BlogTuesday, April 18 2023
TALLAHASSEE — State insurance regulators last week signed off on a plan that will lead to policyholders throughout Florida paying extra on their bills because of property-insurer insolvencies. Insurance Commissioner Mike Yaworsky issued an order that approved a request by the Florida Insurance Guaranty Association to collect a 1% emergency “assessment” to cover costs of claims. Insurers will collect the assessments from policyholders starting in October and send the money to the Florida Insurance Guaranty Association, according to the order. The assessment will come as property-insurance policyholders throughout the state face soaring premiums. Assessments also will be collected on a variety of types of other insurance policies, though they will not apply to auto insurance. The Florida Insurance Guaranty Association, or FIGA, is a nonprofit agency created by the state to handle claims when insurers become insolvent. It has issued a series of assessments in recent years amid financial problems in the property-insurance industry. Seven property insurers have been deemed insolvent since early 2022. FIGA’s board on March 31 approved seeking the emergency assessment after the insolvency of United Property & Casualty Insurance Co. That insolvency, which led to the appointment of a receiver for the company in February, is expected to lead to FIGA handling hundreds of millions of dollars in claims. Under the plan approved last week by regulators, FIGA is borrowing $150 million in short-term financing to help pay claims. It then will issue up to $750 million in revenue bonds to pay off the short-term financing and to pay remaining claims. Money from the assessments will be used to pay off the bonds. The FIGA website said the 1% assessment will continue until the “bonds have been paid in full.” “The emergency assessment is necessary to secure funds for the payment of covered claims, to pay the reasonable costs to administer such claims, including claims resulting from insurance companies that have become insolvent or may become insolvent as a result of losses incurred due to hurricanes, including but not limited to Hurricanes Irma, Michael and Ian, and to secure bonds issued to generate revenues to pay claims,” FIGA Executive Director Corey Neal wrote in an April 4 letter to Yaworsky. FIGA also collected a 0.7% assessment in 2022. It began collecting an additional 1.3% assessment on July 1, 2022, that is scheduled to end June 30, according to information on the agency’s website. In addition, policyholders are being hit this year with another 0.7% assessment that will end Dec. 31 Private property insurers have dropped hundreds of thousands of policies and sought large increases during the past two years because of financial problems. Along with resulting in FIGA assessments, the problems in the industry have led to explosive growth at the state-backed Citizens Property Insurance Corp. Many state leaders have long warned that if Citizens does not have enough money to pay claims, it could have to collect assessments on policyholders throughout the state. Citizens, which had 1.248 million policies as of April 7, did not need to turn to assessments after last year’s Hurricane Ian and Hurricane Nicole. Thursday, March 30 2023
TALLAHASSEE, Fla. – Today, Governor Ron DeSantis signed House Bill (HB) 837, Civil Remedies, to decrease frivolous lawsuits and prevent predatory practices of trial attorneys who prey on hardworking Floridians. This bill modifies the bad faith framework, eliminates one way attorney’s fees and fee multipliers and ensures that Floridians can’t be held liable for damages if the person suing is more at fault. Additionally, this bill expands immunity for property owners defending against a criminal who is injured on their property while providing uniform standards for juries in calculating medical damages and reducing the statute of limitations for general negligence cases from four years to two years. The Governor proposed this legislation in February before the start of the 2023 Legislative Session. “Florida has been considered a judicial hellhole for far too long and we are desperately in need of legal reform that brings us more in line with the rest of the country,” said Governor Ron DeSantis. “I am proud to sign this legislation to protect Floridians, safeguard our economy and attract more investment in our state.” “When a horrible accident or incident occurs and people suffer a loss, they should be compensated quickly and fairly,” said Senate President Kathleen Passidomo. “The vast majority of attorneys work very hard to provide sound legal representation for Floridians in these difficult circumstances. Unfortunately, there are a few bad actors who are in the business to draw out civil cases as long as possible, collecting more and more fees from insurance companies. Litigation drives up the basic costs of goods and services for everyone across all areas of industry and commerce. Under the leadership of Governor DeSantis, we have taken many steps to help keep Florida affordable for growing families and seniors. This legislation further those efforts striking the right balance and protect the rights of Floridians who suffer a loss, while at the same time safeguarding everyone else against the hidden costs of prolonged litigation.” “Thank you Governor DeSantis for signing transformational legislation to end lawsuit abuse,” said House Speaker Paul Renner. “This legislation prevents frivolous lawsuits and allows good claims to move forward. These reforms make our economy more competitive and Florida more affordable for our citizens and businesses. Thank you to House sponsors Tommy Gregory and Tom Fabricio for your leadership on this bill.” “For too long Florida families have shouldered the hidden cost of lawsuit abuse as Florida’s litigation environment has cost jobs and driven up the cost