HOUSE OF REPRESENTATIVES STAFF ANALYSIS
BILL #: HB 797 Florida Life and Health Insurance Guaranty Association
SPONSOR(S): Robinson, W.
TIED BILLS: IDEN./SIM. BILLS: SB 1470
REFERENCE ACTION ANALYST STAFF DIRECTOR or
BUDGET/POLICY CHIEF
1) Insurance & Banking Subcommittee 16 Y, 0 N Hinshelwood Luczynski
2) State Administration & Technology 14 Y, 0 N Lee Topp
Appropriations Subcommittee
3) Commerce Committee 24 Y, 0 N Hinshelwood Hamon
SUMMARY ANALYSIS
An insurance guaranty association ensures that policyholders’ paid insurance premiums are protected and
outstanding claims are settled, up to limits provided by law, if their insurer is liquidated. The Florida Life and
Health Insurance Guaranty Association (FLAHIGA) is the guaranty association for most insurance companies
that write life and health insurance or annuities in Florida. The bill makes the following changes to conform to
the Life and Health Insurance Guaranty Association Model Act:
Adds a definition for the term “Moody’s Corporate Bond Yield Average”.
Amends the definition of “person” to include “limited liability company” and “governmental body or
entity”.
Clarifies that, in dealing with an impaired domestic insurer, the FLAHIGA may assume or reissue
covered policies, in addition to guaranteeing and reinsuring the policies.
Expressly provides that the FLAHIGA has the right to appear or intervene before a court or agency in
another state.
Provides that, for purposes of the FLAHIGA’s standing to appear before any court in this state, the
FLAHIGA’s powers and duties include reissuing or modifying covered policies.
Provides that the FLAHIGA may recover payment of improper claims.
Clarifies that the FLAHIGA has the authority to join an organization of other state guaranty associations
to further the purposes and to carry out the powers and duties of the FLAHIGA.
As to Class A assessments, which pay the FLAHIGA’s general administrative expenses, removes the
cap of $250, permits the assessments to be made on a pro rata basis, and allows the FLAHIGA’s board
to credit the assessments against future assessments related to insurer insolvencies.
Provides that, if an insurer’s assessment is deferred because the assessment would endanger the
insurer’s financial solvency, the insurer must pay the assessment once it regains financial strength.
Removes the reduced assessment cap for nonprofit annuity insurers that issue policies to educational
groups, thus making such insurers subject to the assessment cap for all other annuity insurers.
Directs that the FLAHIGA establish a procedure for removing a board member if that member becomes
impaired or insolvent and establish a policy and procedure to address conflicts of interest.
The bill has no fiscal impact on state or local governments and an indeterminate impact on the private sector.
The bill provides an effective date of July 1, 2021.
This document does not reflect the intent or official position of the bill sponsor or House of Representatives .
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DATE: 3/16/2021
FULL ANALYSIS
I. SUBSTANTIVE ANALYSIS
A. EFFECT OF PROPOSED CHANGES:
Background
Insurer Insolvency
States primarily regulate insurance companies, and the state of domicile serves as the primary
regulator for insurers. In Florida, the Office of Insurance Regulation (OIR) licenses and regulates the
activities of insurers and other risk-bearing entities.1 The OIR monitors the solvency of insurers,
examines insurers, and takes administrative action, if necessary.
Chapter 631, F.S., relating to insurer insolvency and guaranty payments, governs the receivership
process for insurance companies in Florida. Federal law specifies that insurance companies cannot file
for bankruptcy.2 Instead, they are either “rehabilitated” or “liquidated” by the state. In Florida, the
Division of Rehabilitation and Liquidation of the Department of Financial Services (DFS) is responsible
for rehabilitating or liquidating insurance companies.3
Florida operates five insurance guaranty funds and associations4 to ensure that policyholders of
liquidated insurers are protected with respect to insurance premiums paid and settlement of
outstanding claims, up to limits provided by law.5 A guaranty association generally is a not-for-profit
corporation created by law and is directed to protect policyholders from financial losses and delays in
claims payments and settlements due to the insolvency of an insurance company. A guaranty
association accomplishes its mission by assuming responsibility for settling claims and refunding
unearned premiums6 to policyholders. Insurers are required by law to participate in guaranty
associations as a condition of transacting business in Florida.
The bill makes changes to one of the five guaranty funds and associations – the Florida Life and Health
Insurance Guaranty Association (FLAHIGA), which is the guaranty association for most health and life
insurers.
1 S. 20.121(3), F.S.
2 The Bankruptcy Code expressly provides that "a domestic insurance company" may not be the subject of a federal
bankruptcy proceeding. 11 U.S.C. s. 109(b)(2). The exclusion of insurers from the federal bankruptcy court process is
consistent with federal policy generally allowing states to regulate the business of insurance. See 15 U.S.C. ss. 1011-
1012.
