The Florida Senate and Banking Insurance Committee has approved a bill that would deregulate a variety of commercial lines of insurance by allowing insurers to offer the coverage without first obtaining the Office of Insurance Regulation’s approval for its rates. The bill is the first step forward in a preparation for Florida’s regular legislative session that convenes March 8.
Rate deregulation has long been a point of contention in Florida where carriers have argued the ratemaking process is an unduly burdensome system that provides a disincentive to do business in the state. Under state law, rate changes fall under a “file and use” or “use and file” method. Under file and use, the company must submit a rate filing at least 90 days before implementing the rate and first receive OIR approval. Under use and file, a company can implement a rate increase, but within 30 days make a rate filing with the OIR. If regulators find the rate excessive, the company must refund that portion of the rate change to the policyholders. Company’s charge that since regulators often turn down rate requests that result in settlements, it negates the use and file provision in the law.
OIR officials say typically most rate filings are handled within a 60 to 90-day window unless there are disputes, which in some cases can take years to resolve. Under state law, a rate is declared sufficient if it is not “excessive, arbitrary, or unfairly discriminatory.”
Lawmakers have turned back previous efforts at rate deregulation, which has forced insurers to drop broad calls for deregulation and instead focus on isolated markets. Last year, Florida enacted a law that allows insurers to sell commercial motor vehicle insurance on fleets on 20 or more vehicles without obtaining prior OIR approval. The rationale behind the change was that a market was available for the product and that the buyers would consist of large employers sophisticated enough to understand and negotiate for the coverage.
Now the industry is back before lawmakers seeking to expand upon that change by broadening the scope of deregulated products in other commercial lines. Specifically, the bill would extend the motor vehicle rate exemption to fleets with less than 20 vehicles. It would also exempt errors and omission professional liability insurance, fiduciary and management liability, general liability, non-residential property and multi-peril coverage and excess property coverage
Senator Steve Oelrich (R-Gainesville) said the bill would spur competition and be more responsive to both the market and policyholders. “It gives insurers the ability to be on the feet and move as the market dictates and if that means lower rates it will benefit businesses sooner,” he said.
Some lawmakers, however, questioned whether the rating law would give carriers the upper hand when dealing with consumers. They also questioned whether the bill would lead to a spate of rate increases across the board.
OIR official Belinda Miller said that although the commercial market remains competitive, there are signs it is tightening. “The commercial market is turning,” she said. “We expect to see increases whether this bill is passed or not.”
Oelrich said that since the market is competitive there is little incentive for companies to treat consumers unfairly. He also said the bill leaves intact the OIR’s ability to sign-off on forms and conduct market exams to determine whether a company has the resources to pay claims. A company would also have to notify OIR of any rate change within 30 days.
Gerald Wester, representing the American Insurance Association, told lawmakers the commercial market has proven itself by weathering hurricane and other losses without needing a subsidy or bailout mechanism. He said the bill represented a step forward without putting the market or consumers at risk. “The marketplace should be allowed to work,” he said. “This bill would put us in lines with other states. It narrowly drawn and not complete rate deregulation.”
In addition to deregulating the commercial rates, the bill would also reduce the recordkeeping requirements on companies. The bill would require companies to keep actuarial data supporting the rate change for at least two years. However, they would no longer be required to keep underwriting files, premium, losses, and expense statistics.