of goods and services,” said Senator Travis Hutson. “This legislation contains the most meaningful and robust reforms in decades, making numerous changes to Florida’s arduous civil system that will provide transparency to jurors, shorten the time people toil away in civil court, and eliminate unfair practices that bad actors have abused. This bill protects the rights of Floridians who suffer a loss, while providing a solutions to cut down on frivolous lawsuits and prevent predatory practices that prey on hardworking Floridians.” “The reforms Governor DeSantis signed into law returns Florida’s tort system to fundamental American judicial principles that the most responsible pay for the damages they caused and trusts juries to fairly decide cases,” said Representative Tommy Gregory. “This legislation brings balance to the system and protects the legal rights of Floridians to access to the courts while reducing the number of frivolous lawsuits,” said Representative Tom Fabricio. “Thank you Governor DeSantis for your support on this good bill.” This bill modifies the bad faith framework to clarify that negligence alone does not demonstrate bad faith and to require a claimant to act in good faith regarding furnishing information and attempting to settle the insurance claim. Additionally, the bill allows an insurer to limit their bad faith liability when there are multiple claimants in a single action by paying the total policy amount before negotiations for a settlement begin. Additionally, this legislation makes changes to Florida’s comparative negligence system so that a plaintiff who is more at fault for his or her own injuries than the defendant may not generally recover damages from the defendant. Furthermore, the bill expands immunity for property owners who are defending themselves from a lawsuit against a criminal actor who was injured on the property and requires a judge or jury to consider the fault of all persons who contributed to an injury. The bill also adopts the federal standard of eliminating attorney’s fee multipliers and provides that one way attorney fee provision can only be applied in limited situations. By doing so, the bill disincentivizes frivolous lawsuits and prolonged litigation to increase the profit margins of activist attorneys abusing the system. This new legislation also provides uniform standards to assist juries in calculating the accurate value of medical damages in wrongful death or personal injury actions. The bill also reduces the statute of limitations for general negligence cases from 4 years to 2 years. Thursday, January 26 2023
The state-backed Citizens Property Insurance Corp added more than 3,000 policies the week of Jan. 16 as it neared a total of 1.15 million policies, according to data posted on its website. Citizens had 1,148,629 policies, up from 1,145,178 a week earlier. Citizens, which was created as an insurer of last resort, has seen explosive growth during the past two years as private insurers have dropped customers and raised rates because of financial problems. By comparison, Citizens had 759,305 policies at the end of 2021 and 542,739 policies at the end of 2020. Tuesday, January 24 2023
Citizens is updating their eligibility rules to comply with Senate Bill 2-A, passed by Florida legislators during the December 2022 Special Session. This communication covers new business only. We will send information about renewal at a later date. Coverage Requirements
If the above limits are not available from the NFIP, Citizens will accept the maximum coverage amount for which the insured is eligible. Maximum NFIP limits:
Tuesday, December 27 2022
Florida Gov. Ron DeSantis signed a sweeping property insurance bill on Friday. How much and when it will work to stabilize the stormy market are among the questions being asked. One of the key goals of the legislation is to keep the claims process from ending up being settled in courtrooms, a problem that DeSantis said drives up legal costs for insurers. “This bill reins in the incentive to litigate,” DeSantis said before signing the bill in Fort Myers, an area devastated by Hurricane Ian in September. “This is going to make a huge, huge difference.” Florida has struggled to keep the insurance market healthy since 1992 when Hurricane Andrew flattened Homestead, wiped out some insurance carriers and left many remaining companies fearful to write or renew policies in Florida. Risks for carriers have also been growing as climate change increases the strength of hurricanes and the intensity of rainstorms. But beyond being prone to hurricanes, Florida needs to reduce legal costs for insurers, DeSantis said. “Florida’s property insurance market was very good for lawyers. Very good. It’s made a lot of people very, very rich. But the question is, is that in your best interest to have a situation like that? And I don’t think it is,” DeSantis said. The Bill Signed by Governor The draft of the measure was revealed Friday evening, Dec. 9. By Tuesday, Dec. 13, the full Senate voted mostly along party lines, 27-13, to endorse it, with no amendments. On Wednesday, the House approved it 84-33. Most provisions will take effect immediately upon the signing of the bill into law.Lawmakers and insurance groups cautioned that it could still be another two years before remedial effects of the legislation are fully realized. The new law will create a $1 billion reinsurance fund, put disincentives in place to prevent frivolous lawsuits and force some customers to leave a state-created insurer of last resort, Citizens Property insurance, for a private insurer, even if the policy costs more. It will also set more stringent deadlines throughout the claims process to try to insure homeowners don’t face coverage delays. Mimi Bright of Parkland said she isn’t expecting relief for policyholders any time soon, but she’s glad that lawmakers are addressing the subject.
