The Florida Senate

627.7013  Orderly markets for personal lines residential property insurance.--

(1)  FINDINGS AND PURPOSE.--

(a)  The Legislature finds that personal lines residential property insurers, as a condition of doing business in this state, have a responsibility to contribute to an orderly market for personal lines residential property insurance and that there is a compelling state interest in maintaining an orderly market for personal lines residential property insurance. The Legislature further finds that Hurricane Andrew, which caused over $15 billion of insured losses in South Florida, has reinforced the need of consumers to have reliable homeowner's insurance coverage; however, the enormous monetary impact to insurers of Hurricane Andrew claims has prompted insurers to propose substantial cancellation or nonrenewal of their homeowner's insurance policyholders. The Legislature further finds that the massive cancellations and nonrenewals announced, proposed, or contemplated by certain insurers constitute a significant danger to the public health, safety, and welfare, and destabilize the insurance market. In furtherance of the overwhelming public necessity for an orderly market for property insurance, the Legislature, in chapter 93-401, Laws of Florida, imposed, for a limited time, a moratorium on cancellation or nonrenewal of personal lines residential property insurance policies. The Legislature further finds that upon expiration of the moratorium, additional actions are required to maintain an orderly market for personal lines residential property insurance in this state. The purposes of this section are to provide for a phaseout of the moratorium and to require advance planning and approval for programs of exposure reduction.

(b)  The Legislature finds, as of the beginning of the 1996 Regular Session of the Legislature, that:

1.  The conditions described in paragraph (a) remain applicable to the property insurance market in this state in 1996 and are likely to remain applicable for several years thereafter.

2.  The Residential Property and Casualty Joint Underwriting Association, a residual market mechanism created to alleviate temporary unavailability of property insurance coverage, remains the primary or exclusive source of new property insurance coverage in significant portions of the state.

3.  Recent enactments intended to restore a competitive, private sector property insurance market, including creation and enhancement of the Florida Hurricane Catastrophe Fund, incentives for depopulation of the Residential Property and Casualty Joint Underwriting Association, incentives for hurricane loss mitigation and prevention, creation of the Florida Commission on Hurricane Loss Projection Methodology, and revisions of laws relating to rates and coverages, are beginning to have their intended effects; however, the market instability that persists could frustrate these efforts to restore the market.

4.  The moratorium completion provided in this section is the least intrusive method for maintaining an orderly market, insofar as it applies only to hurricane-related cancellations and nonrenewals of personal lines residential policies that were in force on the effective date, and insofar as it allows an insurer annually to nonrenew up to 5 percent of the total number of such policies as of the effective date.

(c)  The Legislature finds, as of January 1, 1998, that:

1.  The conditions described in paragraphs (a) and (b) remain applicable to the property insurance market in this state in 1998 and are likely to remain applicable for several years thereafter.

2.  The general instability of the market is reflected by the following facts:

a.  In spite of depopulation efforts under which approximately 600,000 policies have been transferred from the Residential Property and Casualty Joint Underwriting Association to the voluntary market, the joint underwriting association, with approximately 500,000 policies in force, remains the primary or exclusive source of new property insurance coverage in significant portions of the state.

b.  The Florida Windstorm Underwriting Association is growing rapidly, with more than 400,000 policies in force, approximately half of which were initially issued in 1997.

3.  A further extension of the operation of this section until June 1, 2001, will provide an opportunity for the market to stabilize and for continuation of residual market depopulation efforts.

(2)  MORATORIUM COMPLETION.--

(a)  As used in this subsection, the term "total number of policies" means the number of an insurer's policies of a specified type that were in force on June 1, 1996, or the date on which this section became law, whichever was later.

(b)  The following restrictions apply only to cancellation or nonrenewal of personal lines residential property insurance policies that were in force on June 1, 1996, or the date on which this section became law, whichever was later.

1.  In any 12-month period, an insurer may not cancel or nonrenew more than 5 percent of such insurer's total number of homeowner's policies, 5 percent of such insurer's total number of mobile home owner's policies, or 5 percent of such insurer's total number of personal lines residential policies of all types and classes in the state for the purpose of reducing the insurer's exposure to hurricane claims and may not, with respect to any county, cancel or nonrenew more than 10 percent of its total number of homeowner's policies, 10 percent of its total number of mobile home owner's policies, or 10 percent of its total number of personal lines residential policies of all types and classes in the county for the purpose of reducing the insurer's exposure to hurricane claims. This subparagraph does not prohibit any cancellations or nonrenewals of such policies for any other lawful reason unrelated to the risk of loss from hurricane exposure.

