms and conditions of the policy or contract and in compliance with state law;
  • Violations of part IX of chapter 626, the Unfair Insurance Trade Practices Act;
  • Failure to use licensed and duly appointed claims adjusters;
  • Failure to maintain reasonable claims records; or
  • Failure to adhere to the company’s claims-handling manual;
• The results of an NAIC Market Conduct Annual Statement indicate that the insurer is a negative outlier with regard to particular metrics;
• There is evidence that the insurer is violating or has violated the Unfair Insurance Trade Practices Act;
• The insurer meets the requirements of subsection (7) (note: summarized above, within this same section); or
• Any other conditions the OIR deems necessary for the protection of the public.

The OIR must present the proposed rule establishing the selection methodology no later than October 1, 2023. The rule must also provide the criteria for how the office, in coordination with the Department of Financial Services, will determine what constitutes a disproportionate number of claims-handling complaints.

If the office determines through an examination that an insurer has exhibited a pattern or practice of violations of Florida’s insurance code, the office must review the insurer’s claims-handling practices to determine if the insurer should be subjected to the following enhanced enforcement penalties:

• A liability insurer may be subject to enhanced enforcement penalties if the OIR finds a pattern or practice of the insurer failing to do the following when responding to covered liability claims after receiving actual notice of the claims:
  • Assign a licensed and appointed insurance adjuster to investigate whether coverage is provided under the policy and diligently attempt to resolve any questions concerning the extent of the insured’s coverage;
  • Evaluate the claim fairly, honestly, and with due regard for the interest of the insured based on the available information;
  • Request from the insured or claimant additional relevant information the insurer reasonably deems necessary to evaluate whether to settle a claim;
  • Conduct all oral and written communications with the insured with honesty and candor;
  • Make reasonable efforts to explain to persons not represented by counsel matters requiring expertise beyond the level normally expected of a layperson with no training in insurance or claims-handling issues;
  • Retain all written and recorded communications and create and retain a summary of all verbal communications in a reasonable manner for a period of not less than two years after the later of the entry of a final judgment against the insured in excess of policy limits or, if an extracontractual claim is made, the conclusion of that claim and any related appeals;
  • Within 30 days after a request, provide the insured with all communications related to the insured’s handling of the claim which are not privileged as to the insured;
  • Provide, upon request and at the insurer’s expense, reasonable accommodations necessary to communicate effectively with an insured covered under the Americans with Disabilities Act;
  • When handling a third-party claim, communicate each of the following to the insured:
    • The identity of any other person or entity the insurer has reason to believe may be liable;
    • The insurer’s final and completed estimate of the claim;
    • The possibility of an excess judgment;
    • The insured’s right to secure personal counsel at his or her own expense;
    • That the insured should cooperate with the insurer, including providing information required by the insurer because of a settlement opportunity or in accordance with the policy;
    • Any formal settlement demands or offers to settle by the claimant and any offers to settle on behalf of the insured;
  • Respond to any request for insurance information in compliance with sections 626.9372 or 627.4137, as applicable;
  • Seek to obtain a general release of each insured in making any settlement offer to a third-party claimant;
  • Take reasonable measures to preserve any documentary, photographic, and forensic evidence as needed for the defense of the liability claim if it appears likely that the insured’s liability exposure is greater than policy limits and the insurer fails to secure a general release in favor of the insured;
  • Comply with the provisions of section 624.3161(1) or (2), Florida Statutes, relating to market conduct examinations; or
  • Comply with the Unfair Insurance Trade Practices Act.

The bill provides further that, in conducting the review of the insurer’s claims-handling practices, it is relevant whether the insured, claimant, and any representative of same acted “reasonably” toward the insurer in furnishing information regarding the claim. The bill specifies certain matters that will be considered by the OIR in considering the impact of the insured’s, claimant’s, and representative’s interactions with the insurer.

Enhanced enforcement penalties may include, but are not limited to, a 2.0 multiplier applied to administrative fines, as well as fines that exceed the limits on fine amounts and aggregate fine amounts provided under Florida’s insurance code.

