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Gallagher Applauds Bush for Signing Legislation into Law That Will Put an End to Predatory Rating Practices


CONTACT:Tami Torres (850) 413-2842

TALLAHASSEE – After working more than a decade to put an end to death spirals, Florida's Chief Financial Officer Tom Gallagher applauded Governor Jeb Bush for signing legislation into law late yesterday that will abolish predatory rating practices used by out-of-state insurance companies. The legislation, Senate Bill 2264, was championed by Senator Jeff Atwater of Palm Beach County and Representative Joe Negron of Martin County.

According to Gallagher, "death spirals" are created when companies low-ball insurance premiums for healthy people only to substantially raise their rates when they become ill and use their coverage. Once ill, consumers are forced to pay escalating premiums because they are unable to qualify for coverage with another company due to a pre-existing condition. "Floridians will no longer be bankrupted by premium increases that started once they got sick," said Gallagher.

Death spirals have occurred because of a loophole in Florida law that has allowed insurance companies to sell health insurance policies to Floridians through out-of-state associations and avoid state regulation of their rates. Under the new law, rating practices that cause death spirals will be considered predatory and constitute unfair discrimination under the Unfair Trade and Deceptive Practices Act. Violators would be subject to fines and penalties, including revocation of license.

The new law also specifically prohibits predatory and unfair rating practices, which include:

§ Periodic closing of blocks of business – Companies segment the healthy from the sick by shutting down entry into one block of business while simultaneously opening a new block of business. Healthy policyholders from the old block migrate to the new one, leaving sick policyholders behind.

§ Tier rating – Companies move policyholders who become ill from the class in which they were issued coverage to one that is of a lesser standard and subject to higher renewal rates.

In addition, the new law requires insurance companies that write out-of-state group policies to provide additional disclosures when consumers apply for coverage as well as provide an insured the option of a conversion policy if coverage is terminated.

"This legislation will also help thousands of Floridians who are trapped in death spirals by ensuring that out-of-state insurance companies offer them a conversion policy," Gallagher said. A conversion policy is an individual policy, with rates capped at twice the standard rate for a healthy person seeking individual coverage.