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1999 Florida Statutes
Depopulation of Residential Property and Casualty Joint Underwriting Association.
627.3511 Depopulation of Residential Property and Casualty Joint Underwriting Association.--
(1) LEGISLATIVE FINDINGS AND INTENT.--The Legislature finds and declares that the Residential Property and Casualty Joint Underwriting Association has written an amount of policies beyond legislative expectations and has become, by virtue of its size, a significant impediment to the restoration of a stable and competitive residential property insurance market in this state; that the public policy of this state requires the maintenance of a residual market for residential property insurance; and that extraordinary measures, beyond implementation of eligibility criteria and noncompetitive rates, are required to reduce the number of policies written by the Residential Property and Casualty Joint Underwriting Association to a reasonable level. It is the intent of the Legislature to provide a variety of financial incentives to encourage the replacement of the highest possible number of Residential Property and Casualty Joint Underwriting Association policies with policies written by admitted insurers at approved rates.
(2) TAKE-OUT BONUS.--The Residential Property and Casualty Joint Underwriting Association shall pay the sum of up to $100 to an insurer for each risk that the insurer removes from the association, either by issuance of a policy upon expiration or cancellation of the association policy or by assumption of the association's obligations with respect to an in-force policy. Such payment is subject to approval of the association board. In order to qualify for the bonus under this subsection, the take-out plan must include a minimum of 25,000 policies. Within 30 days after approval by the board, the department may reject the insurer's take-out plan and disqualify the insurer from the bonus, based on the following criteria:
(a) The capacity of the insurer to absorb the policies proposed to be taken out of the association and the concentration of risks of those policies.
(b) Whether the geographic and risk characteristics of policies in the proposed take-out plan serve to reduce the exposure of the association sufficiently to justify the bonus.
(c) Whether coverage for risks to be taken out otherwise exists in the admitted voluntary market.
(d) The degree to which the take-out bonus is promoting new capital being allocated by the insurer to Florida residential property coverage.
(3) EXEMPTION FROM DEFICIT ASSESSMENTS.--
(a) The calculation of an insurer's assessment liability under s. 627.351(6)(b)3.a. or b. shall, for an insurer that in any calendar year removes 50,000 or more risks from the Residential Property and Casualty Joint Underwriting Association, either by issuance of a policy upon expiration or cancellation of the association policy or by assumption of the association's obligations with respect to in-force policies, exclude such removed policies for the succeeding 3 years, as follows:
1. In the first year following removal of the risks, the risks are excluded from the calculation to the extent of 100 percent.
2. In the second year following removal of the risks, the risks are excluded from the calculation to the extent of 75 percent.
3. In the third year following removal of the risks, the risks are excluded from the calculation to the extent of 50 percent.
If the removal of risks is accomplished through assumption of obligations with respect to in-force policies, the association shall pay to the assuming insurer all unearned premium with respect to such policies less any policy acquisition costs agreed to by the association and assuming insurer. The term "policy acquisition costs" is defined as costs of issuance of the policy by the association which includes agent commissions, servicing company fees, and premium tax. This paragraph does not apply to an insurer that, at any time within 5 years before removing the risks, had a market share in excess of 0.1 percent of the statewide aggregate gross direct written premium for any line of property insurance, or to an affiliate of such an insurer. This paragraph does not apply unless either at least 40 percent of the risks removed from the association are located in Dade, Broward, and Palm Beach Counties, or at least 30 percent of the risks removed from the association are located in such counties and an additional 50 percent of the risks removed from the association are located in other coastal counties.
(b) An insurer that first wrote personal lines residential property coverage in this state on or after July 1, 1994, is exempt from regular deficit assessments imposed pursuant to s. 627.351(6)(b)3.a. and b., but not emergency assessments collected from policyholders pursuant to s. 627.351(6)(b)3.d., of the Residential Property and Casualty Joint Underwriting Association until the earlier of the following:
1. The end of the calendar year in which it first wrote 0.5 percent or more of the statewide aggregate direct written premium for any line of residential property coverage; or
2. December 31, 1997, or December 31 of the third year in which it wrote such coverage in this state, whichever is later.
