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Wednesday, February 24 2021

Three bills currently working their way through the Florida Legislature are designed to tackle the rising costs of homeowner roof claims, the costs of attorney fees in homeowner’s claims and issues surrounding notice to insurance carriers.

The proposed legislations come less than two years after Florida enacted an assignment of benefits law for homeowners’ property claims. But these latest efforts are meant to address the increasing costs of homeowners insurance due to market forces that were not addressed by the 2019 AOB bill. While these bills are preliminary and not law yet, it shows a shift in the legislature to reel in the liberal rules of lawsuits relating to property insurance claims.

Among the bills currently being considered is Senate Bill 76, which amends Florida statute (627.428) to award attorney’s fees for claims arising under the lodestar fee. Deviation from this method would be reserved for only rare and exceptional circumstances that competent counsel could not be retained in a reasonable manner.

The lodestar method determines what a reasonable fee for an attorney would be and requires the following determinations:

  • The number of hours reasonably worked on the case;
  • A reasonable hourly rate to apply to the related hours.
  • The reasonable amount of hours would be multiplied by the reasonable hourly rate creating the lodestar number.

Further, SB 76 would allow insurance carriers to limit coverage on roof claims. Under the provision, a carrier can include a roof surface reimbursement schedule endorsement to the insurance policy, which allows for reimbursement for repairs, replacement and installation based on the annual age of a roof surface type, unless the roof is less than 10 years old. The schedule also would provide reimbursement amounts of no less than 70% for metal roofs, 40% for concrete, clay tile, wood shaker, and shingle roofs, and 25% for any remaining roof types.

SB 76 also extends certain statutes to cover all property insurance claims instead of just a windstorm or hurricane claim, which would bar property claims if the insurer is not provided notice of claim or supplemental claim within two years of the date of the loss.

The bill, if passed, would add a statute (627.70152), which would affect all property insurance policy lawsuits. Specifically, the statute would require any claimant(s) to provide at least 60 days’ notice of their intention of initiating litigation against their insurance carrier prior to filing the lawsuit.

The notice must include:

  • The alleged acts or omissions of the insurer;
  • The insured’s demand;
  • Reasonable and necessary attorney’s fees incurred by claimants via calculation of the lodestar fee.

The new provision would give carriers the ability to inspect and evaluate the demand and allow the carrier to abate any lawsuit if said notice was not provided in compliance with the proposed statute. Attorney’s fees under this statute would provide a similar sliding scale structure as the assignee of an assignment of benefits related to property insurance claims and would be based on a demand to judgment quotient. SB 76 was approved by the Senate Banking and Insurance Committee and is awaiting a hearing by the Judiciary Committee.

The Florida House of Representatives’ companion bill to SB76 – House Bill 305 – would amend the same statutes as SB 76, except it does not involve adding the claimant’s requirement to provide notice of intent to initiate litigation proposed in SB76. This bill is currently awaiting a hearing by the House Banking and Insurance Subcommittee.

The Florida Senate also introduced Senate Bill 212 as a standalone bill addressing just the attorney’s fees issue of reasonableness and multipliers. SB 212 would only entail adopting the lodestar fee for property insurance policy lawsuits. SB 212 is currently awaiting a hearing by the Florida Senate Banking and Insurance Subcommittee.

These bills would provide insurers the ability to address the growing number of roof claims that were either not damaged by wind or hail or could be repaired yet facing litigation due to insureds, or their representatives, demand full replacement. Further, SB 76 would force claimants to provide notice to a carrier of their intent to file their lawsuit, giving the carrier an opportunity to re-evaluate the claim.

All three of these bills would go into effect on July 1, 2021 if passed and signed by Governor Ron DeSantis.

Monday, February 22 2021

If the nearly 4.3 million residential homes (1-4 units) across the country with substantial flood risk were to be insured through the National Flood Insurance Program (NFIP), the NFIP rates would need to increase 4.5 times to cover the risk today.

New research, The Cost of Climate, from First Street Foundation, a nonprofit research and technology group working on flood risk, quantifies the financial impacts of flood risk carried by American homeowners, and how those impacts are growing as flood risks worsen due to a rapidly changing climate.

First Street Foundation researchers calculated average annual loss (AAL) statistics for each residential property in the contiguous United States, which is the dollar value of damage associated with flood risk each year. The foundation found that while the total expected annual loss for the estimated 4.3 million properties with substantial risk is $20 billion this year, it grows to nearly $32.2 billion a year in 30 years – an increase of 61% – due to the impact of a changing climate.