The bill specifies that the above provisions (provided by the newly created section 624.3161(9)), do not create a civil cause of action, a civil remedy under section 624.155 (relating to bad faith claims), or an unfair trade practice under section 626.9541.

New Requirements Imposed on Insurers Temporarily Discontinuing the Writing of New Residential Property Insurance Policies

The bill requires any authorized insurer, before temporarily suspending writing new residential property insurance policies in Florida, to give notice to the OIR of the insurer’s reasons for doing so, the effective dates of the temporary suspension, and the proposed communication to its agents. The insurer must provide the notice on an OIR-approved form by the earlier of 20 business days before the effective date of the temporary suspension or five business days before notifying its agents of the temporary suspension. The insurer must also provide any additional information requested by the OIR related to the temporary suspension.

The notice requirements do not:

• Apply to a temporary suspension of writing new business in Florida made in response to:
  • A hurricane that may make landfall in Florida if the temporary suspension ceases within 72 hours after hurricane conditions are no longer present in Florida; or
  • Any other natural emergency as defined in section 252.34(8) which impacts one or more counties and is the subject of a declared state of emergency by any local, state, or federal authority, if the temporary suspension applies only to the affected counties and ceases within 72 hours after the natural emergency is no longer present in those counties;
• Require insurers to obtain the approval of the OIR before temporarily suspending writing new residential property insurance policies in Florida.

The bill authorizes the OIR to adopt rules related to the above notice requirements.

Creation of New “Hazardous Insurer Standards” and Related Evaluation and Enforcement Authority

The bill provides the following factors that the OIR may consider when determining whether the continued operation of any authorized insurer transacting business in Florida may be deemed hazardous to its policyholders, creditors, or the general public:

• Adverse findings reported in financial condition or market conduct examination reports, audit reports, or actuarial opinions, reports, or summaries;
• The NAIC Insurance Regulatory Information System and its other financial analysis solvency tools and reports;
• Whether the insurer has made adequate provisions, according to presently accepted actuarial standards of practice, for the anticipated cash flows required to cover its contractual obligations and related expenses;
• The ability of an assuming reinsurer to perform and whether the insurer’s reinsurance program provides sufficient protection for the insurer’s remaining surplus after taking into account the insurer’s cash flow and the lines of insurance written, as well as the financial condition of the assuming reinsurer;
• Whether the insurer’s operating loss in the last 12-month period, including, but not limited to, net capital gain or loss, change in nonadmitted assets, and cash dividends paid to shareholders is greater than 50% of the insurer’s remaining surplus as regards policyholders in excess of the minimum required;
• Whether the insurer’s operating loss in the last 12-month period, excluding net capital gains, is greater than 20% of the insurer’s remaining surplus as regards policyholders in excess of the minimum required;
• Whether a reinsurer, an obligor, or any entity within the insurer’s insurance holding company system is insolvent, threatened with insolvency, or delinquent in payment of its monetary or other obligations, and which in the opinion of the OIR may affect the solvency of the insurer;
• Contingent liabilities, pledges, or guaranties that individually or collectively involve a total amount that in the opinion of the OIR may affect the solvency of the insurer;
• Whether any affiliate of the insurer is delinquent in the transmitting to, or payment of, net premiums to the insurer;
• The age and collectability of receivables;
• Whether the management of the insurer, including officers, directors, or any other person who directly or indirectly controls the operation of the insurer, fails to possess and demonstrate the competence, fitness, and reputation deemed necessary to serve the insurer in such position;
• Whether management of the insurer has failed to respond to inquiries relative to the condition of the insurer or has furnished false or misleading information to the Office concerning an inquiry;
• Whether the insurer has failed to meet financial and holding company filing requirements in the absence of a reason satisfactory to the OIR;
• Whether management of the insurer has filed any false or misleading sworn financial statement, has released a false or misleading financial statement to lending institutions or to the general public, has made a false or misleading entry, or has omitted an entry of material amount in the books of the insurer;
• Whether the insurer has grown so rapidly and to such an extent that it lacks adequate financial and administrative capacity to meet its obligations in a timely manner;
• Whether the insurer has experienced, or will experience in the foreseeable future, cash flow or liquidity problems;
• Whether management has established reserves that do not comply with minimum standards established by state insurance laws and regulations, statutory accounting standards, sound actuarial principles, and standards of practice;
• Whether management persistently engages in material under-reserving that results in adverse development;
• Whether transactions among affiliates, subsidiaries, or controlling persons for which the insurer receives assets or capital gains, or both, do not provide sufficient value, liquidity, or diversity to assure the insurer’s ability to meet its outstanding obligations as they mature;
• The ratio of the annual premium volume to surplus or of its liabilities to surplus in relation to loss experience, the kinds of risks insured, or both;
• Whether the insurer’s asset portfolio, when viewed in light of current economic conditions and indications of financial or operational leverage, is of sufficient value, liquidity, or diversity to assure the company’s ability to meet its outstanding obligations as they mature;
• Whether the excess of surplus as regards policyholders above the insurer’s statutorily required surplus as regards policyholders has decreased by more than 50% in the preceding 12-month period;
• As to a residential property insurer, whether it has sufficient capital, surplus, and reinsurance to withstand significant weather events, including, but not limited to, hurricanes;
• Whether the insurer’s required surplus, capital, or capital stock is impaired to an extent prohibited by law;
• Whether the insurer continues to write new business when it has not maintained the required surplus or capital;
• Whether the insurer moves to dissolve or liquidate without first having made provisions satisfactory to the OIR for liabilities arising from insurance policies issued by the insurer;
• Whether the insurer has incurred substantial new debt, has had to rely on frequent or substantial capital infusions, or has a highly leveraged balance sheet;
• Whether the insurer relies increasingly on other entities, including, but not limited to, affiliates, third-party administrators, managing general agents, or management companies;
• Whether the insurer meets one or more of the grounds in section 631.051 for the appointment of the Department of Financial Services as receiver; or
• Any other finding determined by the OIR to be hazardous to the insurer’s policyholders or creditors or to the general public.

For purposes of determining the insurer’s financial condition, the OIR may:

• Disregard any credit or amount receivable resulting from transactions with a reinsurer that is insolvent, impaired, or otherwise subject to a delinquency proceeding;
• Make appropriate adjustments, including disallowance to asset values attributable to investments in or transactions with parents, subsidiaries, or affiliates, consistent with the NAIC Accounting Practices and Procedures Manual and state laws and rules;
• Refuse to recognize the stated value of accounts receivable if the ability to collect receivables is highly speculative in view of the age of the account or the financial condition of the debtor; or
• Increase the insurer’s liability, in an amount equal to any contingent liability, pledge, or guarantee not otherwise included, if there is a substantial risk that the insurer will be called upon to meet the obligation undertaken within the next 12-month period.

If the OIR determines that the continued operation of an insurer may be hazardous to its policyholders or creditors or the general public, it may issue an order requiring the insurer to do any of the following:

• Reduce the total amount of present and potential liability for policy benefits by procuring additional reinsurance;
• Reduce, suspend, or limit the volume of business being accepted or renewed;
• Reduce expenses by specified methods or amounts;
• Increase the insurer’s capital and surplus;
• Suspend or limit the declaration and payment of dividends by an insurer to its stockholders or to its policyholders;
• File reports in a form acceptable to the OIR concerning the market value of the insurer’s assets;
• Limit or withdraw from certain investments or discontinue certain investment practices to the extent the OIR deems necessary;
• Document the adequacy of premium rates in relation to the risks insured;
• File, in addition to regular annual statements, interim financial reports on a form prescribed by the Financial Services Commission and adopted by the NAIC;
• Correct corporate governance practice deficiencies and adopt and use governance practices acceptable to the OIR;
• Provide a business plan acceptable to the OIR in order to continue to transact business in Florida; or
• Adjust rates for any non-life insurance product written by the insurer which the OIR considers necessary to improve the financial condition of the insurer, notwithstanding any other law limiting the frequency or amount of rate adjustments.