“So much for protecting the consumer, right?” Bright said. Average annual premiums have risen to more than $4,200 in Florida, which is triple the national average. About 12% of homeowners in the state don’t have property insurance, compared to the national average of 5%, according to the Insurance Information Institute, a research organization funded by the insurance industry. Insurance Losses The insurance industry has seen two straight years of net underwriting losses exceeding $1 billion in Florida. Six insurers have gone insolvent this year, while others are leaving the state. But Democrats opposed the bill, saying it doesn’t do anything to help stop huge rate increases and cancellations that homeowners are struggling with. The legislation will remove “one-way” attorney fees for property insurance, which require property insurers to pay the attorney fees of policyholders who successfully sue over claims, while shielding policyholders from paying insurers’ attorney fees when they lose. It will also eliminate the state’s assignment of benefits laws, in which property owners sign over their claims to contractors who then handle proceedings with insurance companies. The bill would force people with Citizens policies to pay for flood insurance and require moves to private insurers if they offer a policy up to 20% more expensive than Citizens. Citizens recently topped 1 million policyholders for the first time in a decade. In a plus for consumers, it will also speed up deadlines for insurance companies to respond to and act on claims. To help at a time when companies are slammed with claims, the law allows insurers to begin the claims process through video, photos and teleconferences rather than sending an agent to every damaged property. The new law comes as Insurance Commissioner David Altmaier steps down from his position. DeSantis said Friday the position has already been posted. DeSantis also signed a bill to provide property tax rebates to people whose homes were left uninhabitable by Ian. The bill also provides money for recovery. Wednesday, December 21 2022
Earlier this week, Florida’s Legislature approved the boldest and most comprehensive property insurance reforms in decades. This morning, Governor Ron DeSantis signed SB 2A in Ft. Myers Beach, surrounded by Florida’s legislative leaders, the bill’s sponsors, and insurance consumers. Senate Bill 2A addresses a wide variety of topics, including: Reinsurance Senate Bill 2A creates the Florida Optional Reinsurance Assistance (FORA) Program within the Florida Hurricane Catastrophe Fund (FHCF). The FORA Program provides four layers of optional reinsurance at “reasonable rates” (50–65 percent rate online), starting at the FHCF attachment point and proceeding downward. Claims Filing Deadline Senate Bill 2A reduces the claims filing deadline from two years to one year of the date of loss for new or reopened claims. The bills provide 18 months for supplemental claims. Office of Insurance Regulation (OIR) Regulations Senate Bill 2A provides additional authority to the OIR to subject any authorized insurer to a market conduct examination. Insurance Company Duties Senate Bill 2A amends the prompt-pay statutes to ensure timely claims handling. This is accomplished by:
Attorney Fees Senate Bill 2A repeals the one-way attorney fee statutes for litigated property (commercial and personal lines) insurance claims. The bill also provides other legal reforms addressing abusive litigation tactics. Assignment of Benefits Senate Bill 2A prohibits the use of assignment of benefits, in whole or in part, of any post-loss insurance benefit under any property (commercial and personal lines) insurance policy issued on or after January 1, 2023. Citizens Reforms Senate Bill 2A includes several provisions addressing the growth and exposure of Citizens. Additionally, SB 2A provides a phased-in flood requirement for Citizens’ policyholders. These provisions include:
Continuation of Coverage The Legislature included a provision that provides the insurance commissioner discretion to extend the 30-day cancellation period of policies of an insolvent insurer to 45 days to provide more time for agents to replace coverage for consumers. Tuesday, December 20 2022
After years of what some insurers have labeled half-measures, Florida lawmakers appear to be on the cusp of delivering “historic” and “transformational” reforms that would end one-way attorney fees, banish assignments of benefits and offer state-backed reinsurance at a discount. House Bill 1A and Senate Bill 2A were posted late Friday, just three days before a special legislative session that begins today. The bills were met with widespread applause from insurance industry leaders, attorneys and consultants. “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. After nine insurer insolvencies in the last three years and spiking premiums across the state, the bills aim to tackle the major cost drivers, including the incentives behind what insurers have dubbed runaway claims litigation. They also would address other cost factors and provide some consumer protections that would force insurers to pay or deny claims more quickly, to be more judicious about demanding the appraisal process in claims disputes, and face new scrutiny from regulators. An attorney who represents property owners said the proposals take away policyholders’ rights and eliminate longstanding safeguards designed to level the playing field between insureds and well-heeled insurance companies. Here’s a look at the bills’ proposed changes: Mandatory Flood Insurance for Citizens’ Insureds The measures would require policyholders of the state-created Citizens Property Insurance Corp. to also purchase flood insurance. The bills provide a timetable for phasing in the requirement, with more expensive properties needing