Hello everyone. I’m bringing this week’s update to you a day early because we have a lot of important items to update you on. The most important of course, is the conclusion of special session which happened late yesterday.
It took lawmakers three days to debate, discuss and ultimately pass significant property insurance reforms that will go a long way in helping to alleviate Florida’s ongoing property insurance crisis. I’ll summarize the major points of those reforms below, but suffice it to say, they were not shy in their efforts to reduce frivolous lawsuits, crack down on roofing scams, provide reinsurance relief that will benefit policyholders and empower property owners to harden their homes against storms.
The measures passed by lawmakers this week may not immediately reduce premiums, but they do get at the heart of the problem and will have a long-term positive effect on Florida’s insurance market.
Florida lawmakers must have eaten their Wheaties this week though, because while they were putting the finishing touches on the property insurance situation they decided to add condominium reform to the list of things they wanted to tackle as well.
In response to the Surfside tragedy last June that killed 98 people, lawmakers unanimously passed an overhaul of the high-rise inspection law, requiring more frequent recertification of safety standards and mandating that condo boards build up reserves to be able to make needed repairs. I’ll break down the condo changes below as well.
Insurance Reform Passed by Lawmakers
The Senate on Tuesday, and House on Wednesday passed what both supporters and opponents said was a first step in a bid to address the state’s overburdened property insurance market, sending the measure to Governor Ron DeSantis just before the start of hurricane season. Senate Bill 2D – Property Insurance passed by a vote of 30-9 in the Senate and 95-14 in the House. Below are a few highlights contained within Senate Bill 2D, which Florida Realtors® actively supported throughout special session:
Protecting Policyholders from Nonrenewal: Insurers may not refuse to write or renew policies on homes with roofs that are less than 15 years old solely because of the roof’s age.
Roof Solicitations: Requires roofing solicitations to contain consumer-awareness language that the homeowner is responsible for the deductible under the insurance policy, and it is insurance fraud for the contractor to reduce or waive the deductible or file a claim with false or misleading information.
Roof Deductible: Allows insurance companies to offer a policy at a reduced rate to consumers that includes a roof deductible of up to 2% of the insured value or 50% of the roof replacement cost. Roof deductibles will not apply when there is a total loss to the structure, a loss caused by a hurricane, a roof loss resulting from a fallen tree or other hazard, or a loss requiring a repair of less than 50% of the roof.
Assignment of Benefits (AOB) Reform: Eliminates attorney fee awards where policyholder benefits have been assigned to a 3rd party.
Contingency Fee Multiplier: Limits attorney fee multipliers to “rare and exceptional circumstances.”
Notice of Intent to Litigate: Allows insurers to collect attorney fees where a case is dismissed because plaintiff fails to provide required pre-suit notice.
Civil Remedy Notice: Limits bad faith lawsuits by requiring policyholder to establish an actual breach of contract.
Improving Affordability for Policyholders: Authorizes $2 billion for a new Reinsurance to Assist Policyholders (RAP) program to help insurers obtain reimbursement for hurricane losses earlier than they normally would under the Florida CAT Fund. This reinsurance is provided by the state at no cost to the insurer. Insurers that participate in RAP must reduce policyholder premiums.
Home Hardening Grants: Appropriates $150 million to provide hurricane mitigation inspections and matching grants to help Floridians afford home hardening improvements to their homestead single-family residences with an insured value of $500,000 or less. The program provides $2 in grant funds for every $1 provided by the homeowner up to $10,000.
Holding Insurers Accountable: Prohibits insurance companies from denying claims without communicating sufficient reason. Requires the state to analyze why an insurer failed within two months after insolvency process begins. Strengthens Office of Insurance Regulation insurer oversight.
Lawmakers Pass Condominium Reforms
The call for special session was expanded to include condominium reform in response to the tragedy in Surfside, FL last June. Lawmakers acted quickly, passing Senate Bill 4D – Building Safety unanimously in both chambers.
SB 4D provides several measures designed to increase building safety and prevent the types of issues that led to the Surfside collapse. Specifically, the bill:
Creates a statewide “milestone inspection” requirement for condominiums and cooperative buildings that are three stories or higher 30 years after initial occupancy, and 25 years after initial occupancy for buildings located within three miles of the coast.
Requires inspections every 10 years after a building’s initial “phase 1” inspection.
Requires an additional, more intensive inspection, or a “phase 2” inspection, if a building’s initial inspection reveals substantial structural deterioration.
Beginning in 2024, condo associations are required to conduct a structural integrity reserve study at least every ten years and prevents needed reserves from being waived.