These estimates suggest the NFIP, which has lost more than $36 billion since its inception, will face growing losses in the years ahead without reform.

“Quantifying flood risk in economic terms creates a new context for homeowners to understand their risk, and for buyers to consider when evaluating a property,” said Matthew Eby, founder and executive director of First Street Foundation. “Flood risk brings with it real and potentially devastating financial impacts that aren’t being priced into the market. We’re providing key insights into how flooding can impact the financial bottom line of property owners along with solutions that can protect their largest investment.”

The Foundation’s analysis was conducted in part with home value data acquired from ComeHome by HouseCanary.

The Federal Emergency Management Agency (FEMA), which runs the NFIP, is working to change the pricing of flood risk at the individual property level to more accurately reflect the risk of today’s climate through the forthcoming “Risk Rating 2.0” initiative. The FEMA rating change will set new premiums for properties both inside and outside of Special Flood Hazard Areas (SFHA) based on their individual flood risk.

However, that risk-based pricing has been delayed. FEMA had initially announced that new rates for all single-family homes would go into effect nationwide on October 1, 2020, but decided it needed additional time to broaden its analyses of the proposed rating structure across its entire book of business, so that it included communities behind levees. FEMA delayed implementation of Risk Rating 2.0 by one year to October 1, 2021.

The FEMA extension means all NFIP policies – including, single-family homes, multi-unit and commercial properties – could change over to the new rating system at one time instead of a phased approach as originally proposed.

Private flood insurers approach risk assessment and pricing differently and offer different limits and endorsements than the NFIP.

Climate Impact

First Street Foundation’s new report highlights the impact that climate change and a risk-based approach could have on individual homeowners. The 2.7 million properties at risk outside the SFHA would require a 5.2 times price increase to roughly $2,484 a year to cover their current risk. The 1.5 million properties within SFHAs, which are mandated to buy flood insurance if they hold a federally backed mortgage, would require an increase of 4.2 times, to $7,895 a year.

“If the necessary adjustments to premiums were put in place to accurately reflect property level risk, those homes which previously benefited most from group based subsidized rates would see a reduction in their underlying value,” said Dr. Jeremy Porter, head of Research and Development at First Street Foundation.

First Street Foundation has added dollar estimates of flood damage for individual residential homes to its flood risk assessment tool Flood Factor. The new feature provides homeowners with flood damage cost estimates based on depth of flooding, demonstrate how these costs will change from today to 30 years from now due to a changing climate, and offer a cumulative projection of flood damage costs over the typical life of home ownership, or a 30-year mortgage.

In earlier research, First Street Foundation found that government-produced maps showing 8.7 million homes and properties at significant flood risk may have underestimated the amount of real estate at risk by 67%. Or, in other words, an additional 6 million properties face a significant risk of flood. The nonprofit is making accurate climate change-adjusted flood scores available for every property in the U.S. today.

NFIP Unchanged

The NFIP’s current rating structure has not fundamentally changed since the 1970s. It evaluates structures using their flood zone on a Flood Insurance Rate Map (FIRM), occupancy type, and the elevation of the structure. FEMA’s nationwide rating system combines flood zones across many geographic areas, and calculates expected losses for groups of structures that are similar in flood risk and key structural aspects, assigning the same rate to all policies in a group.

Under Risk Rating 2.0, according to FEMA, flood zones will no longer be used in calculating the premium. Instead, the premium will be calculated based on the specific features of an individual property, including structural variables such as the foundation type of the structure, the height of the lowest floor of the structure relative to base flood elevation, and the replacement cost value of the structure.

Risk Rating 2.0 will also incorporate a broader range of flood frequencies and sources than the current system, as well as geographical variables such as the distance to water, the type and size of nearest bodies of water, and the elevation of the property relative to the flooding source.

Given the threat of sea-level rise, NFIP policymakers should rethink policies that encourage development in flood-prone regions, according to the Washington, D.C. think tank R Street.

R Street has proposed that the NFIP cease writing coverage for new construction in 100-year floodplains and that NFIP rates for any new construction should be adjusted to reflect future changes in assessments of flood risk. The study, Do No Harm: Managing Retreat By Ending New Subsidies, says that climate change will exacerbate the financial problem, as sea-level rise turns what once were 1-in-100-year floods into 1-in-10-year or even annual floods.

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