it first, by March 1, 2024. All policies would need flood insurance by March 2027, regardless of the property’s elevation or location. The idea was discussed in the Capitol in the mid-2000s but never gained traction. Now its time has come, said Scott Johnson, a longtime insurance consultant and educator who recently broached the possibility of reviving it. “I was surprised that’s in the bill now,” Johnson said Sunday. He has argued that insureds who receive payouts on water losses after a storm are less likely to file suit over whether the damage was from wind or floodwaters, which could help reduce Citizens’ staggering litigation defense costs. “Most of the people in Citizens are probably candidates for flood insurance and it’s really just a prudent way to make sure claims can get paid, because in the end, a lot of those claims were not wind claims, they were flood claims,” said Fred Karlinsky, an insurance defense attorney and lobbyist for the industry. The 20% Rule The bills also revive a plan that would essentially force Citizens’ policyholders to switch to a primary market carrier if that carrier’s premiums are no more than 20% higher than Citizens’, upon renewal. Citizens’ premium increases are limited by law – the main reason the insurer has become the largest carrier in Florida, with some 1.2 million policies in force. A similar provision was included in SB 1728, which was approved by the state Senate in the regular 2022 legislative session. The bill died when the House did not approve it before the 60-day session came to a close. The new bill also would allow Citizens to combine its three accounts (personal lines, coastal and commercial) into one. That would let Citizens access its entire surplus to pay claims and would limit the potential surcharge or assessment on policyholders – from one charge per account to a single surcharge, if the corporation runs a deficit. Expansion of Arbitration The bills would codify what a few insurers have already adopted: binding arbitration clauses. Insurance carriers would not be allowed to require arbitration as an alternative to litigation unless it is clearly explained in a separate policy endorsement, the insured is offered a premium discount in exchange, and the policyholder signs a form accepting the clause. One-way Attorney Fees On the biggest cost drivers, insurers have said for years, is Florida’s claimant-friendly one-way attorney fees statute, which requires insurers to pay the plaintiffs’ legal fees if the carrier loses in court. The law has been in effect, in one form or another, since 1893, and is more akin to the English rule of law, according to a legislative staff analysis of the newly drafted bills. In 2016, a famous Florida Supreme Court decision underscored the legitimacy of the practice. That, along with fee multipliers, have caused fees to explode in recent years and has been the incentive behind Florida’s out-of-control claims litigation industry, insurance advocates have said. HB 1A and the nearly identical SB 2A address legal fees head-on, stating flatly that the one-way attorney statute shall not apply to insurance claims litigation. A court could award fees to the prevailing side after a dispute is adjudicated, the bill’s sponsor explained in a Senate committee meeting Monday. Assignments of Benefits The bills also would prohibit AOBs for residential and commercial claims, a move that a growing number of insurance executives have called for. Assigning benefits to restoration companies is one of the biggest cost escalators because it gives contractors an unnatural incentive to inflate estimates and scope of repairs, critics have said. And when insurers balk at the claims, the assignees are often quick to sue. Bad-faith Litigation For years, insurance defense attorneys have argued that Florida’s statutes make it too easy for plaintiffs to file bad-faith actions against insurers, long before a case has been fully adjudicated and even if claims have been paid. The special session bills would bar bad-faith claims until after a court has decided that the insurance company breached the policy contract. Faster Action on Claims The proposed legislation would cut the time allowed for insurers to pay or deny claims, from 90 days to 60. The Florida Office of Insurance Regulation could extend the time in states of emergency or if the insurer suffers a cyber attack or other computer system failure. The bills also reduce the time that insurers have to review and acknowledge a claim communication, from 14 days to a mere seven. Inspections would have to be done in 30 days, even after a hurricane. All of that could force insurers to hire staff to meet the new demands, or at least to become more efficient. Insureds also would have less time. Instead of two years, as was required in 2021 legislation, policyholders would have only one year after the date of the loss to file new or reopened claims. For supplemental claims, the deadline would be shortened from three years to 18 months. More Regulatory Scrutiny Insurers that unjustly compel claimants to turn to the appraisal process could have their certificates of authority suspended, face fines from the OIR, and be publicly named and shamed on the OIR website, the bills note. The staff analysis of the bills did not explain what prompted the section, and its inclusion surprised some industry insiders. Insurers have said the appraisal process can provide a fair method method to determine the cost of damage to a property, with the use of three independent appraisers. But a plaintiffs’ attorney said that some property insurers have abused the process by underpaying a claim, then immediately invoking the appraisal route, which delays resolution and adds expense for insureds. “This practice ignores the obligation to adjust the loss with the insured and instead