Gov. DeSantis Announces Launch of Florida Hometown Hero Housing Program
In case you missed my special update on Monday, Governor DeSantis announced the June 1st launch of the Florida Hometown Hero Housing Program (HHHP) to help Floridians in over 50 critical professions purchase their first home. The Hometown Hero Housing Program will be available to Floridians including law enforcement officers, firefighters, educators, healthcare professionals, childcare employees, and active military or veterans. The program has a $100 million appropriation attached to it. The governor also announced his intent to support the total of nearly $363 million for affordable and workforce housing in the 2022-2023 budget, the highest total in 15 years.
Eligible workers can apply for the program beginning on June 1, with the funding for the program becoming available on July 1 after Gov. DeSantis signs the state budget. Florida Housing Finance Corporation has created a website outlining the parameters of the program and details the application process.
Florida Realtors® worked closely with the Florida Legislature throughout the 2022 session to create the HHHP. This new program will be a huge help in addressing the ongoing housing crisis in the state.
Governor’s Bill-Related Activity
So far, Governor DeSantis has signed 164 pieces of legislation passed during the 2022 legislative session into law. An additional 10 bills have been presented to the governor that await his signature. That leaves 100 bills passed during session that have not been sent to his desk for approval yet, including the $112 billion state budget.
See what the governor signed into law this week here.
CFO Patronis Releases Report on Florida’s Economic Resiliency
This week, Florida Chief Financial Officer (CFO) Jimmy Patronis issued a report which outlines how Florida’s economy outpaced the nation. Key findings of the report show even after the global pandemic, Florida’s economy continued to grow and outpace the US economy; Florida’s finance and real estate industries suffered no economic dip; and Florida’s COVID-19 policies allowed Florida’s economy to make a quick rebound leading to exceptional growth.
Two more property insurers, including two of Florida’s larger carriers, did not wait around to see what help the just-concluded special session of the Legislature may provide, and have stopped new business in the state.
People’s Trust, once listed as the ninth-largest property-casualty carrier in the state and whose chief operating officer is former Florida Insurance Commissioner Tom Gallagher, on May 19 made a filing with the Florida Office of Insurance Regulation. It said the company would suspend writing new homeowner and dwelling-fire policies that day.
Southern Fidelity Insurance Co., headquartered in Tallahassee, told agents Thursday that it had suspended new and renewal business for all lines until it can complete its reinsurance coverage for the 2022 hurricane season. Existing quotes cannot be bound, the memo said.
“We deeply apologize to our agency partners for the impact this will take on your business and appreciate your commitment to us,” reads the Southern Fidelity announcement. The company also writes in South Carolina, Louisiana and Mississippi.
Company offices will be closed starting today, Friday, at 2 p.m., the company said.
The People’s Trust filings, which were quickly approved by OIR, tweak wording in the company’s manuals for homeowners multi-peril and for dwelling fire coverage. Ineligible risks now include “new business located in all Florida counties.”
The companies did not indicate how long the suspensions would be in effect. People’s Trust did not fully explain the reason for the suspensions, but Gallagher provided a brief statement Friday morning:
“We have completed our reinsurance purchase and are working on our new rate filing to account for additional reinsurance costs so that we can open up to new business,” he said. “We are currently renewing business that meets our underwriting criteria. We will be applying for the newly legislated roof deductible to be placed on our policies as soon as it’s approved.”
It’s likely the carriers will be able to tap into a special reinsurance program established this week by the Florida Legislature at its special insurance session, but it’s unclear if the program will provide enough savings to help Southern Fidelity secure other layers of reinsurance.
Gallagher
The filings did not indicate how many People’s Trust policies will be affected. People’s Trust does not report the quarterly information to OIR. Southern Fidelity does, and reported 98,641 policies in force at the end of 2021, and $184 million in total premium written. Southern Fidelity was provided significant financial support in late 2020 when Hudson Structured Capital Management took a majority ownership stake.
The carriers are now the seventh and eighth insurers to announce they have stopped writing in Florida’s distressed market in the last seven months. Others include United P&C Insurance, Avatar Insurance (now insolvent), Florida Farm Bureau and TypTap. Progressive Insurance also said late last year it will not renew homes with roofs over 16 years of age. Other carriers have made similar filings.
The suspension comes as a surprise to some, not to others in the Florida insurance market. Some have warned that more carriers will soon become insolvent, despite the action from lawmakers at the special session this week. Gallagher said the new laws should help but more work remains to be done.
