TALLAHASSEE, FLORIDA — Today, Governor Ron DeSantis signed two bills into law that aim to stabilize Florida’s property insurance market and provide relief for victims of Hurricane Ian and Nicole. On Wednesday, both chambers of the Florida Legislature passed what House leadership called “historic” reforms.
After southwest Florida was pummeled by Hurricane Ian, Governor Ron DeSantis called on the legislature to hold a special session to address the strained property insurance market and to provide toll relief to commuters. Both Republicans and Democrats moved quickly under pressure from constituents to make progress during the special session. As a result, three bills were successfully passed in 48 hours by both chambers.
“We’ve obviously seen a lot of problems for a long time in Florida,” said Governor DeSantis. “What I told them [the legislature] is, look, what are other states doing that we’re not? Why do insurance companies leave our state and they have no problem doing business in these other states?”
Consumer protections in the bills would force insurance companies to process claims more quickly and allow regulators to scrutinize the process. But arguments during the special session raised concerns that the legislation would take away some policyholder rights and remove prevailing safeguards for consumers.
UNIQUE STATE, UNIQUE PROBLEMS
Florida is a unique state regarding property insurance. In 2021, Florida accounted for 8 percent of all homeowners’ claims nationwide, but 76 percent of all lawsuits by homeowners also were filed in Florida. Insurers pass those litigation costs to the consumer by increasing premiums to cover their losses and expenses.
Premiums began to rise sharply over the past few years, and nine insurance companies went insolvent. The new bills aim to combat the most significant cost drivers. It also prevents many of the incentives behind what insurance companies argue is the biggest problem – excessive litigation.
The dispute over why there are so many lawsuits was evident during both House and Senate committees on Monday and Tuesday. Republicans in the special session blamed fraudulent trial lawyers, and Democrats blamed the insurance companies for taking too long to process claims.
ONLY 10 PERCENT TO HOMEOWNERS
One-way attorney fees are a significant reason the insurance market has deteriorated rapidly. Under the current law, if a homeowner wins a lawsuit for even one penny over the claim amount, the insurance company must pay the policyholder's attorney fees. Only a handful of states, including Florida, allow one-way attorney fees in property insurance litigation.
According to Senator Jeffrey Brandes, 70 percent of the money paid out by insurance companies last year went to the trial bar, 20 percent went to their defense fees, and only 10 percent went to homeowners.
“We are one of the only states that really facilitates those types of lawsuits and showers a lot of attorney’s fees. Almost no other state does that,” DeSantis said. “And then the question is: if you want to have stable insurance costs, how is that litigation helping you as a consumer?”
“Because if the policy holder’s getting twenty grand and the attorney’s getting four hundred grand, that isn’t necessarily helping the consumer, I can tell you that,” DeSantis added.
Another factor that can lead to costly litigation is an assignment of benefits or AOB. This type of agreement between the owner and the contractor allows the contractor to begin repairs without charging the property owner. Homeowners who experience property damage want repairs made as quickly as possible and may be coerced into signing an AOB to speed up the process.
SWEEPING CHANGES: THE DETAILS
The sweeping changes passed Wednesday by the Legislature after multiple committee revisions will need Governor Ron DeSantis’ signature to become law. Then, Florida homeowners will have to wait for rates to come down.
Here’s the details of the changes:
Citizens’ insured would be required to purchase flood insurance
Policyholders of the state-created Citizens Property Insurance Corporation would be required to purchase separate flood insurance.
The 20 percent rule
Upon policy renewal, Citizens’ policyholders must switch to a primary market carrier if that carrier's premiums are no more than 20 percent higher than Citizens’.
One-way attorney fees
According to insurers, one of the most significant cost drivers is Florida’s one-way attorney fees statute, which requires insurers to pay the plaintiffs’ legal fees if the carrier loses in court. The new laws state that the one-way attorney statute shall not apply to insurance claims litigation.
Assignments of benefits
The bills would prohibit assigning benefits to contractors for residential and commercial claims.
Faster action on claims
The legislation cuts the time allowed for insurers to pay or deny claims down from 90 days to 60 days. But, Florida’s Office of Insurance Regulation (OIR) could extend the time in a state of emergency.
Expansion of arbitration
Insurance carriers may only require arbitration as an alternative to litigation if the company clearly explains the alternative to the homeowner in a separate policy endorsement. Some insurers have already adopted this practice.
More regulatory scrutiny
Suppose an insurance company forces homeowners through the appraisal process unjustly. In that case, they could have their certificates of authority suspended, face fines, and have their actions publicly listed on the OIRs website, according to the bills.
A new layer of state-funded reinsurance would be established – at a significant discount from what the market offers. Reinsurance prices for Florida property carriers have soared by more than 80 percent in recent years, and insurers expect them to rise again in 2023.
WHEN WILL WE SEE THE EFFECTS?
So when can homeowners expect lower premiums and new options for property insurance in Florida?
“It’s going to take six months to one year before we’ll see new companies willing to come to Florida to write new policies,” said Logan McFaddin, Assistant Vice President of State Government Relations with the American Property Casualty Insurance Association.
Florida insurance regulators won’t have detailed data from claims associated with Hurricane Ian and Nicole until at least March, according to Insurance Commissioner David Altmaier. But the Republican majority in both chambers said they are proud of their accomplishments.
House Speaker Paul Renner (R-Palm Coast) said that the priority was to keep insurance companies from going out of business.
“That’s where we are. I don’t like that. Floridians don’t like that,” Renner told reporters on Wednesday. “We’re in a very, very bad spot. So the win today is the hope that we can continue to have insurance for everyone.”
But Democrats said the measures didn’t go far enough. “We’ve heard a lot about stabilizing markets,” House Minority Leader Rep. Fentrice Driskell (D-Tampa) told reporters shortly after the bill passed. “What about stabilizing checkbooks?”
“The proposed legislation sends a strong message that Florida is serious about stabilizing the property insurance market and creating an environment to attract capital and create more options for Florida's insurance consumers,” the Florida Association of Insurance Agents said in a statement.
The Republican majority rejected several proposals by Democrats, including one filed Wednesday by Rep. Anna Eskamani (D-Orlando). Eskamani’s proposal would prohibit bonuses to executives at property insurance companies that raise policy rates.
“There is nothing more disgusting than profiteering off the backs of Floridians,” said Rep. Eskamani.
High executive pay, especially for insurance companies that have gone insolvent, “doesn’t sit well,” according to Renner. “We absolutely have higher expectations coming out of this session for insurers to see that progress.”
The legislation does not address two elements public officials and insurers have said are crucial to curtailing claims litigation and significant losses. The first is limits on public adjusters, and the second is a plan to make it easier for insurers to pay actual cash value – as opposed to replacement value, for damaged structures.