The Florida Senate

627.7014  Orderly markets for condominium association residential property insurance.--

(1)  FINDINGS AND PURPOSE.--

(a)  The Legislature finds:

1.  That residential property insurers providing condominium association coverage, as a condition of doing business in this state, have a responsibility to contribute to an orderly market for condominium association residential property insurance and that there is a compelling state interest in maintaining an orderly market for condominium association residential property insurance.

2.  That Hurricane Andrew, which caused over $15 billion of insured losses in South Florida, has reinforced the need of consumers to have reliable condominium association insurance coverage; however, even more than 3 years after Hurricane Andrew, the hurricane's enormous monetary impact is causing insurers to propose substantial cancellation or nonrenewal of their condominium association insurance policyholders.

3.  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.

4.  That 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 in significant portions of the state.

5.  That 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 remains unstable.

6.  That the moratorium created by this section is the least intrusive method for maintaining an orderly market for condominium association insurance, insofar as it applies only to hurricane-related cancellations and nonrenewals of personal lines residential policies that were in force on the effective date of this section, 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 of this section.

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

1.  The conditions described in paragraph (a) remain applicable to the commercial residential 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 recent rapid growth of the Florida Windstorm Underwriting Association, which had more than 9,500 commercial residential policies in force as of December 31, 1997, representing a 58 percent increase over the number of commercial residential policies in force on December 31, 1996.

3.  An 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.

(c)  The purposes of this section are to provide for a temporary moratorium on hurricane-related cancellations and nonrenewals of condominium association coverage and to require advance planning and approval for programs of condominium association exposure reduction.

(2)  MORATORIUM.--

(a)  As used in this subsection, the term "total number of policies" means the number of an insurer's condominium association policies providing windstorm or hurricane coverage that were in force on the effective date of this section. The following restrictions apply to the cancellation or nonrenewal of condominium association residential property insurance policies that were in force on the effective date of this section:

1.  In any 12-month period, an insurer may not cancel or nonrenew more than 5 percent of its total number of condominium association policies 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 condominium association policies 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 condominium association 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 condominium association residential property insurance; the reasonableness of assumptions with respect to size, frequency, severity, and path of hurricanes; and the reinsurance available to the insurer and potential recoveries from the Florida Hurricane Catastrophe Fund. 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.

(IV)  The risk is transferred 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.

(V)  The hurricane deductible applicable to the policy is increased unless the new deductible exceeds statutory limits or places the policyholder in default of a mortgage obligation.

(VI)  Any other lawful change in coverage that does not place the policyholder in default of a mortgage obligation is made.

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.

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

3.  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. This section also does not apply to any insurer that:

a.  Collects at least 75 percent of its Florida premiums from policies that include hurricane coverage provided to condominium associations in coastal counties.

b.  Collects at least 80 percent of its Florida premiums from policies that include hurricane coverage provided to condominium associations in Broward, Dade, and Palm Beach Counties.

c.  Has, annually since 1992:

(I)  Increased its aggregate Florida premium volume from policies that include hurricane coverage provided to condominium associations in coastal counties.

(II)  Increased its aggregate Florida premium volume from policies that include hurricane coverage provided to condominium associations in Broward, Dade, and Palm Beach Counties.

(III)  Increased its aggregate Florida exposure from policies that include hurricane coverage provided to condominium associations in coastal counties.

(IV)  Increased its aggregate Florida exposure from policies that include hurricane coverage provided to condominium associations in Broward, Dade, and Palm Beach Counties.

d.  Has surplus as to policyholders of no more than $200 million as reflected in its annual statement for 1995.

4.  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 condominium association policy that was in force on the effective date of this section. 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.

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

(c)  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.

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

History.--s. 14, ch. 96-194; s. 28, ch. 97-93; s. 6, ch. 98-173.