“The special legislative session was very helpful to both insureds and carriers. As was stated in both the house and senate, Florida accounts for 79% of the nation’s homeowners’ insurance lawsuits over claims filed while making up only 8% of the nation’s homeowners’ insurance claims, so we look forward to the Legislature taking additional measures to finish addressing this Florida-specific problem of frivolous lawsuits,” he said in an email.
People’s Trust has a business model that was seen by many as innovative when it was unveiled about five years ago. The company was one of the first to require the use of its own contracting companies to make repairs after claims were filed, and the insurer had prevailed in several court decisions in the last two years that upheld the requirement.
Some policyholders and their attorneys have complained that the restoration companies did not complete jobs or provided poor-quality work.
Rabb is Southeast Editor for Insurance Journal. He is a long-time newspaper man in the Deep South; also covered workers’ comp insurance issues for a trade publication for a few years.
The Atlantic hurricane season is poised to deliver another round of above-normal storms for the seventh consecutive year, the National Oceanic and Atmospheric Administration (NOAA) said on Tuesday.
NOAA forecasters estimate 14 to 21 named storms, six to 10 of which will become hurricanes, with three to six of those developing into major hurricanes during the June 1 to Nov. 30 season.
A tropical storm brings sustained winds of at least 39 miles per hour (63 kph), a hurricane has winds of at least 74 mph and major hurricanes pack winds of at least 111 miles per hour and can bring devastating damage.
Last year’s 21 named Atlantic storms cost about $80.6 billion in insured damages in the United States with Hurricane Ida, a Category 4 hurricane when it struck Louisiana, and which continued to bring winds and flooding all the way to New York. It led to about $36 billion in losses.
Climate change is warming ocean temperatures that have led to more destructive and damaging storms, forecasters say.
This year’s warmer-than-average sea temperatures and trade wind patterns augur for an above-average season, NOAA Administrator Rick Spinrad said.
“We simply can’t point to a particular storm, a strong storm like Hurricane Ida, and say ‘there is climate change,’” Spinrad said of hurricane development. NOAA focuses on weather patterns, warming sea temperatures and west African monsoons “as the climatological factors we’re looking at” as key factors.
NOAA’s call for an above-average season follows Colorado State University’s outlook, which last month predicted 19 named storms, nine hurricanes and four major hurricanes.
An average year generates 14 named storms and seven hurricanes. NOAA increased these numbers for a normal season last year after a recalculation, citing improved satellite monitoring and climate change.
Unseasonably high temperatures, warmer-than-average seas that provide energy for tropical cyclones and a La Nina weather pattern that is expected to persist this season all influenced the outlook, forecasters said.
By Wednesday morning, it was all over except for the speeches.
The five-day special session on the insurance crisis turned into just three days, and without seeing adoption of a single significant modification to two bills that had been carefully crafted to help some property insurers with reinsurance costs and help everyone else with litigation and roof claims.
Both chambers passed SB 2D and SB 4D with overwhelming support, a testament to the lock-step relationship between Florida’s governor and Senate and House leadership.
The fact that the passage of the bills seemed a foregone conclusion early on in the session did not stop several lawmakers, though, from blasting colleagues for failing to do more to help homeowners who have seen soaring premiums in the last two years.
“This is called corporate welfare, market manipulation, trickle-down economics,” said Rep. Michael Grieco, D-Miami Beach.
He was referring to the $2 billion Reinsurance to Assist Policyholders, or RAP fund, authorized by SB 2D. It gives insurers a one-year layer of reinsurance below what the Florida Hurricane Catastrophe Fund provides, saving some companies millions on additional reinsurance from private reinsurers. Instead of paying premiums into the RAP fund, participating carriers will have to provide premium reductions to policyholders within a month.
Still, Grieco called it “a slush fund for insurance companies.”
Other lawmakers and industry representatives agreed the legislation didn’t go far enough to solve all of Florida’s insurance woes. But many said it was a good first step.
“I give it a grade of C,” said Donald Brown, a former legislator who now is a registered lobbyist for the Association of Bermuda Insurers and Reinsurers, the Florida Insurance Council and Associated Industries of Florida.
Rep. Ralph Massullo praised the bill and said it was filled with “great initiatives” that address major cost drivers.
The Senate vote was 30-9 in favor of SB 2D. The House approved it 95-14. Some 27 amendments were offered, including a freeze on insurance rates and a ban on insurers cancelling policies while a claim or litigation is pending. But all amendments were handily voted down.