allows an insurance company to avoid its duties to try and resolve the claim,” said Gina Clausen Lozier, a plaintiffs attorney in West Palm Beach. “The appraisal process often requires an insured to incur additional costs for appraisers and an umpire which may have been unnecessary if the insurance company had taken the opportunity to properly adjust the claim with the insured.” Karlinsky said he didn’t know if appraisals had become such an issue. “I think the Legislature wants to put some guardrails around things and we understand the need to do that,” said Karlinsky, who, as a registered lobbyist, has represented almost two dozen insurers in recent years. Under the bill, OIR also would have new authority to require more information in insurers’ quarterly reports, which currently includes policy counts, premium written and exposure by county. Many insurers have claimed that such data is considered “trade secrets,” leaving an incomplete picture for stakeholders, regulators and the public, critics have said. Regulators also would be able to subject insurers to a market conduct examination after a hurricane, the bills note. The legislation, if signed into law, also would provide OIR with an extra $1.76 million per year to hire new staff to keep up with its new responsibilities. The move may address concerns that some lawmakers expressed at the May special session, that OIR was understaffed and was not aggressive enough in bird-dogging struggling insurance companies. Low-cost Reinsurance Crucially, the FAIA leadership and others said, SB 2A and HB 1A would provide a new layer of state-funded reinsurance – at a significant discount from what the market offers. Reinsurance prices for Florida property carriers have soared by more than 80% in recent years and are expected to rise again in 2023, according to market reports and the bill analysis. Those costs have been a significant factor behind several recent insolvencies, troubled carriers have said. The bills would establish the Florida Optional Reinsurance Assistance Program, or FORA. The coverage would begin at the Florida Hurricane Catastrophe Fund’s attachment point, currently at about $8.5 billion for the industry, and would cover up to $5 billion in losses below that. Rates would range from 50% to 65% lower than private reinsurance market rates. It would be funded with $1 billion in state funds and from premiums paid by participating insurance companies. The less-extensive Reinsurance to Assist Policyholders (RAP) fund, established at the May special session, would continue for at least another year. FAIA President Kyle Ulrich said the new program will help stabilize the Florida property insurance market. Karlinsky said lawmakers are using the tools they have, but that the FORA plan may not go far enough. What the Bills Don’t Address Somewhat surprisingly, the measures do not address two elements that public officials and insurers have said are crucial to putting the brakes on claims litigation and outsized loss adjustment expenses: limits on public adjusters, and on ways to make it easier for insurers pay actual cash value, as opposed to replacement value, for damaged structures. Florida’s chief financial officer, Jimmy Patronis, and others have said that southwest Florida was practically overrun with public adjusters just days after Hurricane Ian damaged thousands of homes in the area, and he called for slashing fees that adjusters can charge and for more prosecutions of those who violate the law. “Florida’s problem won’t be completely solved until you get public adjusters out of there,” Johnson said. The actual-cash-value issue was partly addressed in May, when lawmakers revised statutes that had required full replacement of roofs when only small parts were damaged. The Session The new bills, some of the first to be considered by the newly elected 2023 Legislature, were said to have been drafted by House and Senate leadership, with input from the Florida governor’s office. But industry insiders pointed out that state Sen. Jim Boyd, R-Bradenton, the longtime chair of the Senate Banking and Insurance Committee and an insurance agent himself, is the sponsor of SB 2A and likely crafted most of the bill language. Boyd was instrumental in crafting the two bills that moved quickly through the May special session. And if next week is anything like that session, the bills will see few changes in committee or on the floor. With Republicans having a larger majority now than in May, the measure are expected to sail quickly through the chambers, with a final gavel as soon as Wednesday. Both chambers convene today at 10:30 a.m. and Senate committee meetings start at noon. The FAIA cautioned stakeholders not to expect an immediate improvement in insurers’ finances or a rapid drop in insurance premiums. Karlinsky noted that whatever reforms are passed this week, they will probably be challenged in court by contractors and trial lawyers, a process that could take a few years to resolve. “I would applaud the Legislature and the governor for trying to fix something that has been plaguing Florida citizens for too long, and hopefully this will stem the tide of some of the ills we have faced for many many years,” Karlinsky said, calling the proposed legislation “pretty transformational.” Thursday, December 15 2022