(c) Other than an insurer that is exempt under paragraph (b), an insurer that in any calendar year increases its total structure exposure subject to wind coverage by 25 percent or more over its exposure for the preceding calendar year is, with respect to that year, exempt from deficit assessments imposed pursuant to s. 627.351(6)(b)3.a. and b., but not emergency assessments collected from policyholders pursuant to s. 627.351(6)(b)3.d., of the Residential Property and Casualty Joint Underwriting Association attributable to such increase in exposure.
(d) Any exemption or credit from regular assessments authorized by this section shall last no longer than 3 years following the cancellation or expiration of the policy by the association. With the approval of the department, the board may extend such credits for an additional year if the insurer guarantees an additional year of renewability for all policies removed from the association, or for 2 additional years if the insurer guarantees 2 additional years of renewability for all policies so removed.
(4) AGENT BONUS.--When the Residential Property and Casualty Joint Underwriting Association enters into a contractual agreement for a take-out plan that provides a bonus to the insurer, the producing agent of record of the association policy is entitled to retain any unearned commission on such policy, and the insurer shall either:
(a) Pay to the producing agent of record of the association policy an amount equal to the insurer's usual and customary commission for the type of policy written if the term of the association policy was in excess of 6 months, or one-half of such usual and customary commission if the term of the association policy was 6 months or less; or
(b) Offer to allow the producing agent of record of the association policy to continue servicing the policy for a period of not less than 1 year and offer to pay the agent the insurer's usual and customary commission for the type of policy written.
The insurer need not take any further action if the offer is rejected. This subsection does not apply to any reciprocal interinsurance exchange, nonprofit federation, or any subsidiary or affiliate of such organization. This subsection does not apply if the agent is also the agent of record on the new coverage. The requirement of this subsection that the producing agent of record is entitled to retain the unearned commission on an association policy does not apply to a policy for which coverage has been provided in the association for 30 days or less or for which a cancellation notice has been issued pursuant to s. 627.351(6)(c)11. during the first 30 days of coverage.
1(5) APPLICABILITY.--
(a) The take-out bonus provided by subsection (2) and the exemption from assessment provided by paragraph (3)(a) apply only if the association policy is replaced by either a standard policy including wind coverage or, if consistent with the insurer's underwriting rules as filed with the department, a basic policy including wind coverage; however, with respect to risks located in areas where coverage through the Florida Windstorm Underwriting Association is available, the replacement policy need not provide wind coverage. The insurer must renew the replacement policy at approved rates on substantially similar terms for two additional 1-year terms, unless canceled by the insurer for a lawful reason other than reduction of hurricane exposure. If an insurer assumes the association's obligations for a policy, it must issue a replacement policy for a 1-year term upon expiration of the association policy and must renew the replacement policy at approved rates on substantially similar terms for two additional 1-year terms, unless canceled by the insurer for a lawful reason other than reduction of hurricane exposure. For each replacement policy canceled or nonrenewed by the insurer for any reason during the 3-year coverage period required by this paragraph, the insurer must remove from the association one additional policy covering a risk similar to the risk covered by the canceled or nonrenewed policy. In addition to these requirements, the association must place the bonus moneys in escrow for a period of 3 years; such moneys may be released from escrow only to pay claims. A take-out bonus provided by subsection (2) or subsection (6) shall not be considered premium income for purposes of taxes and assessments under the Florida Insurance Code and shall remain the property of the Residential Property and Casualty Joint Underwriting Association, subject to the prior security interest of the insurer under the escrow agreement until it is released from escrow, and after it is released from escrow it shall be considered an asset of the insurer and credited to the insurer's capital and surplus.
(b) It is the intent of the Legislature that an insurer eligible for the exemption under paragraph (3)(a) establish a preference in appointment of agents for those agents who lose a substantial amount of business as a result of risks being removed from the association.
(6) COMMERCIAL RESIDENTIAL TAKE-OUT PLANS.--
(a) The Residential Property and Casualty Joint Underwriting Association shall pay a bonus to an insurer for each commercial residential policy that the insurer removes from the association pursuant to an approved take-out plan, either by issuance of a new policy upon expiration of the association policy or by assumption of the association's obligations with respect to an in-force policy. The association board shall determine the amount of the bonus based on such factors as the coverage provided, relative hurricane risk, the length of time that the property has been covered by the association, and the criteria specified in paragraphs (b) and (c). The amount of the bonus with respect to a particular policy may not exceed 25 percent of the association's 1-year premium for the policy. Such payment is subject to approval of the association board. In order to qualify for the bonus under this subsection, the take-out plan must include policies reflecting at least $100 million in structure exposure.