Massullo
A second bill, SB 4D, ended up being two measures rolled into one. One part modifies the state building code, which until now has required that entire roofs be replaced if just 25% of the surface is damaged. The bill opens the door to less-costly repairs, as long as the rest of the roof surface meets code requirements.
A second part of SB 4D is the condominium reform bill. Gov. Ron DeSantis added that to the agenda at the last minute after the regular session did not address the issue. It, too, passed. The measure met with plenty of emotional speeches but no “nay” votes.
The roof/condo bill, adopted almost 11 months to the day after the deadly condo collapse in Surfside, Florida, now requires high-rise condominiums to be inspected more often. Inspection reports must be provided to unit owners and prospective buyers, and condo association can no longer defer maintenance and funding for repairs.
The condo section of the bill “makes the trip to Tallahassee worth it,” Grieco said on the House floor.
Insurers will appreciate the bill, once it is signed into law, because it will provide needed information on the condition of buildings, supporters said.
The both bills will take effect upon the governor’s signature. It wasn’t clear when the governor will sign the legislation, but the ink is expected to flow this week.
Several lawmakers and insurance representatives said the industry won’t have to wait long to know if the legislation has helped smooth the turbulent waters of the Florida market. Many reinsurance programs must be renewed by June 1, and insiders predicted that as many as four carriers won’t complete their programs and will face insolvency or rehabilitation in coming weeks, despite the RAP fund in SB 2D.
“We’re not done,” said Rep. Matt Willhite, D-Wellington, suggesting that more legislation may be needed later this year or at the 2023 regular session of the Legislature.
Eskamani
Beyond the bills that were passed, the special session has put state regulators under the microscope. A number of lawmakers, on both sides of the aisle, charged that OIR has fallen short in monitoring for potential insolvencies, limiting rate increases, providing information on the industry, and other areas. Some argued that the entire structure of insurance regulation, with some duties split between OIR and the Department of Financial Services, was partly to blame for Florida’s recent troubles.
“I find the Office of Insurance Regulation to be incredibly flawed,” said Rep. Anna Eskamani, D-Orlando. “When you have a position that is not elected, but is appointed by a position that is well-funded by insurance companies, you have a serious situation of the fox guarding the hen house.
After addressing Florida’s insurance crisis, lawmakers on Tuesday quickly approved another piece of legislation they did not get to during the regular session in March – a revamp of condominium laws that would require more frequent inspections, more reserved funding for repairs, and more reporting of structural conditions.
“The insurance industry should love this because now they’ll have data on the buildings, and they can see which condos are not being maintained,” said Travis Moore, a lobbyist and consultant for the Community Associations Institute. He spoke in favor of HB 5D on Tuesday.
The condo reform bill was added to the special session’s agenda at the last minute this week. The House Appropriations Committee, after hearing four hours of testimony and debate on a property insurance reform package, quickly endorsed the condominium bill Tuesday night by a vote of 29-0. The full Senate earlier in the day had added the language as part of its version of the insurance crisis bill.
Both chambers are expected to reconcile the measures today and send them to the governor.
The condominium law changes have been demanded for months, after the 12-story Champlain Towers South condo near Miami Beach collapsed June 24, 2021, killing 98 people. The 40-year-old condo had just begun some much-needed and long-awaited repairs when the collapse occurred.
The reform measure, if signed into law, will require structural inspections of all residential buildings three stories or higher – statewide – 30 years after construction, then every 10 years after that. For buildings that are within three miles of the coast, the inspections must be done after 25 years and then every seven years. Currently, only two South Florida counties require regular inspections.
The new bill also would make building inspection reports available to unit owners and local building officials.
Perhaps most importantly, condominium associations would, after December 2024, no longer be able to easily waive reserve funding requirements from unit owners. Currently, condo associations in Florida have been able to postpone collecting payments for needed repairs with a simple majority of condo board members present at board meeting, Moore explained.
“The bill provides that effective December 1, 2024, a unit-owner controlled association may not waive collecting reserves or collect less reserve funds than required for items that are required to be inspected in a structural integrity reserve study for an association building that is three stories or higher in height,” a legislative analysis of the bill explains. “In addition, unit-owner controlled associations may not use such reserve funds for purposes other than their intended purpose.”
The bill also would require condo associations to conduct reserve studies every 10 years.
“Before a developer turns over control of an association to unit owners other than the developer, the developer must have a structural integrity reserve study completed for each building on the condominium property that is three stories or higher in height,” the analysis reads.
“This is a very good piece of legislation,” said Rep. Joseph Geller, D-Aventura.