Ahead of this week’s special legislative session in Florida, the AM Best financial rating firm predicts that “without immediate and substantive long-term legislative reforms,” further insurer insolvencies are on the near-term horizon. “The outcome of the special legislative session could affect the capital allocation strategies of reinsurers that have to decide where to invest their dollars in the coming year,” according to David Blades, AM Best associate director for industry research and analytics. Counting six insurers declared insolvent already since late February, the commentary, “Florida Government Seeks to Repair Property Insurance Market,” highlights declining capacity in a state trying to recover from Hurricane Ian, and the mushrooming size of the state-backed Citizens Property Insurance Corp. Rising Florida claims costs aren’t just attributable to catastrophe exposures in the state, but also to a highly litigious Florida environment. “This higher risk and higher cost environment needs to be considered to ensure there are dollars available to pay insurance claims. Without changes to reduce the costs in the system and better manage the impact of catastrophes, further insolvencies are likely,” AM Best analysts wrote in the commentary. The state is now depending on Florida specialist carriers, which are especially vulnerable given their weaker balance sheets (compared to national carriers) and overreliance on reinsurance for balance sheet protection and short-term capital. The special legislative session that began today, Dec. 12, will seek to implement long-term reforms to address challenges posed by one-way attorneys’ fees, assignment of benefits (AOB) issues and roof coverage reforms to help stabilize Florida’s property insurance market. “AM Best views long-term solutions as the only way to attract large national players, as well as new capital, back to the market in earnest; however, carriers are unlikely to take such a step until necessary reforms have taken hold and once prevailing rates are sufficient to cover the risks they must bear,” the report says. “Public policy initiatives need to consider how to make Florida attractive to national insurers and reinsurers, to incentivize them to expand their appetite for Florida risks,” said Sridhar Manyem, director, industry research and analytics, AM Best, in a media statement announcing the commentary. “Absent that, a lack of competition may continue to fuel affordability issues for primary insurers with respect to reinsurance and consumers in need of basic homeowners’ coverage.” Blades added: “Although claims stemming from Hurricane Ian at this point are lower than that of 2017’s Hurricane Irma, the rising reinsurance costs could reach a breaking point for many primary insurers in June 2023, when Florida property-catastrophe reinsurance programs are scheduled for renewal.” The report describes reforms signed into law this year following a May 2022 special session. Those included establishment of the “Reinsurance to Assist Policyholders” (RAP) program. The RAP provides $2 billion of reinsurance coverage to insurers at no cost in exchange for lower premiums for policyholders. Sitting below reinsurance coverage from the Florida Hurricane Catastrophe Fund, the RAP coverage is available in the event of a hurricane, the report says. AM Best adds that while the rate reduction requirement may provide some relief for consumers, it does not address rate inadequacy issues driven by litigation, worsening weather activity, and escalating reinsurance pricing. Other reforms passed at the May session prohibited awards of attorneys’ fees to an assignee in AOB litigation, and curbing the use of contingency fee multipliers in fee awards. Both fell short of repealing a one-way attorney’s fee rule in the state (which permits policyholders filing lawsuits to recover legal costs when they prevail in court but prohibits insurers from doing the same). Echoing what many insurers and defense attorneys have said for years, AM Best described the one-way rule as “the driving force of behind the litigation crisis in Florida.” Reinsurers have shown by their actions that they don’t think piecemeal measures will have a significant impact on social inflation. “Some reinsurance companies have decided to drastically reduce their property cat exposures in Florida by shifting towards higher attachment points, lowering limits, and being more selective with respect to their cedents’ track records—despite a hardening market, with rate increases in the double digits,” the report reads. Thursday, December 08 2022
A list of potential fixes await Florida lawmakers next week during yet another special legislative session aimed at stabilizing the state’s insurance market. But before enacting any reforms that could quell spiraling property insurance premiums, lawmakers will hear impassioned arguments by advocates for private insurers and their adversaries — repair contractors and the plaintiffs’ attorneys who represent them. Senate President Kathleen Passidomo, R-Naples, and House Speaker Paul Renner, R-Palm Coast, released a formal session proclamation Tuesday scheduling the special session from Monday to Dec. 16. While bills have not yet been filed, the proclamation lists seven insurance-related topics for consideration and three others that would provide relief to consumers and victims of hurricanes Ian and Nicole. According to the proclamation, the Legislature will consider reforms that would:
Two other goals not directly related to the insurance industry would provide tax relief and other financial help to victims of hurricanes Ian and Nicole, provide additional ways to support disaster response, recovery and relief efforts by the state Division of Emergency Management, and establish a statewide toll credit program for frequent Florida commuters. Even before specific legislation has been filed, representatives of the two major interest groups — insurers and trial lawyers — that would be affected by reforms have begun making their cases to the public. At the Florida Chamber’s annual Insurance Summit in Orlando on Tuesday, insurance industry insiders called for legislation they hope would end or sharply curtail practices they say have led to spiraling costs, high homeowner premiums, and the nation’s highest rate of claims litigation. Currently Florida is responsible for 7% of the nation’s insurance claims and 76% of its property insurance lawsuits, according to data compiled by the National Association of Insurance Commissioners. Insurers have posted five straight years of collective operating losses and were poised to lose $1 billion in 2022 before Ian and Nicole hit the state. The two storms caused $1.2 billion in losses in the third quarter alone, Citizens President and CEO Barry Gilway reported. Meanwhile, six insurers were declared insolvent prior to the storms and another, St. Petersburg-based United Property & Casualty, was placed under administrative supervision by the state Office of Insurance Regulation on Monday after reporting a $173 million net loss in the third quarter. The order requires the company to wind down operations before the 2023 hurricane season begins on June 1. Policyholders displaced by carriers’ insolvencies and financial losses have had little choice but to buy coverage from Citizens, the state’s insurer of last resort. Citizens’ policy count has increased from 708,000 in 2021 to 1.13 million now, and Citizens projects it will increase to 1.68 million by the end of next year. Lawmakers and industry officials have long expressed concerns that Citizens could grow too big, exposing nearly all insurance customers in the state to special assessments if the company is unable to pay claims after a series of major storms. Curtailing Citizens’ growth requires strengthening the private insurance market by reducing incentives to sue carriers, summit participants said. One incentive insurers want eliminated is the so-called “one-way attorney fee” law. Insurers say the law encourages litigation by awarding legal fees when claims disputes are settled for any amount, even $1, over insurers’ original offers. The “one-way” moniker stems from the fact that homeowners named in suits against insurance companies aren’t required to pay insurers’ legal fees if their lawsuits do not succeed. That encourages attorneys to try to overwhelm insurers by filing multiple lawsuits, even over the same claim, in the expectation that they will settle instead of incurring costs of prolonged litigation, insurers say. David Altmaier, Florida’s insurance commissioner, said he expected the Legislature to repeal the state’s “one-way attorney fee” law next week. “Now is as good an opportunity we’ve ever had to do this,” he said during a panel discussion at the summit. He later added, “It looks like we’re probably going to be there this session.” Insurers are also hopeful that the Legislature will agree to further restrict the ability of policyholders to sign over benefits of their insurance claims to third-party repair contractors. Contractors use assignments of benefits (AOBs) to stand in homeowners’ shoes and sue insurance companies in policyholders’ names, insurers say. Armed with AOBs for roof damage and non-weather-related water claims, contractors submit inflated invoices and sue when insurers underpay or refuse to pay them, insurers say. AOB reforms enacted in recent years have curtailed but not stopped abuses, insurers said. Christine Ashburn, chief of communications, legislative and external affairs for Citizens, said that although a previous reform reduced availability of attorneys’ fees in lawsuits involving AOBs, “we’re still seeing three to four AOBs per claim.” At resource centers set up to connect homeowners with their insurers, contractors were handing out business cards to crying residents “who hadn’t even been back to their homes,” she said. Ashburn said the solicitations “proved our point” and added, “We just think AOBs need to go away. Just forget them.” Plaintiffs’ attorneys, however, say their services would not be needed if insurers paid claims in full and on a timely basis. A YouTube video uploaded by attorney Steven Bush and shared widely by plaintiffs’ attorneys on Monday accused unnamed insurance companies of fraudulently changing damage estimates prepared by insurance adjusters after Hurricane Ian. Three adjusters interviewed in the video said insurers reduced the scope of damages on the estimates without their knowledge or consent, yet left the adjusters’ names on the estimates. In one example, an adjuster said his full-roof replacement estimate was altered by an insurer to make it appear that he recommended replacement of only 498 tiles. Commenting by email about the upcoming special session, Maitland-based attorney Imran Malik said, “The current narrative seeks to portray lawyers as the problem when in reality we are only hired because an insurance company is not paying what they are contractually obligated to do.” Next week’s session will be the second this year to deal with the insurance crisis. In May, concerns that many private companies were not healthy enough to secure needed reinsurance before hurricane season prompted the Legislature to create a $2 billion taxpayer-funded reinsurance fund to supplement private reinsurance and the state’s Hurricane Catastrophe Fund. Legislators are expected next week to consider making more reinsurance capital available to keep vulnerable companies afloat until reforms begin reducing losses. Yet, global providers of reinsurance capital remain reluctant to invest in Florida companies without reforms to reduce litigation, said Joanna Syroka, senior underwriter and director of new markets at Fermat Capital Management LLC, a Connecticut-based investment management firm specializing in insurance-linked securities. She noted that reinsurers used traditional loss expense modeling to project that losses from 2017′s Hurricane Irma would total $18 billion. But in the five years after Irma, late-filed claims and legal costs — known euphemistically as “social inflation” — drove those losses up by another $12 billion. The additional losses have triggered a “loss of trust” in Florida among reinsurers, she said. Now, she said, “all eyes are on Hurricane Ian,” with projected losses of $41 billion, Syroka said. “Will we see another $10 billion in social inflation? Will it be more? Will it be less? At this stage, we need evidence that these [proposed] changes will make a difference.” Thursday, December 08 2022
