Annual Report - Florida Office of Insurance Regulation

[Pages:92]Annual

Report

2017

David Altmaier

Insurance Commissioner

Table of Contents

Introduction ............................................................................................2 The State of the Florida Insurance Market.............................................4 Statistical Information ...........................................................................9 Footnotes................................................................................................88

The Annual Report contains data from the 2016 calendar year. 2017 data will be available at the end of calendar year 2018.

Introduction

The Florida Legislature created the Office of Insurance Regulation (Office) in 2003:

"The Office of Insurance Regulation, which shall be responsible for all activities concerning insurers and other risk bearing entities, including licensing, rates, policy forms, market conduct, claims, issuance of certificates of authority, solvency, viatical settlements, premium financing, and administrative supervision, as provided under the insurance code or chapter 636. The head of the Office of Insurance Regulation is the Director of the Office of Insurance Regulation, who may also be known as the Commissioner of Insurance Regulation."

-- Section 20.121(3)(a)1, Florida Statutes

The Insurance Commissioner is considered the agency head for purposes of final agency action for all areas within the regulatory authority delegated to the Office. The Insurance Commissioner is appointed by, and reports to, the Financial Services Commission (FSC). The FSC is comprised of the Governor, the Attorney General, the Chief Financial Officer, and the Commissioner of Agriculture. The FSC serves as agency head for purposes of rulemaking.

The Office is housed within the Department of Financial Services (DFS) for administrative, personnel, and technology support, and funded through legislative appropriations from the Insurance Regulatory Trust Fund. The Office does not receive state general revenue dollars.

The Office is a member of the National Association of Insurance Commissioners (NAIC), which is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, District of Columbia, and five U.S. territories. Through the NAIC, state insurance regulators establish standards and best practices, conduct peer review, and coordinate their regulatory oversight.1 In 2016, the Office served as a member of more than 70 NAIC task forces, working groups, and committees, serving as Chair of six and Vice Chair of six.2

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MISSION AND GOALS3

The mission of the Office is to promote a stable and competitive insurance market for consumers. The Office has four primary goals:

Promote insurance markets that offer products to meet the needs of Floridians with fair, understandable coverage priced in a manner that is adequate, but not excessive, or unfairly discriminatory.

Protect the public from illegal, unethical insurance products, and practices.

Monitor the financial condition of licensed insurance companies and take action to address financial issues as early as reasonably possible to prevent unnecessary harm to consumers.

Operate in an efficient, effective, and transparent manner.

ORGANIZATIONAL STRUCTURE

For state budget purposes, the Office is organized into two program areas:

Executive Direction & Support Services

? Carries out administrative & statutory responsibilities of the Office

? Consists of the following Offices: Commissioner Inspector General General Counsel Legal Services

Compliance & Enforcement

? Provides regulatory oversight of company solvency, policy forms and rates, and market conduct.4

? Consists of the following Offices:

Chief of Staff

Deputy Commissioner for Life & Health

Deputy Commissioner for Property & Casualty

Deputy Commissioner for Market Investigations

INSURANCE AND THE FLORIDA ECONOMY

Insurance-related entities added over 4,000 jobs5 and $638 million in total compensation in 2016 providing additional job opportunities within the growing Florida insurance industry.6

Insurance carriers and insurance-related activities accounted for 174,365 jobs, or almost 2 percent of all jobs in Florida.7 The average annual salary and benefits in the insurance industry were $87,834 in 2016.8 Florida insurance industry employees received $15.2 billion in total compensation, or 3 percent of the total compensation received by all Florida employees.9 The Florida insurance industry generated approximately $26.3 billion in total economic output, or 2.8 percent of Florida's gross domestic product.10

In 2016, Florida domestic insurers remitted over $1.1 billion in dividends, with $766 million remitted by life and health insurers and $341 million remitted by property and casualty insurers. Insurance companies paid $710 million in premium taxes.11

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The State of the Florida Insurance Market

The Office has continued its business development efforts to bring additional life and health and property and casualty insurers to the state. In 2016, the Florida insurance market added 117 new insurance and insurance-related entities, bringing the total number of insurance-related entities operating in Florida to 4,408. This includes 3,111 foreign and 1,204 domestic insurers.12

