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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:

  • Reduce the cost of litigation stemming from property insurance claims.
  • “Foster” the availability of reinsurance — that’s insurance that insurers must buy to make sure they can pay claims after catastrophes.
  • Improve claims-handling practices by insurers.
  • “Modify” deadlines for filing claims after losses, and limit abilities to sign over policy benefits to third parties.
  • Develop property insurance requirements regarding alternative dispute processes, coverage options and agent practices.
  • Increase oversight of property insurance companies (presumably to get earlier warnings when companies become financially unstable).
  • Improve the financial stability of state-owned Citizens Property Insurance Corp., reduce potential for special assessments to keep Citizens solvent and “foster” the transition of Citizens policies to private-market carriers.

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.”

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