Volume 4, No. 1 - January 2015

Compliance Corner

This section has been created to assist you in keeping your insurance business in compliance. The items are intended as reminders only and are not necessarily the exact text of the Florida Statutes or Florida Administrative Code. The legal cites have been provided for your further reference.

Requesting Evidence of Insurance...
What's Wrong With "100 Percent Replacement Cost"?

We reviewed the following article recently published by the Florida Association of Insurance Agents (FAIA), which shared important information with its agent members. We are sharing this with all of our licensees with the FAIA's permission. If you have questions about coverage levels, limitations and exclusions, we recommend you contact the insurer underwriting the policy before making representations to a lender.

During the process of preparing to close a loan, it's very common that a lender contacts the customer's insurance agent to verify that a valid insurance policy is in effect. According to David Thompson, CPCU, with the Florida Association of Insurance Agents (FAIA), some of the requests made by lenders ask the agent to represent a particular coverage that is not supported by the insurance policy. Agents who make such representations violate Florida Statute 626.9541(1)(a). As such, the agent faces possible disciplinary actions (to include loss of their insurance license) by the Florida Department of Financial Services.

According to Thompson, the most common requests that are being made today involve wording such as "100 percent replacement cost," "guaranteed replacement cost," and "replacement cost up to policy limits." None of those requests is supported in the typical insurance policy, and insurance agents should not be making such statements. For example, representing that a policy includes "100 percent replacement cost" would almost certainly be read by the average person to mean that the policy always pays losses on a replacement cost basis, or that the policy would pay 100 percent of the rebuilding cost, even if the rebuilding cost exceeded the policy limit. Again, the insurance policy does not support those statements.

There is, perhaps, confusion over the 100 percent replacement cost statement. A lender would be best served to ask the insurance agent, "Does this policy have an amount of insurance that is at least equal to 100 percent of the estimated replacement cost of the structure?" According to Thompson, an insurance agent should always write an amount of coverage that is at least equal to the insurance company's estimated replacement cost. FAIA advises their agents that the following is acceptable:

It is the practice of this agency to insure structures for their estimated replacement cost as determined by the insurance company. Building limits are estimates only and are arrived at based on information provided by the policyholder and/or industry standard software used to estimate replacement costs. The actual cost to rebuild the structure may exceed the policy limits, especially during a catastrophic event and/or where an ordinance or law impacts repair or replacement. The agency makes no assurances that the policy limits provided will be adequate to rebuild the structure.

On a related issue, lenders today often request that the insurance agent provide a copy of the Replacement Cost Estimator (RCE) that was used to determine the amount of coverage. Some insurance companies and RCE vendors prohibit agencies from releasing that proprietary document to a third party, thus lenders should not request it from insurance agents. A lender may sign up with a RCE vendor if desired and obtain their own RCEs.

Remember, too, that it is a violation for Florida Statute 626.9551 for a lender to unreasonably disapprove an insurance policy. It's also a violation of the same statute to require that a customer obtain insurance from a specific insurer or agent.

Lenders and insurance agents have the same goal: get the customer into the structure with a closed loan and valid insurance in place. It's critical, however, that lenders understand the specific wording insurance agents can and cannot use.

Bail Bond Agents: Notice of Temporary Suspension Versus Order of Suspension

The Department of Financial Services is required to suspend any bail bond agent who is charged with a felony crime from writing or soliciting new business while the charges are pending [see subsection 648.45(1), F.S.]. The Department issues orders suspending the license of these bail bond agents when certified copies of the information or charging documents are received. Once the documents are received, a "NOTICE OF TEMPORARY SUSPENSION" is entered against the bail bond agent usually within 24 hours of receiving the documents in Tallahassee. The surety companies appointing that bail bond agent are notified electronically as soon as the order is entered into our system.

These orders of suspension are temporary and they only pertain to new business. The bail bond agent is permitted to continue working to discharge the liability on any bail bonds written prior to the suspension order being filed by the Department of Financial Services. The Florida Administrative Code (69B-221.010) provides guidance on what a bail bond agent may or may not do while under a "NOTICE OF TEMPORARY SUSPENSION."

Important Note: This applies to a "NOTICE OF TEMPORARY SUSPENSION" issued because the bail bond agent was charged with a crime, only. This does not apply to an "ORDER OF SUSPENSION" issued by the Department of Financial Services. An "ORDER OF SUSPENSION" prohibits the bail bond agent from transacting any and all insurance business as of the date the order is filed by the Department. A bail bond agent under an "ORDER OF SUSPENSION" is not permitted to discharge liability on bonds written prior to the date of the order.

[See subsection 648.45(1), Florida Statutes, and Rule 69B-221.010, Florida Administrative Code]

Title Agencies: The 2015 Data Call

This is the first year title insurance agencies are required to submit information to the Florida Office of Insurance Regulation (OIR) under the data call required by section 627.782, Florida Statutes. Title agencies have until June 1, 2015 to make their submission to the OIR. The OIR has sent an email to each licensed title agency in Florida to remind them of the new law with instructions on how to complete the process accurately.

The Title Agency Data Call is performed by the agency first downloading the template from the OIR website to complete offline. To do this, the agency will need to create an account and subscribe to your agency in the Data Collection and Analysis Modules (DCAM) used by the OIR, which is located at https://apps.fldfs.com/DCAM/Logon.aspx.
(The user's guide for DCAM is located at: https://apps.fldfs.com/DCAM/Help/DCAMUserGuide.pdf)

Once the agency's data template form is completed and the agency is ready to certify it is accurate, it is then that the agency must upload the form to the OIR before the deadline, June 1, 2015.

The data template has seven tabs or worksheets:

  1. Version: includes the OIR contact information and reporting date reminder
  2. Instructions: data template must be downloaded from DCAM for the purpose of reporting information
  3. Report_Lines: Two columns extend down a series of questions and required responses (enter either text or numeric in the two columns, as shown)
  4. Schedule A: Additional agency information
  5. Schedule B: Agent activities
  6. Schedule C (Residential): Title agent statistical information submission for 1-4 residential units
  7. Schedule C (Commercial): Title agent statistical information submission for commercial units

Each agency's submission must contain a Filing Certification signed by an agency officer (electronic signature accepted), stating the information provided is accurate to the best of their knowledge and belief. A sample copy is available on the OIR's website at: www.floir.com/siteDocuments/CertificationOfTitleDataSubmissionExample.pdf

The agency may include a cover letter, but this is an optional component for the filing.

Each agency is encouraged to include any additional or optional information that is deemed important to the overall submission. These optional items may be uploaded as PDF documents under the "Other Information/Documents" component.

It is important to know that the agency's submission is not considered to be complete until the agency receives an email receipt showing the agency's file log number.

If you have any questions regarding this filing process, please contact the OIR's Market Data Collections Unit at 850-413-3147 or via email: TitleAgencyReporting@floir.com.

Bail Bond Build Up Fund Accounts

The Florida Statutes require each insurer authorized to write bail bonds in this state and each managing general agent to furnish to the Department a certified copy of a statement listing each build-up trust account and the balance therein by March 1 of each year. These statements are to be sent to:

Florida Department of Financial Services
Division of Agent & Agency Services
Bail Bond Section
Larson Building # 412
200 E. Gaines Street
Tallahassee FL 32399-0320

The statements may also be sent via email by scanning and sending the statements to BailBond@MyFloridaCFO.com.

Companies and managing general agents who do not maintain build-up fund accounts for their agents may want to submit a statement to that effect to the same address to confirm a filing is not required.