Insurance regulatory costs continued to decline in 2016 due to efforts aimed at increasing efficiencies in the Office. According to the NAIC, the cost of insurance regulation in Florida per $1,000 of premium dropped from $0.62 cents to $0.59 cents from 2015 to 2016, compared to $1.33 in 2009, a 55 percent decrease.13 In 2016, Florida's cost of insurance regulation ranked the lowest among the four most populous states.14

INSURANCE MARKET TRENDS

In this section, market trends and conditions are assessed against a variety of criteria, which may include market concentration, coverage availability, residual markets, premium volume, premium rates, and company financial condition.

Life and Health Insurance

Health Insurance

A shift in the participation of several large health insurance companies offering individual market products on the federal Patient Protection & Affordable Care Act (PPACA) Exchange, coupled with contraction in the number of plans offered in Florida counties, resulted in less options available to consumers. This changing dynamic in the health insurance marketplace was being seen on a countrywide basis ? not in Florida alone.

Thousands of Lives

Individual market rates also increased for Plan Year 2016 by an average of 9.5 percent. Of the 19 returning insurers in the individual market offering coverage both on and off the federal Exchange, 13 filed average rate increases ranging from 2.3 percent to 26.6 percent, and six filed rate decreases ranging from 0.4 percent to 9.7 percent.17

Medicare Supplement Insurance

Medicare Supplement insurance is coverage for services that original Medicare does not cover, such as copayments, coinsurance, and deductibles. The Medicare Supplement market in Florida has seen a steady rise in insurance premiums. In 2016, growth in direct premiums was slightly higher than the growth in enrollment reflecting increasing average premiums. Market share allocation has also remained consistent from 2015-2016. There were a total of 853,123 enrollees with $2.05 billion in direct premiums earned for new and renewal business.18

900 800 700 600 500 400 300 200 100

0

Medicare Supplement Premiums

2012

2013

2014

2015

2016

$2.5 B $2.0 B $1.5 B $1.0 B $0.5 B $0.0 B

Covered Lives

Direct Earned

New Business

The individual health insurance market consisted of approximately 800,000 consumers when PPACA originated in 2010.15 By 2016, it had grown to almost 1.7 million consumers.16 In 2016, there were 11 health insurers offering individual market insurance coverage on the federal Exchange compared to 14 in 2015.

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Life Insurance

Over the last five years, the Florida life insurance market continued to grow at an increasing rate. This included increases in total premium, in-force business and new issue business. New issue business continues to exhibit volatility which could be a result of changes in the types of insurance being purchased (term vs. cash value) by consumers. Alternatively, in-force business continues a steady trend upward, partly reflecting an improving economy with increasingly low unemployment. The overall total premiums earned for the life insurance market were $9.49 billion with $6.3 billion in death benefits paid.19

Life Premiums and Death Benefits

2012

2013

Death Benefits

2014

2015

2016

Total Premium

$10 B $9 B $8 B $7 B $6 B $5 B $4 B

Annuity Considerations and Benefits

45% 35% 25% 15%

$23 B $18 B $13 B $8 B

5%

$3 B

-5%

-15%

2012

2013

2014

% Change Annuity Considerations

Annuity Considerations

2015

2016

% Change Annuity Benefits

Annuity Benefits

Annuities

The annuity market in Florida continues to experience some slight volatility. Over the last year there has been contraction in the market. The considerable drop in 2013 along with a smaller drop in 2016 leaves the markets 6.3 percent down from five years ago and this volatility is likely due to a strong performance in equity markets over recent years as consumers opt toward investments that have experienced greater returns. Annuity benefits paid have stayed largely level, exhibiting a slight reduction from 20122014 marked by some significant fluctuations from year-toyear. Total annuity considerations (premium) for 2016 were $18.19 billion with benefits at $5.42 billion.20

*An Annuity Consideration is also referred to as a premium.