“We were able to accomplish — not just for Surfside families but for all Floridians that live in condominiums — a product that they should be proud of, because I think we accomplished our goal, which is one step closer to making sure what happened in Surfside never happens again,” bill sponsor Rep. Daniel Perez, R-Miami, told Florida Politics.
After the tower collapsed 11 months ago, some insurance companies have balked at writing new condo insurance while others have demanded more inspection reports. In coming years, insurers will have more access to more-frequent reports, supporters of the bill said.
A Florida House committee and the state Senate wasted little time Tuesday in approving sweeping property insurance bills, leaving only the full House of Representatives to cement the changes on Wednesday, which would likely ending the special session two days early.
The question for some lawmakers now is: Will a $2 billion, premium-free state fund to be established by the legislation, provide enough reinsurance relief to salvage some struggling insurers one week before reinsurance renewal deadlines. A few representatives and insurance industry leaders said “no” – that as many as four carriers will still not be able to afford complete reinsurance programs and will face rating downgrades. The Legislature will be asked to act once again.
“There’s been a rumor that we’ll be back here again in a few weeks,” said state Rep. Fentrice Driskell, D-Tampa. “I hope not.”
Rep. Matt Willhite, D-Wellington, questioned if $2 billion is enough for the Reinsurance to Assist Policyholders, or RAP program, as it is known. If the bill is signed into law, the taxpayer-backed fund would be a one-time-only layer of reinsurance below what the Florida Hurricane Catastrophe Fund covers. Participating carriers would be required to immediately pass the savings, perhaps as much as 4%, on to policyholders.
Willhite noted that the cat fund, with more than $15 billion in reserves, already plans to increase premiums by 12% this year, potentially signaling that the RAP would one day also need more funds.
House Appropriations Committee Chairman Jay Trumbull, R-Panama City, who sponsored the reform bills, seemed unaware of the cat fund premium increase. But he assured colleagues that $2 billion would be sufficient for the RAP program and that it would provide needed relief for most troubled insurers in the state.
Contacted earlier, the head of the Demotech rating firm said that the legislation, including the RAP program, is not enough for insureds or insurers.
“Game-changing legislation was needed to dramatically and precipitously reduce litigation, and to be a greater benefit to consumers,” President Joe Petrelli said in email. “However, those types of changes might be considered later in 2022.”
Despite the concerns, the House committee approved its version of the bills Tuesday evening, after four hours of testimony and debate. Rep. Erin Grall, R-Vero Beach was the only committee member to vote against it, despite sharp comments from others about the lack of rate relief for homeowners.
The omnibus bill, HB 1D, is very similar to SB 2D, which passed the state Senate’s second reading earlier Tuesday by a vote of 30-9. Both bills would create the RAP fund, end plaintiffs’ attorney fee multipliers except in rare instances, limit bad-faith awards unless claimants prove a breach of the insurance contract, ban the awarding of legal fees to assignees in AOB cases, grant insurers attorney fees when suits are dismissed, and would allow separate roof deductibles in HO policies.
Plaintiffs’ attorneys testified that the fee multipliers already are rarely invoked by judges. But insurance defense lawyers said not so, that judges often fail to follow case law rules and apply the multipliers unnecessarily, adding thousands of dollars to the costs of claims.
Willhite
The bills also would provide grants for home wind-mitigation and would call for more scrutiny and more reporting from regulators. The measures also would keep insurers from refusing to write policies on homes with roofs less than 15 years old.
Another set of bills would loosen the Florida building code, which now requires that when roofs have suffered damage to at least 25% of the surface, the entire, contiguous roof area must be replaced. The House committee and the full Senate on Tuesday also approved those code bills. An amendment approved by the Senate on Tuesday clarified that if a roof has been repaired, the age of the roof would be determined by the oldest building permit for a repair job.
The full Senate could give final approval to both pieces on Wednesday morning, followed by the full House later in the day, officials said. Some lawmakers marveled at the speed of the proceedings at the special session, while others complained that it had not allowed for full vetting of the bills.
The House hearing and Senate floor debate highlighted a number of problems in Florida’s insurance and regulatory environments. Some representatives criticized the Office of Insurance Regulation for not doing enough to examine rate requests and looming insolvencies, but pointed out that the agency has a 21% vacancy rate. Commissioner David Altmaier, after the House committee hearing, said that more staff may not allow the agency to do much more, but would mean less work for overworked, existing employees.
