Florida Legislature Considers Reforms to Non-Admitted Insurance Market

Two bills seeking to change the way Florida surplus lines business is handled are currently working their way through the Florida State Legislature and advocates say the potential laws could bring much needed efficiency to the state’s surplus lines market.

The bills – Senate 538 and House Bill 387 – propose small changes with potentially large effects on Florida surplus lines agents. The bills were introduced by Senator Jeff Brandes, R- St. Petersburg, and Representative Colleen Burton, R-Florida, respectively.

Both of these bills would update the current process applicable to surplus lines agents in the state statute and waive a requirement for filing certain affidavits with the Florida Surplus Lines Service Office (FSLSO) on a quarterly basis. They would also delete wording placing limitations on the amount that Florida surplus lines agents are allowed to charge on a per policy basis, while still providing that such fees are disclosed separately from the premium charged.

Currently, Florida law places a cap on the per policy fee amount in surplus lines business transactions. The current Florida statue reads: “[A] reasonable per-policy fee, not to exceed $35, may be charged by the filing surplus lines agent for each policy certified for export.” If these bills are passed by the legislature, the $35 limit will be removed and will only require the fee charged to be “reasonable.”

This change will bring Florida in line with the other states in the top five of surplus lines premium volume, which according to the Insurance Information Institute are: 1. California, 2. Texas, 3. Florida, 4. New York, 5. Illinois. Surplus lines agents will be able to seek increased compensation for their efforts on behalf of Florida policyholders when seeking coverage, giving agents the ability to establish the value of the service they provide to insureds. But, in keeping with statute, the value will still have to be communicated clearly, and shown separately from premiums charged by surplus lines carriers.

While not as readily evident, the other change these bills are attempting to enact could have a great impact in allowing surplus lines markets to work in the state. Florida currently requires that affidavits quarterly filed to the state include efforts to place risk with admitted companies before placing risks elsewhere. By removing this requirement, surplus lines agents can seek coverage from non-admitted markets doing business in the state without having to first seek coverage for the same risks with admitted companies.

This change to the state law will give surplus lines agents more flexibility when placing coverage for their clients.

On risks that are currently subject to these diligent effort reporting requirements, surplus agents must seek the approval of multiple admitted companies and be denied before proceeding with non-admitted carriers.

Opponents of these bills are critical of these changes, saying that by reducing the diligent effort requirement agents will be exposing their insureds to carriers with less stringent regulations. However, admitted carriers should find it beneficial to not review risks largely outside of their appetite, solely to meet procedural requirements.

The proposed changes should also decrease underwriting costs and enable the admitted carriers to better serve the insureds they seek to indemnify. Additionally, surplus lines agents will be able to cover many of the non-standard risks typical to the state of Florida with greater ease, necessary due to Florida’s always-changing legal environment and large amount of coastal property.

In particular, these bills could help insureds with one risk in particular – flood. Removing the diligent effort requirements would promote growth in the market of private flood insurance solutions, allowing Floridians to seek coverage away from the NFIP. Policyholders should find it beneficial to seek tailored coverage, while also avoiding some of the uncertainty surrounding the continued funding of the NFIP during the recent government shutdowns.

“Surplus lines insurance is a safety valve for some of the most exciting and economically beneficial businesses in our state, yet it has been operating under 1980s-style regulations,” said Florida Surplus Lines Association (FSLA) President Erin O’Leary of Shelly, Middlebrooks & O’Leary, Inc. in Jacksonville, Fla. “We’re grateful to see lawmakers prioritizing updates that will increase efficiency and reduce unnecessary regulatory burdens.”

Because both the Senate and House have drafted these bills, it is clear the Florida Legislature is taking the needs of Floridians in the changing market seriously. The House bill was voted forward almost unanimously on March 27 and sent to the Senate for review. Though progress seemed to have stalled on the Senate’s bill in March, the Senate Appropriates Subcommittee on Agriculture, Environment and General Government put SB538 and HB387 on their April 9 meeting agenda.

It remains to be seen if the Senate will pick up the bill passed by their colleagues in the House, or if they will continue forward with their own bill and complete a finalized version during the reconciliation process.

In either case, it is clear that these changes are a priority for the state legislature in this year’s session, and surplus lines agents should look forward to the updates and anticipate how to work with these changes in the near future.