3 Typically, insurers are put into liquidation when the company is insolvent whereas insurers are put into rehabilitation for
numerous reasons, one of which is an unsound financial condition. The goal of rehabilitation is to return the insurer to a
sound financial condition. The goal of liquidation, however, is to dissolve the insurer. See s. 631.051, F.S., for the grounds
for rehabilitation and s. 631.061, F.S., for the grounds for liquidation.
4 The FLAHIGA (ss. 631.711 – 631.738, F.S.) generally is responsible for claims settlement and premium refunds for
health and life insurers who are insolvent. The HMOCAP (ss. 631.811 – 631.828, F.S.) offers assistance to members of
insolvent health maintenance organizations, and the Florida Workers’ Compensation Insurance Guaranty Association (ss.
631.901 – 631.932, F.S.) is directed by law to protect policyholders of insolvent workers’ compensation insurers. The
Florida Self-Insurers Guaranty Association (ss. 440.385 – 440.386, F.S.) protects policyholders of insolvent individual self-
insured employers for workers’ compensation claims. The Florida Insurance Guaranty Association (ss. 631.50 – 631.70,
F.S.) is responsible for paying claims for insolvent insurers for most remaining lines of insurance, including residential and
commercial property, automobile insurance, and liability insurance, among others.
5 “Before the creation of guaranty associations, a typical claimant could have waited for years for payment of a claim and
then still receive only a fraction of what was due under the terms of the policy or contract. Guaranty associations, subject
to statutory limitations, were created to alleviate these problems and ensure the stability of the insurance market.
Specifically, in the event of a life/health insurer liquidation, the guaranty mechanism provides for the continuation of
eligible contracts that would otherwise terminate.” National Association of Insurance Commissioners, Guaranty
Associations/Funds, https://www.naic.org/cipr_topics/topic_guaranty_associations.htm (last visited Feb. 26, 2021).
6 The term “unearned premium” refers to that portion of a premium that is paid in advance, typically for six months or one
year, and which is still owed on the unexpired portion of the policy.
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The FLAHIGA
Statutory provisions relating to the FLAHIGA, which was created in 1979, are contained in ch. 631, part
III, F.S. The FLAHIGA is a nonprofit corporation and is governed by a board of directors composed of at
least nine but not more than 11 member insurance companies.7 All insurance companies (with limited
exceptions) licensed to write life and health insurance or annuities in Florida are required, as a
condition of doing business in Florida, to be a member of the FLAHIGA.8
Plan of Operation
The FLAHIGA’s operations are set forth in a plan of operation. Amendments to the plan of operation
must be submitted to the DFS for approval and are effective upon written approval by the DFS.9 The
plan of operation must:10
Establish procedures for handling the FLAHIGA’s assets.
Establish the amount and method of reimbursing the FLAHIGA’s board members for expenses
incurred by them as board members, though board members are not otherwise compensated by
the FLAHIGA for their services.11
Establish regular places and times for meetings of the board of directors.
Establish procedures for keeping records of all financial transactions of the FLAHIGA, its
agents, and the board of directors.
Establish procedures whereby selections for the board of directors are made and submitted to
the DFS.
Establish any additional procedures for assessments.
Contain additional provisions necessary or proper for the execution of the powers and duties of
the FLAHIGA.
Additionally, the plan of operation may delegate duties of the FLAHIGA, except the power to borrow
and to assess its members, to a corporation, association, or other organization which performs or will
perform functions similar to those of this association, or its equivalent, in two or more states.12 This
provision contemplates membership in and delegation of duties to the National Organization of Life and
Health Insurance Guaranty Associations discussed below.
Insolvency Process
In the event a member insurer is found to be insolvent and is ordered to be liquidated by a court, a
receiver takes over the insurer under court supervision and processes the assets and liabilities through
liquidation. Upon liquidation, the FLAHIGA automatically becomes liable for the policy obligations that
the liquidated insurer owed to its Florida policyholders.13 The FLAHIGA services the policies, collects
premiums, and pays valid claims under the policies. The FLAHIGA’s rights under the policies are those
that applied to the insurer prior to liquidation. The FLAHIGA may cancel the policy if the insurer could
have done so, but normally the FLAHIGA continues the policies until it can transfer to, or substitute the
policies with, a new, stable insurer with approval of the OIR.
The FLAHIGA’s aggregate liability with respect to one life may not exceed the following:
Life insurance death benefit: $300,000 per insured life.
Life insurance cash surrender: $100,000 per insured life.
Health insurance or long-term care insurance: $300,000 per insured life.