Rep. Joseph Geller, D-Aventura, offered an amendment that would block insurers from canceling homeowner policies while a claim or claim litigation is still pending. Policyholder attorney Ron Haynes, representing the Florida Justice Association, told the committee that he has had several clients who have seen that happen to them. Other insurers wouldn’t pick them up, forcing the homeowners to endure expensive force-placed policies.
Trumbull
Trumbull, the bill sponsor, said that barring policy cancellations could be seen as unreasonable, since an insurance company may need to cancel a policy for other reasons during a protracted litigation period. Geller’s amendment was voted down by the committee.
On the Senate side, Sen. Gary Farmer, a vocal Democrat who is retiring this year, urged members to vote against the bill. He argued that the OIR already has the authority to do more to improve the Florida market, such as enforcing a state law that requires national auto insurers in the state to also sell homeowners policies.
Rabb is Southeast Editor for Insurance Journal. He is a long-time newspaper man in the Deep South; also covered workers’ comp insurance issues for a trade publication for a few years.
A Florida Senate committee overwhelmingly approved two measures Monday that supporters believe will go a long way toward trimming roof claims, litigation expenses and reinsurance costs for beleagured property insurers – but not before some Democratic senators warned it would do little to reduce premiums in the short term.
“People are really hurting and we’re being tone deaf,” said Sen. Randolph Bracy, D-Orlando. “There’s a lot more we could be doing for the consumers.”
Sen. Lauren Book, D-Plantation, urged the Senate Appropriations Committee to adopt an amendment to Senate Bill 2D. Her plan would have frozen insurance rates for more than a year while claims litigation deterrents have time to make a difference.
The amendment was voted down, but the committee voted 19-2 in favor of the bill itself, which would provide a wide range of fixes to Florida’s problem-plagued insurance market. The two “nay” votes were both Democrats, but six other Democrats voted in favor.
“It has bipartisan support now. It’s a bipartisan bill. That’s good,” said Michael Carlson, president of the Personal Insurance Federation of Florida, which represents a number of property insurers.
The Senate committee spent five hours debating SB 2D and a second bill, SB 4D, which would loosen part of the Florida building code that now requires full roof replacement in most cases when only 25% or more of a roof is damaged. The debate was lively at times, with full-throated opposition from trial lawyers, restoration companies and a few consumer-minded advocates.
But the fact that the bill was approved with only minor changes, just three days after it was drafted, is testament to the level of cooperation between Gov. Ron DeSantis and the Legislature. After the regular 2022 session of the Florida Legislature failed to enact significant reforms aimed at the insurance crisis, the governor last month called the five-day special session for this week. Sen. Jim Boyd, chair of the Senate Banking and Insurance Committee, said he had worked closely with the governor’s office and with House of Representatives leadership to draft the bills.
“I have full confidence the House will pass these bills,” Boyd said after the meeting.
The House Appropriations Committee takes up similar House measures on Tuesday.
Book
The fact that a key element of SB 2D – the creation of a new, lower-level catastrophe reinsurance fund – would be backed by $2 billion from the Florida general fund is also testament to the fact that Florida state government is flush with cash and can spare the money in the event of a disastrous hurricane season.
“Florida is in a very good financial position now,” Boyd explained. He doubted that losses for participating insurers would ever wipe out the fund, resulting in a sales tax increase.
Instead of insurers paying premiums into the Reinsurance to Assist Policyholders fund, or RAP fund, participating insurers would be required to provide rate relief to their policyholders. The program would be for hurricane losses for one year only, to help some carriers who may not be able to otherwise afford reinsurance in the private market.
For those carriers who already have secured reinsurance this year, they could access the RAP fund next year, Boyd explained. One actuary has calculated that the plan could produce average premium reductions of as much as 4% for policyholders of participating insurers in the next several months.
But the debate Monday only lightly touched on the RAP fund savings, and some senators and speakers at the hearing worried that homeowners covered by other insurers won’t see lower premiums for 18 months. State Sen. Jeff Brandes warned that without greater assistance on reinsurance, several carriers will remain in dire straits and lawmakers could be forced to return to another special session in less than a month.
Some of the sharpest exchanges came between Sen. Jason Pizzo, D-Miami, and Florida Insurance Commissioner David Altmaier. Pizzo, an attorney, said that much blame has been heaped on plaintiffs’ lawyers and their fees, which SB 2D aims to limit. But despite a bill passed last year that requires insurers to track claims litigation information and report it to the Office of Insurance Regulation, the office has yet to finalize a regulation detailing the data call.