Getting insurance coverage from state-owned Citizens Property Insurance Corp. could become more expensive if state lawmakers agree that the company’s artificially low rates are hurting Florida’s private insurance market. Citizens wants to be the insurer of last resort, and not the insurer with the lowest premiums. Homeowners have turned to Citizens over the past three years as spiraling losses have forced private market companies to fold, raise rates, and stop writing new business in the state. Since 2019, Citizens’ policy count has increased from about 420,000 to 1.13 million, and Citizens projects it will increase to 1.68 million by the end of next year. Company leaders are hoping that the Florida Legislature, during a special session on insurance issues scheduled next week, will consider measures that would make the company less financially appealing to customers and compel them back to a more-expensive private company. A proclamation announcing the special session listed, among numerous goals, an intention to enact reforms that would “foster the transition” of Citizens policies to the private insurance market. Officials have long said the most effective way to accomplish that goal would be to hike Citizens’ costs. No specific bills have been filed for the special session, but Citizens officials acknowledged Wednesday that they have had discussions with leaders of the state House and Senate and governor’s office to convey what they would like to see enacted. Barry Gilway, Citizens’ president and CEO, on Wednesday told the company’s Board of Governors that Citizens’ average premium of $3,227 is 44% lower than the $5,788 average that the private-market customer pays. “We’re not a residual [last-chance] market, we’re competing openly with the private marketplace. We don’t want to, but we are,” Gilway said. Later he added, “The reality is we are ridiculously competitive and we need relief relative to overall rates.” In 2021, average Citizens premiums were 36% lower than the private market. The spread was wider in counties north of the South Florida metro area — more than 50% less in Pinellas or Pasco counties, he said — and “maybe” 20% lower in Broward and Miami-Dade counties. “You’ve got insureds who are coming to us from insolvent insurers and we’re saying, ‘Welcome, here’s a 30% discount.’” Gilway called for a “fundamental fix” that would bring Citizens’ rates close to what’s known in insurance circles as “actuarial soundness” — which means what a normally functioning company would need to charge in the private market to pay off all claims, cover overhead and make a small profit. But Citizens isn’t a normal company, and it’s been providing artificially low rates since at least 2007, when then-freshly elected Gov. Charlie Crist convinced the legislature to temporarily freeze Citizens rates. In 2009, Crist and the Legislature ended the freeze but enacted a new law that prohibited average annual rate increases of more than 10%. Prior to the price freeze, Citizens’ rates were calculated using a formula designed to ensure they remained more expensive than the 20 largest private market insurers. The formula was intended to prevent Citizens’ rates from becoming too attractive to homeowners, and to keep the company as the insurer of last resort. Instead, the 10% rate cap drove Citizens’ rates lower as private market companies were allowed to raise rates 20%, 30%, 40% and more. Citizens can keep rates artificially low because, among other reasons, it’s not required to turn a profit on operations and is able to generate income off of its $4.4 billion surplus, which was $6.8 billion before factoring in $2.4 billion in losses from Hurricane Ian this fall. In 2021, Gov. DeSantis signed a bill allowing Citizens to increase the rate cap each year from 10% by an additional 1% a year over five years. The first increase, to 11%, took effect on Aug. 1 and the second hike to 12% will take effect on Jan. 1. But the Florida Office of Insurance Regulation in June rejected a bid by Citizens’ Board of Governors to raise all customers’ rates by the new maximums, saying their methodology for determining those increases differed from historical norms that required rate decreases for some customers where warranted. During Wednesday’s meeting and at a Florida Chamber-sponsored insurance summit the previous day in Orlando, Citizens officials signaled that they haven’t given up trying to persuade the Legislature to enact measures that would increase the company’s rates. “I do believe Citizens will be on the table next week,” said Christine Ashburn, the company’s chief of communications, legislative and external affairs, at the insurance summit on Tuesday. Which ideas might emerge for debate during the session — and how many lawmakers would be willing to vote for ideas that would increase, and not lower, homeowners’ insurance rates — remains to be seen. Gilway mentioned pitching two specific reform proposals but said he had no idea whether any would show up in bills to be filed for the session, which begins Monday. Citizens officials mentioned several ideas on Tuesday and Wednesday that have been previously raised but not enacted:
Tightening eligibility thresholds, Ashburn said at the summit, would encourage investment in private-market companies. Reforms would create a large pool of eligible customers with no pending litigation or open claims for private companies to take out and rely on to build a profitable book of business. |