(b) In order for a plan to qualify for approval:
1. At least 40 percent of the policies removed from the association under the plan must be located in Dade, Broward, and Palm Beach Counties, or at least 30 percent of the policies removed from the association under the plan must be located in such counties and an additional 50 percent of the policies removed from the association must be located in other coastal counties.
2. The insurer must renew the replacement policy at approved rates on substantially similar terms for two additional 1-year terms, unless canceled or nonrenewed by the insurer for a lawful reason other than reduction of hurricane exposure. If an insurer assumes the association's obligations for a policy, it must issue a replacement policy for a 1-year term upon expiration of the association policy and must renew the replacement policy at approved rates on substantially similar terms for two additional 1-year terms, unless canceled by the insurer for a lawful reason other than reduction of hurricane exposure. For each replacement policy canceled or nonrenewed by the insurer for any reason during the 3-year coverage period required by this subparagraph, the insurer must remove from the association one additional policy covering a risk similar to the risk covered by the canceled or nonrenewed policy.
(c) A take-out plan is deemed approved unless the department, within 120 days after the board votes to recommend the plan, disapproves the plan based on:
1. The capacity of the insurer to absorb the policies proposed to be taken out of the association and the concentration of risks of those policies.
2. Whether the geographic and risk characteristics of policies in the proposed take-out plan serve to reduce the exposure of the association sufficiently to justify the bonus.
3. Whether coverage for risks to be taken out otherwise exists in the admitted voluntary market.
4. The degree to which the take-out bonus is promoting new capital being allocated by the insurer to residential property coverage in this state.
(d) The calculation of an insurer's regular assessment liability under s. 627.351(b)3.a. and b., but not emergency assessments collected from policyholders pursuant to s. 627.351(6)(b)3.d., shall, with respect to commercial residential policies removed from the association under an approved take-out plan, exclude such removed policies for the succeeding 3 years, as follows:
1. In the first year following removal of the policies, the policies are excluded from the calculation to the extent of 100 percent.
2. In the second year following removal of the policies, the policies are excluded from the calculation to the extent of 75 percent.
3. In the third year following removal of the policies, the policies are excluded from the calculation to the extent of 50 percent.
(e) An insurer that first wrote commercial residential property coverage in this state on or after June 1, 1996, is exempt from regular assessments under s. 627.351(6)(b)3.a. and b., but not emergency assessments collected from policyholders pursuant to s. 627.351(6)(b)3.d., with respect to commercial residential policies until the earlier of:
1. The end of the calendar year in which such insurer first wrote 0.5 percent or more of the statewide aggregate direct written premium for commercial residential property coverage; or
2. December 31 of the third year in which such insurer wrote commercial residential property coverage in this state.
(f) An insurer that is not otherwise exempt from regular assessments under s. 627.351(6)(b)3.a. and b. with respect to commercial residential policies is, for any calendar year in which such insurer increased its total commercial residential hurricane exposure by 25 percent or more over its exposure for the preceding calendar year, exempt from regular assessments under s. 627.351(6)(b)3.a. and b., but not emergency assessments collected from policyholders pursuant to s. 627.351(6)(b)3.d., attributable to such increased exposure.
(7) A minority business, which is at least 51 percent owned by minority persons as described in s. 288.703(3), desiring to operate or become licensed as a property and casualty insurer may exempt up to $50 of the escrow requirements of the take-out bonus, as described in this section. Such minority business, which has applied for a certificate of authority to engage in business as a property and casualty insurer, may simultaneously file the business' proposed take-out plan, as described in this section, to the Residential Property and Casualty Joint Underwriting Association.
History.--s. 10, ch. 95-276; s. 10, ch. 96-194; s. 6, ch. 97-55; s. 24, ch. 97-93; s. 1, ch. 99-142.
1Note.--Section 2, ch. 99-142, provides that "[t]his act shall take effect [April 29, 1999] and operates retroactively to March 1, 1999."