We all know that the insurance industry is highly regulated. States exercise a good deal of control over what insurance companies charge (rates and premiums) and how they manage their finances to make sure they have enough money set aside (reserved) to pay the claims they are obligated to pay their policyholders.
State agencies like the Florida Office of Insurance Regulation also review the language and terms (coverage) of standard insurance contracts (forms). The OIR is looking for confusing language and, more importantly, changes to coverage that could significantly disadvantage policyholders or that run counter to state law. Up until recently, the OIR reviewed the insurance forms — and terms of coverage — before the insurers could use them.
As we said in our last post, on July 1, Florida will officially move from being a “prior approval” state to being a “file and use” state for commercial property policies. This “fast track” process has been in place for more than a year, since the insurance commissioner’s April 2012 order to adopt the new process, but the order will become law on July 1.
Each state has its own approach to rate and form approval, and Florida’s decision to mix and match by type of coverage is not unusual. Still, the fast-track system may sound like a troubling development, and there are certainly critics. The truth is, however, that the forms will be reviewed, just not before they are put into consumers’ hands.
Here’s how the fast-track process works: Commercial property insurers submit (file) the forms to the OIR, certifying to the state regulator that the forms comply with all pertinent insurance laws. Thirty days later, the insurer can sell (use) the insurance described in the new form, with the new coverage included. If the OIR objects to any of the coverage changes, it will order the insurer to revoke the coverage.
Revoking the coverage, of course, will be costly, time-consuming and a tremendous hassle for the insurers, not to mention the inconvenience to the policyholders. For the companies, though, bypassing the current backlog of approvals at the OIR is worth the risk.
Critics warn that the file and use process gives the insurance companies too much power. Insurers say it allows them to be more flexible, to respond to consumer needs more quickly. The OIR can always change its mind if the former proves true.
Source: The Florida Current, “Fast-track coverage changes for commercial property insurers to continue,” Gray Rohrer, June 11, 2013Share