Pizzo argued that 2021’s Senate Bill 76 required the data by January of this year. But Altmaier said he read the law to mean that insurers should start collecting the data then and to report it to OIR in 2023. Boyd said it wasn’t clear but he would work with Altmaier to speed up the process.
The data could be helpful in determining the true costs of insurance claims litigation, on the claimants’ side and the insurance side, attorneys at the hearing said. Reggie Garcia, of the Florida Justice Association, a group of trial lawyers, said that insurance defense costs may be just as high as plaintiff’s attorney fees and should be examined before more limits are placed on policyholders’ legal rights.
Citizens Property Insurance Corp., the state-created property insurer of last resort, for example, is one of the few sources of information on that, Garcia said. Citizens spent $257 million on defense fees in the last three years, he said. A Citizens official confirmed the spending. Since 2017, the defense spending has topped $405 million, or an average of about $79 million per year. This year could be one of the highest if an early trend continues: Citizens spent $9 million in January alone.
Garcia also questioned the often-cited statistic that Florida has produced just about 8% of the homeowner claims in the U.S. but has seen as much as 79% of the claims litigation in the country. The data comes from the National Association of Insurance Commissioners, but Garcia said his research shows that the data did not include New York, North Dakota, 2021 Texas windstorm claims, and information from a number of carriers who have considered it to be a trade secret.
Boyd responded that if all that data were included in the NAIC report, Florida would likely still have more than 60% of the claims litigation in the country.
The hearing also brought up other sobering information.
Jerry Theodorou, director of the finance, insurance and trade policy program at R Street, a think tank that has studied Florida’s insurance troubles, said that his research shows that the national average for insurer defense and defense costs is about 1.2%.
The average combined ratio, a measure of profitability, in the country is 103%. In Florida, it’s 120%, and many Florida insurers have been unable to make up underwriting losses through investment income, he said.
Brandes
Brandes, R-St. Petersburg, who has beaten the drum the loudest for insurance reform legislation, took issue with one part of Boyd’s SB 2D. The bill would forbid insurers from refusing to write policies for homes with roofs that are younger than 15 years. Several carriers in the last two years have already stopped writing for roofs of 10 years old or less.
“No other state, not even California, has the 15-year requirement,” Brandes said. “You’re forcing insurers to write older roofs, and that’s really all they have” to limit underwriting losses.
He urged colleagues to remove the restriction, but his amendment failed.
Carlson said his association members also have had some heartburn over the 15-year restriction. The National Association of Mutual Insurance Companies also said after the hearing that its members are concerned about the provisions in the bill “that restrict insurers’ ability to set appropriate rates that reflect risk, particularly in deciding which properties and roofs to insure.”
Otherwise, “the package, while not perfect, makes much-needed progress in substantially reforming the litigation environment that has allowed rampant lawsuit abuse in Florida in recent years and has sent the marketplace into a slow-motion collapse,” Caitlin Murray, NAMIC regional vice president for the Southeast, said in a statement.
The Consumer Protection Coalition, led by the Florida Chamber of Commerce, praised the legislation but noted that, if signed into law, may face legal challenges in court and will probably need further tweaks next year. A statement from the coalition noted that the special session already “stands in sharp contrast to the state’s last special session on property insurance in 2007, which led to massive expansions of Citizens Property Insurance Corp. and the Florida Hurricane Catastrophe Fund,” and did not address the root causes of a dysfunctional marketplace.
Brandes also raised a question about the interplay of the two bills, which no one could answer. If more roofs are repaired instead of replaced in coming years, per the building-code legislation, and part of a home’s roof is repaired at year one, and another part at year five, how old is the roof, Brandes asked.
“I think that is something we’ll probably need to clarify,” Boyd said.
Florida’s insurance community appears to be split, at least to some degree, on the impact that two draft bills will have on the property insurance crisis, with some praising the changes and others warning that they won’t go far enough to rescue struggling carriers just days before reinsurance renewals are due.
Trade groups, attorneys and executives in the industry agreed that new guardrails offered by draft bills, SB 2D, filed by state Sen. Jim Boyd, and HB 1D, by Rep. Jay Trumbull, would help end extraordinary plaintiffs’ attorneys’ fees in most cases. The case-law-based fee multiplier, which insurers have said is a major driver behind runaway claims litigation and “frivolous” lawsuits, would be allowed only in “rare and exceptional” circumstances, according to Boyd’s bill.
The change would make Florida’s one-way attorney fee mechanism more in line with federal litigation rules, which some insurance executives have lobbied in favor of for years.