Long-Term Care Insurance

Long-term care is one of the largest financial risks facing Floridians today. Nationally, long-term care insurance premiums have been rising dramatically and Florida has seen large, sometimes double-digit, rate increases from insurers offering this coverage. With rate indications of this magnitude, market conditions exist that should be addressed to enhance the ability of insurers to reliably offer these products. The Office formulated an innovative solution to address this issue, which included approving rates for insurers that would be phased-in incrementally to reduce the impact of rate increases with subsequent periods of time where policyholders were guaranteed no further increases. The length of the implementation period and the subsequent rate guarantee period is often dependent on the size of the increase. Policyholders were also offered a range of benefit options toward mitigating the rate increase.

Unlike the case in 2015, 2016 direct premiums in the longterm care market are up along with total covered lives. Total market covered lives from 2012-2016 is down eight percent while new business premiums have fallen 63 percent. The reason for this contraction can be attributed to, in large

Thousands of Lives

500 450 400 350 300 250 200 150 100

50 0

Long Term Care Premiums

$700 M

$600 M

$500 M

$4 M

$300 M

$200 M

$100 M

2012

2013

2014

2015

$0 M 2016

Direct Earned

New Business

Covered Lives

part, the continuing increase in loss ratio observable from 2015-2016. The total market ("All") loss ratio in 2015 was 123 percent; however, in 2016 that number has climbed to 150 percent. The trend in market atrophy and growing loss ratios is likely to continue into the future posing increasing challenges to a vulnerable market. The total direct premiums earned were $650.21 million with direct losses at $975.86 million.21

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Property and Casualty Insurance

Homeowners

Florida's homeowners insurance market continued to grow in 2016, with more policies written by authorized insurers and fewer policies covered by Citizens Property Insurance Corporation, the state's homeowner's insurer of last resort. Some of the growth of the voluntary market was due to the high level of capacity available in the reinsurance market, which permits insurers to increase writings. Additionally, the cost of reinsurance in 2016 continued to decline, with alternative vehicles such as insurance linked securities accounting for a larger share of the reinsurance market. Florida-based companies took advantage of these market trends and continued to diversify operations and expand writings to other states in 2016.

Hurricane Season 2016

In 2016, the Florida homeowners market was tested by the impact of two hurricanes, the first hurricanes to affect Florida since Hurricane Wilma in 2006. Hurricane Hermine made landfall in the Panhandle of Florida in September as a Category 1 Hurricane, generating almost 20,000 claims and $140 million in insured losses. Hurricane Matthew grazed the east coast on Florida in October of 2016, generating almost 120,000 claims and $1.2 billion in insured losses.

HURRICANE HERMINE September 2016

19,699

CLAIMS

$139 MILLION

INSURED LOSSES

HURRICANE MATTHEW October 2016

119,345

CLAIMS

$1.182 BILLION

INSURED LOSSES

Source: Office's Catastrophe Reporting for Insurance Companies

Assignment of Benefits (AOB)

In 2016 the homeowners insurance market showed the impact of the use of assignment of benefits (AOB) for property insurance claims. An AOB allows a third party to "stand in the shoes" of the insured. These agreements typically contain language preventing the insured from communicating with their insurance company about the claim and gives the third party the ability to negotiate and endorse claim payments on insureds behalf, or file suit against insurance company, with or without the knowledge of the insured.

Frequency of water claims has increased 46% since 2010.

25.0

20.0

15.0

10.0

5.0

0.0 2010

2011

2012

2013

2014

2015

Source: Office's Assignment of Benefits Data Call. Data based on claims for voluntary carriers with dates closed between 1/1/2010 and 9/30/2015.

2010

Loss and LAE have increased 28% since 2010.

Average Loss Adj Exp (LAE)

Average Loss

2011 2012 2013

2014

2015

$2,000

$6,000

$10,000

$14,000

Source: Office's Assignment of Benefits Data Call. Data based on claims for voluntary carriers with dates closed between 1/1/2010 and 9/30/2015.

AOBs have increased dramatically since 2010. Based on the 2016 AOB data call, the percentage of water loss claims utilizing an AOB increased from 5.7 percent in 2010 to 15.9 percent in 2015. The average claims severity with an AOB was approximately 50 percent higher than claims without an AOB. The frequency of water claims increased by 46 percent and severity of the claims by 28 percent. Homeowners could also begin to see 10 percent rate increases every year due to the increase in water loss claims in the marketplace.

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