7 Ss. 631.715(1) and 631.716(1), F.S.
8 S. 631.715(1), F.S.
9 S. 631.721(1)(a), F.S.
10 S. 631.721(3), F.S.
11 S. 631.716(3), F.S.
12 S. 631.721(4), F.S.
13 Generally, the FLAHIGA covers only policyholders and certificate holders that were valid Florida residents on the date
that a member insurer is declared insolvent and liquidated. However, non-residents of Florida and beneficiaries of covered
persons are covered by the FLAHIGA under limited circumstances. s. 631.713(2), F.S.
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Annuity cash surrender: $250,000 for deferred annuity contracts per contract owner.
Annuity in benefit: $300,000 per contract owner.
Basic hospital expense, basic medical-surgical, or major medical expense health insurance
policies (other than long-term care insurance policies): $500,000 per insured life.14
Additionally, the FLAHIGA will only cover a policy or contract to the extent that:
The interest rate on which the policy or contract is based, averaged over the four-year period
immediately preceding the date on which the member insurer becomes impaired or insolvent, is
less than the Moody’s Corporate Bond Yield Average (averaged for that same four-year period)
minus two percentage points.
The interest rate on which the policy or contract is based, on and after the date on which the
member insurer becomes an impaired or insolvent, is less than the Moody’s Corporate Bond
Yield Average minus three percentage points.
The FLAHIGA statutes do not currently define the term “Moody’s Corporate Bond Yield Average”.
Powers and Duties of the FLAHIGA
The FLAHIGA carries out its duties pursuant to authority granted by and directives contained in statute.
Among the powers statutorily granted to the FLAHIGA is the authority to:
Guarantee or reinsure, or cause to be guaranteed, assumed, or reinsured, any or all of the
covered policies of an impaired domestic insurer;15 and
Take such legal action as may be necessary to avoid payment of improper claims.16
Additionally, the FLAHIGA has standing to appear before any court in this state which has jurisdiction
over an impaired or insolvent insurer to which the FLAHIGA is or may become obligated.17 Such
standing extends to all matters germane to the powers and duties of the FLAHIGA, including but not
limited to, proposals for reinsuring or guaranteeing the covered policies of the impaired or insolvent
insurer and the determination of the covered policies and contractual obligations. While the statute
expressly provides the FLAHIGA standing to appear in courts of this state, the statute does not
expressly provide the FLAHIGA the right to appear or intervene before a court or agency in another
state.
Assessment of Members
By law, the FLAHIGA is divided into three operating accounts:18
The health insurance account;
The life insurance account; and
The annuity account.
The FLAHIGA is authorized to levy two types of assessments to carry out its responsibilities:
Class A assessments may be levied for the purpose of covering the FLAHIGA’s general
administrative costs and for the cost of examining a member insurer that the FLAHIGA’s board
believes in good faith may be impaired or insolvent.19 These assessments may only be made on
a non-pro rata basis up to $250 per member per calendar year.20 Additionally, Class A
assessments may not be credited against future Class B assessments.21
14 S. 631.717(12), F.S.; FLAHIGA, Frequently Asked Questions, https://www.flahiga.org/FAQ (last visited Feb. 26, 2021).
15 S. 631.717(1)(a), F.S.
16 S. 631.717(13)(f), F.S.
17 S. 631.717(7), F.S.
18 S. 631.715(2)(a), F.S.
19 Ss. 631.718(2)(a) and 631.723(3), F.S.
20 S. 631.718(3)(a), F.S.
21 Id.
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Class B assessments are authorized to fund the FLAHIGA’s duties related to a specific
insolvency.22 Except for assessments related to long-term care insurance insolvencies, Class B
assessments are based on an insurer’s pro rata share of all premiums collected by insurers in
this state on policies covered by the account during the three years prior to the assessment.23
Except for assessments related to long-term care insurance insolvencies, an insurer’s
assessment for each account may not exceed, in any one calendar year, 1 percent of the
insurer’s average premiums written in the covered account during the three-year period
preceding the year in which the assessment is made.24 An insurer may offset any assessment
against either its premium tax or corporate income tax liability in 5 percent increments over the
20-year period following the year in which the assessment was paid.25 When assessments
related to insolvencies are imposed, the FLAHIGA must issue a certificate of contribution to
each insurer paying such assessment for the amount of the assessment paid.26 A certificate of
contribution may be shown by the insurer in its financial statement as an asset in such form and
for such amount, if any, and period of time as the OIR approves.27 However, any amount of
assessment offset against the insurer’s premium tax or corporate income tax liability may not be
shown as an asset of the insurer.28
Currently, there is a cap on assessment of any member insurer that is a nonprofit insurance company
which issues annuity contracts or group annuity contracts pursuant to s. 121.35, F.S.,29 or for the
benefit of employees of Florida educational institutions.30 Such nonprofit insurance companies may not
be assessed in any one calendar year more than the greater of:31
The amount which the company paid to this state