2.a.  If, for any 12-month period, an insurer proposes to cancel or nonrenew personal lines residential policies to an extent not authorized by subparagraph 1. for the purpose of reducing exposure to hurricane claims, the insurer must file a phaseout plan with the department at least 90 days prior to the effective date of the plan. In the plan, the insurer must demonstrate to the department that the insurer is protecting market stability and the interests of its policyholders. The plan may not be implemented unless it is approved by the department. In developing the plan, the insurer must consider policyholder longevity, the use of voluntary incentives to accomplish the reduction, and geographic distribution. The insurer must demonstrate that under the plan the insurer will not cancel or nonrenew more policies in the 12-month period than the largest number of similar policies the insurer canceled or nonrenewed for any reason in any 12-month period between August 24, 1989, and August 24, 1992.

b.  If the insurer considers the number of cancellations and nonrenewals under sub-subparagraph a. to be insufficient, the insurer may apply for approval of additional cancellations or nonrenewals on the basis of an unreasonable risk of insolvency. In evaluating a request under this sub-subparagraph, the department shall consider and shall require the insurer to provide information relevant to: the insurer's size, market concentration, and general financial condition; the portion of the insurer's business in this state represented by personal lines residential property insurance; the reasonableness of assumptions with respect to size, frequency, severity, and path of hurricanes; the reinsurance available to the insurer and potential recoveries from the Florida Hurricane Catastrophe Fund; and the extent to which the insurer's assets have been voluntarily transferred by dividend or otherwise from the insurer to its stockholders, parent companies, or affiliated companies since June 1, 1996, or the date on which this section became law, whichever was later. In the implementation of exposure reductions under this sub-subparagraph, the department and the insurer shall consider such factors as policyholder longevity, the use of voluntary incentives to accomplish the exposure reduction, and geographic distribution.

c.  A policy shall not be counted as having been canceled or nonrenewed for purposes of this subsection if any of the following apply:

(I)  The policy was canceled or nonrenewed for an underwriting reason unrelated to the risk of loss from hurricane exposure, nonpayment of premium, or any other lawful reason that is unrelated to the risk of loss from hurricane exposure. The department shall consider the reason specified in the notice of cancellation or nonrenewal to be the reason for the cancellation or nonrenewal unless the department finds by a preponderance of the evidence that the stated reason was not the insurer's actual reason for the cancellation or nonrenewal.

(II)  The cancellation or nonrenewal was initiated by the insured.

(III)  The insurer has offered the policyholder replacement or alternative coverage at approved rates, which coverage meets the requirements of the secondary mortgage market.

d.  In addition to any other cancellations or nonrenewals subject to the limitations in this subsection, a policy shall be considered as having been canceled or nonrenewed for purposes of this subsection if:

(I)  The insurer implements a rate increase under the use-and-file provisions of s. 627.062(2)(a)2., which rate increase exceeds 150 percent of the increase ultimately approved by the department, and, while the rate filing was pending, the policyholder voluntarily canceled or nonrenewed the policy and obtained replacement coverage from another insurer, including the Residential Property and Casualty Joint Underwriting Association; or

(II)  The insurer reduces the commission to an agent by more than 25 percent and the agent thereafter places the risk with another insurer, including the Residential Property and Casualty Joint Underwriting Association, or the Florida Windstorm Underwriting Association.

e.  The department must approve or disapprove an application for a waiver within 90 days after the department receives the application for waiver.

3.  In addition to the cancellations or nonrenewals authorized under this section, an insurer may cancel or nonrenew policies to the extent authorized by an exemption from or waiver of either the moratorium created by chapter 93-401, Laws of Florida, or the moratorium phaseout under former s. 627.7013(2).

4.  Notwithstanding any provisions of this section to the contrary, this section does not apply to any insurer that, prior to August 24, 1992, filed notice of such insurer's intent to discontinue writing insurance in this state under s. 624.430, and for which a finding has been made by the department, the Division of Administrative Hearings of the Department of Management Services, or a court that such notice satisfied all requirements of s. 624.430. Nothing in this section shall be construed to authorize an insurer to withdraw from any line of property insurance business for the purpose of reducing exposure to risk of hurricane loss if such withdrawal commenced at any time that the moratorium under chapter 93-401, Laws of Florida, or the moratorium phaseout under this section is in effect.

5.  The following actions by an insurer do not constitute cancellations or nonrenewals for purposes of this subsection:

a.  The transfer of a risk from one admitted insurer to another admitted insurer, unless the terms of the new or replacement policy place the policyholder in default of a mortgage obligation.

b.  An increase in the hurricane deductible applicable to the policy, unless the new deductible places the policyholder in default of a mortgage obligation or the deductible exceeds the limits specified in s. 627.701.

c.  Any other lawful change in coverage that does not place the policyholder in default of a mortgage obligation.

d.  A cancellation or nonrenewal that is part of the same action as the removal of a policy including windstorm or hurricane coverage from the Residential Property and Casualty Joint Underwriting Association.

6.  In order to assure fair and effective enforcement of this subsection, each insurer shall, no later than October 1, 1996, report to the department the policy number of each policy subject to this subsection, arranged by county. The report shall include the policy number for each personal lines residential policy that was in force on June 1, 1996, or the date this section became law, whichever was later. Beginning October 1, 1996, each insurer shall also report, on a monthly basis, all cancellations and nonrenewals of policies included in such policy list and the reasons for the cancellations and nonrenewals.

(c)  The department may adopt rules to implement this subsection.

(d)  This section shall cease to operate at such time as the department determines that the insured value of all residential properties insured by the Florida Windstorm Underwriting Association and all properties insured by the Residential Property and Casualty Joint Underwriting Association under policies providing wind coverage, combined, has remained below $25 billion for 3 consecutive months, based on exposure data reported to the department by the associations.

(e)  This subsection is repealed on June 1, 2001.

History.--s. 19, ch. 93-410; s. 1, ch. 93-411; s. 14, ch. 95-276; s. 13, ch. 96-194; s. 273, ch. 96-410; s. 27, ch. 97-93; s. 5, ch. 98-173.