Puerto Rico’s New Requirements for Property Insurers: Financial Reviews & Disaster Response Planning

In response to the extremely active 2017 Atlantic hurricane season, the governor of Puerto Rico enacted several bills that amend or introduce new provisions to the Insurance Code of Puerto Rico, 26 L.P.R.A. § 101 et seq., including provisions regarding additional civil remedies against insurers, as well as new requirements for insurers, surplus carriers, and micro-insurance providers. 

While the new legislation has been in effect since November 27, 2018, few English-language platforms feature or discuss the six bills or their impact.[1] Given the limited information available in English, over the next few weeks, the CAT-Law Navigator will be providing information with respect to the amended statutes and analysis concerning how those amendments may affect pending and future insurance claims. These detailed overviews (rather than direct translations) of the newly enacted requirements are designed to assist insurance professionals in understanding some of the recent changes to the Insurance Code of Puerto Rico. 

In our recent articles, we discussed specifically the new appraisal rules and new expedited payment requirements for Puerto Rico property insurers. The focus of this article is the PS 1058 bill, which, as enacted, now imposes financial review and disaster planning requirements.

Industry’s Participation 

The legislative notes of PS 1058 note that “it is vital that insurance companies improve their response” in the face of natural disasters such as Hurricanes Irma and María given the insurance companies’ important role in post-catastrophe “reconstruction and recuperation.” To that effect, a summit was held[2] about a year after Hurricanes Irma and María, which was attended by insurers, industry experts, city mayors, and the general public. Participants expressed their concerns as to how the insurance industry handled claims and issues that arose due to Hurricanes Irma and María, as well as discussed alternatives and made recommendations for how the insurance industry could better address future claims and catastrophic events. Two main solutions were born out of these discussions: requiring disaster response planning and mandatory investigations of insurers’ financial solvency. 

Financial Reviews 

Every insurer authorized to do business in Puerto Rico will be subject to a financial review no less than every five years to ensure the insurer is financially capable of offering coverage and services in Puerto Rico. Article 2.110 of the Insurance Code of Puerto Rico already provided for the Insurance Commissioner to examine the operations, transactions, documents, and resources of every authorized insurer. 26 L.P.R.A. § 243. However, PS 1058 amends subsection 2 of this article to specifically allow the Commissioner to review the financial state of each authorized insurer. 26 L.P.R.A. § 243(2). Per the amendment, the Commissioner is now allowed to contract the necessary auditors to conduct said financial reviews. (In other jurisdictions, a “Certified Financial Examiner” may conduct the investigation as opposed to the Commissioner and its auditors). Lastly, in alignment to jurisdictions such as New York, Massachusetts, and California, each insurer must refund the Commissioner for costs incurred during the investigation. 

Disaster Response Planning 

PS 1058 adds a new article to the insurance code: Article 3.331, which requires insurers to have a written Natural Disaster or Emergency Response Plan that would delineate how insurers will continue operating and offering services throughout an emergency or disaster. Insurers must present their disaster response plans to the Office of the Insurance Commissioner on or prior to March 31st of each calendar year; otherwise they will face a $10,000 administrative fine and/or the suspension or revocation of their permission to operate in the island. 

Further, the Response Plan must be certified by a business continuity or disaster recovery expert, and must include the following: 
  • A description of the processes that will allow operations and services to continue after a disaster or emergency event; 
  • Processes for activating emergency adjusters and/or the use of emergency adjusters from other states or countries, including facilitating the required work permits and appropriate claims adjusting training; 
  • Emergency telephone lines for information and assistance services; 
  • Temporary operation locations to process claims; 
  • Back-up system(s) for the protection of electronically stored information; 
  • Inventory of different providers of equipment and supplies (including electric generators and fuel) needed for the continuation of operations; and 
  • Whatever other requirements the Commissioner establishes to protect the public interest and the interest of insurance consumers. 
While most of the other bills impose general requirements on insurers to avoid some of the pitfalls the insurance industry experienced following the 2017 hurricanes, PS 1058 more explicitly places the burden on insurers to think about, foresee, and avoid issues they will likely face when they encounter another emergency or disaster on the scale of Hurricanes Irma and María.

[1] Beyond legal search-engines, you can find copies of Puerto Rico bills in both English and Spanish at The Office of Legislative Services’ enacted laws webpage; however, the six bills enacted in November 2018 regarding the Insurance Code of Puerto Rico have not been uploaded in English as of the writing of this article.

[2] The summit was held on June 28, 2018 and was titled “Insurance Industry’s Response in the Face of Catastrophic Events and Mechanisms to Ensure the Protection of Insureds” (in Spanish, “Respuesta de la Industria de Seguros ante Eventos Catastróficos y Mecanismos para Asegurar la Protección de los Asegurados”).