Bill would let unregulated insurers take on Citizens policy-holders

Published: Thursday, March 1, 2012 at 7:32 p.m.
Last Modified: Thursday, March 1, 2012 at 7:32 p.m.

TALLAHASSEE — The last time an unregulated, out-of-state insurer went broke, a top Florida regulator warned consumers that they have less protections with the so-called surplus lines carriers.

“The insolvency of a surplus lines carrier is vastly different from that of an authorized insurance company,” former state Treasurer and Insurance Commissioner Tom Gallagher warned consumers in 1993, when his Department of Insurance seized Usher Insurance Co., an Antigua-based firm that provided auto and marine coverage to some 20,000 Floridians.

“Policyholders have no safety net in the form of the guaranty fund to help pay their claims,” Gallagher added. “That is why it is so important that consumers work with a reputable agent and know the kind of insurance company they are dealing with.”

Yet now, the Florida Senate is poised to pass a bill that could move thousands of customers from the state-run Citizens Property Insurance Corp.

The bill remains stalled on the Senate floor, but its sponsor said Thursday that he expects to bring the bill (HB 245) up for debate on Friday.

Sen. Mike Fasano, R-New Port Richey, one of the leading critics of the bill, said the bill has stalled “because many members, including several Republican members, have great concerns about the bill.”

Senate Banking and Insurance Chairman Garrett Richter, R-Naples, said he has held up debate on the bill while trying to ease some of those concerns.

Richter said he is working on some provisions that would strengthen notification requirements for policyholders that may be moved from Citizens to the unregulated insurers. Under the bill, those consumers would be allowed to “opt” back in to Citizens coverage once they are notified.

But one of the fundamental criticisms of the bill is that it would allow the unregulated carriers for the first time to participate in the program to “depopulate” Citizens, Florida’s largest insurer with nearly 1.5 million policies.

Previously, only regulated Florida companies were allowed to participate.

In addition to not having their rates regulated by state Office of Insurance Regulation, the surplus lines companies are not backed by the Florida Insurance Guaranty Association, a fund that steps in when regulated, domestic insurance companies in Florida go bankrupt.

That was a point Gallagher emphasized in the 1993 Usher case, with his office noting “policyholders of surplus lines companies are not protected by the guaranty fund should a surplus lines insurer become insolvent.”

Richter said earlier this week that no surplus lines company operating in Florida had ever become insolvent.

He said Thursday that he had not been aware of the Usher case. But he said additional protections have been built into the legislation, including the requirement that the surplus lines insurers have at least $50 million in surplus funds.

The bill also requires the companies to have enough reserves and reinsurance to cover the possibility of two 1-in-100-year storms during a hurricane season.

Richter said companies would have to deposit their “unearned premiums” with the state, which in some cases he said may amount to “millions of dollars.”

The bill also requires the surplus lines companies to maintain at least an A-minus rating from the A.M. Best rating agency.

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