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Breakfast Briefing on Property Insurance- A Special Session Primer

UPDATE:

What the Legislature Did on Property Insurance:

Senate Bill 2D on Property Insurance seeks to stabilize Florida’s property insurance market with pro-consumer measures that will improve choice and increase transparency between homeowners and insurance companies while reducing rates over time.

  • Property insurers must reduce policyholder rates as early as June 30, 2022, to reflect their savings from the new Reinsurance to Assist Policyholders (RAP) program created in SB 2D.
  • Property insurers can no longer refuse to write/renew a policy on a home with a roof that is 15 years old or newer or has five or more years of useful life left solely because of the roof's age.
  • Property insurers must provide policyholders with a reasonable explanation in writing for why a claim was paid, denied, or partially denied.
  • Property insurers may provide an optional cheaper roof deductible to policyholders to help combat fraudulent roof claims that drive up rates for everyone.
  • In property insurance litigation, lawyers can only receive contingency risk multipliers in rare circumstances, can't receive attorney fee awards in assignment of benefits (AOB) litigation, and can't transfer the right to receive attorney fees.

BACKGROUND:

Florida is facing a property insurance crisis and the governor has called the legislature back to Tallahassee from May 23-27, to tackle the issue.  While the proposed bills to be discussed have not been filed yet, the Governor’s proclamation announcing the special session suggests areas that should be addressed, including reinsurance, building codes, litigation reform, and Citizens Property Insurance. 

Why is this such a pressing issue?   

Rapidly rising rates, coverage cancellations, insolvencies, and the rapidly approaching Atlantic hurricane season have Floridians scrambling to secure the values of their homes.  

How bad is the crisis?   

The governor’s office has given a bit more context to the crisis, highlighting that: 

  • the Florida insurance industry has seen two straight years of net underwriting losses exceeding $1 billion each year;
  • four insurance companies writing homeowners coverage have either gone insolvent or required midterm cancelations and in the last three months, three insurance companies writing homeowners coverage in Florida have gone insolvent and are either in liquidation or rehabilitation and numerous others have non-renewed policies or ceased writing new business, leaving tens of thousands of policyholders seeking coverage with limited options in the marketplace; and 
  • Citizens Property Insurance, the State of Florida’s public insurer of last resort, has seen an increase of 399,822 policies since the beginning of 2020 and is on track to be over 1 million policies by year end, exposing Florida ratepayers across all insurance lines to assessable charges.  

What comes next?

On May 23, 2022, the Florida Legislature will convene to address this property insurance crisis. Currently, Senator Jim Boyd, an insurance agent from Bradenton, and Representative Jay Trumbull, a business owner from Panama City, are drafting the legislation to be discussed next week. In all likelihood, their bills will not lead to immediate drops in insurance rates, but a big goal for the special session is to keep rates and insolvencies from getting worse. 

What can taxpayers expect from Special Session? 

If no actions are taken by the legislature, the property insurance market will likely continue to decline. As the property insurance market crumbles, the real estate market and construction industry will fall alongside it. To aid residents and ensure the persistence of property insurance companies within our state, Florida legislators face the choice to target one or more of the following levers: 

  • Florida Hurricane Catastrophe Fund (CAT Fund). The CAT fund provides reinsurance and insurance for the insurer.  With rapidly rising rates in the private reinsurance market, policymakers might consider rolling back the 2022-2023 increase in the CAT fund insurance rates, offering optional coverage below retention level, and/or suspend the Rapid Cash Build-Up Factor. 
  • Tort reform. To limit the money lost to litigated claims, policymakers could further limit the awards of attorney fees; clarify the requirements for notice of intent to litigate (NOIL) for Assignments of Benefits (AOBs); encourage the use of alternative dispute resolution; require consolidated litigation by AOB vendors rather than allowing a build-up of single claims; apply prior litigation reforms (SB 76) to denied claims; and/or prohibit one-way attorney fees amid failure to file NOIL. 
  • Market reform. Policymakers can support domestic surplus lines insurance companies and/or provide clarification for surplus lines flood insurance. 

The issue is complex, so meaningful legislation within a week will be hard to achieve and face numerous challenges. Changes affecting reinsurance need to be ready for implementation by June, the deadline for reinsurance renewal.   

How did Florida’s property insurance market turn dire? 

Property insurance companies place money into reserves to prepare for the payments of claims, but many Florida companies are experiencing an “adverse development” (losses from claims beyond the holdings in their reserves). Annually, companies are experiencing a $1 billion loss from underwriting, leading many to insolvency. Issues such as natural disasters in and beyond Florida and inflationary pressures on building costs, wages, fuel, and replacement costs have stressed the reserves of companies and caused global reinsurance rates to rise, although it is also fair to say that Florida’s litigated claims are a significant culprit to Florida’s eroding property insurance market. 

What steps have already been taken? 

Since 2019, the Florida Legislature has passed three sets of bills to aid the property insurance market. Together, HB 7065 (2019), SB 76 (2021), and SB 1728 achieved the following: 

  • Alleviated burdens to Citizens Property Insurance: Adjusted methodologies for setting rates and prioritized insurance for primary residences. 
  • Restricted the scope of AOB: Defined and required specific procedures for AOB; established a cap for AOB vendors acting under urgent circumstances, and enabled insurance companies to develop unassignable contracts.
  • Instituted changes to reduce the appeal of litigated claims: Outlined duties of claimants and insurers; changed the system of attorney fees; prohibited contractors from encouraging, instructing, or inducing a consumer to assign benefits to the contractor for the purpose of filing a claim; and reduced property claim deadlines. 
  • Nothing passed both chambers this past legislative session and it will likely take great leadership to secure significant changes in the shortened special session. 

Why should Florida taxpayers care?   

In addition to the exposure individual homeowners face if their property is damaged while uninsured, and the market implications to real estate, construction, and the financial sector, the assessable charges that all ratepayers in Florida face for financial hits to the Florida Insurance Guaranty Association (FIGA), the Florida Hurricane Catastrophe Fund, and Citizens Property Insurance should have us all a bit nervous. 

Florida TaxWatch will monitor developments over the next week and provide additional feedback on changes made…or not.   

Many thanks to Fred E. Karlinsky, of Greenberg Traurig for sharing his insights this week during the “Breakfast Briefing” webinar. 

If you have suggestions for topics we should highlight in future webinars, contact Tony Carvajal at TCarvajal@FloridaTaxWatch.org.   

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