Florida Property Insurance Changes

Lawmakers of both political parties agreed that the homeowners’ insurance market is in a crisis that has been escalating for years. Six Florida insurance companies have gone out of business in 2022 alone.

Why? While Florida, in 2019, accounted for 16% of homeowners’ claims, it accounted for 76% of the nation’s litigated homeowners’ claims. Litigation is very expensive, and since the major homeowner’s insurance companies severely limit their business in the state due to hurricanes and litigation, most insurance companies doing business in Florida are far smaller, with pockets that are not nearly as deep. Additionally, insurers have dropped hundreds of thousands of policies or sought large rate increases due to financial losses. At the same time, “the insurer of last resort,” the state-backed Citizens Property Insurance Corp., has seen its number of policies more than double to $1.14 million.

The five largest national homeowners’ insurance companies in the country account for over 50% of the U.S. market outside of Florida, but just 15% of the market in Florida.

So, what’s in the bill that may serve to mitigate the situation and hopefully lower insurance costs?

It would allow insurers to offer policies that require the policyholder to engage in mandatory, binding arbitration instead of far more expensive lawsuits. This policy must be cheaper, according to the new law, than one without binding arbitration.

Before moving on to number two on our list, a word about reinsurance. Reinsurance is insurance that an insurance company purchases from another insurance company to insulate itself (at least in part) from the risk of a major claims event. This technique often allows insurance companies to remain solvent after major claims events (hurricanes, wildfires, etc.). The reinsurer may simply be another insurance company or a specialist in reinsurance alone. A couple of examples of reinsurers are Berkshire Hathaway and Lloyds of London.

Insurance companies have often cited the high cost of reinsurance (which, of course is passed on to the policyholder). To address this issue, lawmakers created a $1 billion taxpayer funded program to offer reinsurance.
The law eliminated the long-controversial practice of assignment of benefits for property insurance claims. Assignment of benefits involves policyholders signing over claims to contractors, who then pursue payment from insurers. Insurers contend the practice has led to increased lawsuits.
The bill also speeds up the process after a claim, requiring insurance companies to act quicker to satisfy claims. It reduces the time for insurers to pay or deny the claim from 90 to 60 days. It also requires insurers to review and acknowledge a claim from 14 to 7 days, and to begin an investigation from 14 to 7 days. Finally, the time allowed for an insurer to do a physical inspection will be shortened from 45 to 30 days.
The bill allocates $1.7 million for Florida’s Office of Insurance Regulation to investigate bad faith carriers and hire and retain staff they need to properly regulate the industry.
The elimination of one-way attorney fees. As we stated above the plethora of lawsuits is one reason home insurance is so high. The chief driver of the lawsuits is a provision known as “one-way” attorney fees in property insurance cases. One-way attorney fees allow the plaintiff (policyholder) to recover attorney fees but not the defendant (the insurer). The practice often incentivized unwarranted litigation.
The legislation attempts to depopulate the Citizens Property Insurance Corporation and move policyholders to private insurers. Why? The larger the number of policies held by Citizens, the greater the risk to Florida taxpayers after a disaster. For example: Citizen’s policyholders now can’t renew their coverage if they receive private-insurer coverage within 20% of Citizens premium costs. The bill also adds a requirement that Citizen’s customers buy flood insurance which is not included in other homeowners’ policies.

A.M. Best, the largest credit rating agency focusing on the insurance industry, said that “If these measures prove effective, they could significantly lower insurers’ defense and cost containment expenses.”

Let’s hope so.