The bill authorizes the OIR to issue an immediate final order to any insurer requiring any of the above actions. Lastly, the bill requires the Financial Services Commission to adopt rules to administer the above requirements, among others.

New Grounds for Disqualification of Insurance Agent or Agency License Applicants and Current Licensees

The bill provides that an applicant or current licensee who has been found guilty or pleaded guilty or nolo contendere to a misdemeanor directly related to any violation of Florida’s insurance code is disqualified from licensure for a period of seven years.

Required Publication of Information Regarding Available Hurricane Mitigation Discounts

The bill requires insurers issuing residential property insurance policies in Florida to post on their websites, by October 1, 2023, information describing the hurricane mitigation discounts available to policyholders. The information must be accessible on, or through a hyperlink located on, the homepage of the insurer’s website or the primary page of the insurer’s website for property insurance policyholders or applicants for coverage.

On or before January 1, 2025, and every five years thereafter, the OIR must reevaluate and update the fixtures or construction techniques demonstrated to reduce the amount of loss in a windstorm and the discounts, credits, other rate differentials, and appropriate reductions in deductibles that reflect the full actuarial value of such fixtures or construction techniques. The OIR must adopt rules and forms necessitated by the reevaluation.

Submission of Claims-Handling Manuals to the State by Residential Property Insurers

The bill requires each authorized residential property insurer conducting business in Florida to create and use a claims-handling manual that provides guidelines and procedures that comply with the requirements of Florida’s insurance code and that, at a minimum, comports to usual and customary industry claims-handling practices. The manual must include guidelines and procedures for:

• Initially receiving and acknowledging initial receipt of the claim and reviewing and evaluating the claim;
• Communicating with policyholders, beginning with the receipt of the claim and continuing until closure of the claim;
• Setting the claim reserve;
• Investigating the claim, including conducting inspections of the property that is the subject of the claim;
• Making preliminary estimates and estimates of the covered damages to the insured property and communicating such estimates to the policyholder;
• The payment, partial payment, or denial of the claim and communicating such claim decision to the policyholder;
• Closing claims; and
• Any aspect of the claims-handling process which the OIR determines should be included in the claims-handling manual in order to:
  • Comply with the laws of Florida or rules or orders of the OIR or Department of Financial Services;
  • Ensure that the claims-handling manual, at a minimum, comports with usual and customary industry claims-handling guidelines; or
  • Protect policyholders of the insurer or the general public.

The bill authorizes the OIR to request a residential property insurer to submit a physical or electronic copy of its currently applicable claims-handling manual. Insurers must submit the manual within five days of such a request, along with an attestation as to its accuracy and the timeframe for which the manual was in effect. In addition, each residential property insurer must annually submit, on a form prescribed by the Financial Services Commission, a certification that the insurer’s manual complies with the above requirements and that the insurer maintains adequate resources to implement the claims-handling manual’s procedures at all times, explicitly including during natural disasters and catastrophic events. The annual certification must be submitted to the OIR on or before August 1, 2023, and on or before May 1 of every calendar year thereafter.

Limitation on Deductibles

If an insured has been required to pay a roof deductible, then the bill prohibits the application of any other deductible to the loss or to any other loss to the property caused by the same covered peril.

Required Projections Included in New Residential Property and Motor Vehicle Insurance Rate Filings

The bill requires every residential property insurer and motor vehicle insurer to include within every rate filing made on or after July 1, 2023, a projection of savings or reduction in claim frequency, claim severity, and loss adjustment expenses, including attorney fees, payment of attorney fees to claimants, and any other reduction actuarially indicated, due to the combined effect of the applicable provisions of chapters 2021-77, 2022-268, 2022-271, and 2023-15, Laws of Florida.