“It’s frankly remarkable, I say,” said Jim Massie, the Florida representative for the Reinsurance Association of America. “Overall, I think it’s excellent and it’s more than I expected.”
“How many companies on June 1 are not going to be able to complete their reinsurance programs, and they’ll be disappointed that we just finished a special session on insurance and they’re still in a very difficult position.”
The bill could also help deter bad-faith claims litigation, something insurers have complained bitterly about for years. It would require that claimants must prove that the insurer breached the policy in order to prevail and receive damages.
And, significantly, the bill would prohibit assignees of benefits from being able to receive attorney fees.
“There are some amazing changes on attorney fees,” said Paul Handerhan, president of the Florida-based Federal Association for Insurance Reform. “We’re very appreciative of that.”
The bill also would create a $2 billion Reinsurance to Assist Policyholders fund, already dubbed the “RAP” fund. That would give eligible property insurers a pipeline to a state-backed, low-cost reinsurance after catastrophic losses – without lowering the loss threshold needed to access the Florida Hurricane Catastrophe Fund, a move that some have worried could jeopardize the cat fund’s reserves and stability.
But Handerhan noted that Boyd’s and Trumbull’s bills would allow the RAP reimbursements only for hurricane losses. It would provide no backstop for non-catastrophic losses from tropical storms, hail storms, tornados and more. Those losses, compounded by claims litigation, have driven some insurers to the brink of insolvency.
“I mean, $2 billion sounds attractive. Who could argue with that?” he said. “And I don’t want to sound ungrateful, but non-cat weather claims – those are the events that carriers are having trouble getting coverage for.”
Several Florida-based insurers are said to be facing soaring costs for private market reinsurance, on June 1. And without further help from the RAP fund or the cat fund, some will probably be unable to afford 100% reinsurance coverage. That will likely mean a loss of their financial stability score from the Demotech rating firm, a potential death knell, Handerhan argued.
Handerhan
“How many companies on June 1 are not going to be able to complete their reinsurance programs, and they’ll be disappointed that we just finished a special session on insurance and they’re still in a very difficult position,” he said.
Handerhan, a fixture in the Florida insurance arena for years, suggested that the RAP fund plan could be modified in committee meetings at the special session, which runs Monday, May 23, through Friday, May 27. The Senate Appropriations Committee is set to convene at 10:30 a.m. Monday to discuss the proposed legislation. Providing the reinsurance for non-catastrophic losses, while also lowering the retention for the hurricane cat fund, would be a more effective plan, he said.
Others argued that all insurers who are on shaky ground cannot be saved. Massie doubted that non-cat losses are really so catastrophic, and that limits on litigation expenses will ultimately save those carriers that can be saved. “It’s hard to believe that that many insurance companies can’t handle the normal tropical storms and non-cat weather events they’ve been seeing for years,” he said.
John Rollins, an actuary and former chief financial officer of Florida-based Olympus Insurance, noted that the cat fund and the proposed RAP fund would likely not cover non-hurricane losses, anyway. But the RAP plan would do some good this year and next, he said, based on back-of-the-envelope calculations: The $2 billion would equate to a savings of $600 million to $700 million in reinsurance premiums, which could then translate into a roughly 3% to 4% reduction in consumer rates for the participating carriers., Rollins suggested.
Others agreed that while the proposed bills may not solve all of the short-term problems for teetering carriers, the attorney fee and litigation rules could work wonders in years to come.
“Altogether, I’d say this is not a home run, but it’s not just a single, either. It’s more of a double,” one insurance official said.
“The creation of a $2 billion reinsurance fund is essential for several struggling Florida insurers to remain solvent as they were not able to obtain reinsurance coverage through the private market for hurricane season,” said Mark Friedlander, director of Corporate Communications for the Insurance Information Institute. “It also ensures that the financial stability of the state’s hurricane catastrophe fund will not be compromised.”
Part of the issue in Tallahassee this week is that lawmakers don’t want to be seen as signing off on a “giveaway” to insurance companies at the expense of consumers, explained Michael Carlson, president of the Personal Insurance Federation of Florida.
History offers a lesson: When Florida reform legislation was passed in the mid-2000s, after several storms battered the state, for example, insurers were said to be happy with the changes.
But the public perception that insurance companies had gained too much ground resulted in newly elected Gov. Charlie Crist signing House Bill 1A into law in 2007. Among other changes, the law allowed Citizens Property Insurance Corp. to compete with private insurers while it froze Citizens’ rates. It also required more scrutiny from regulators on carriers’ rate increases.
Today, Citizens is set to become the largest property insurer in Florida, with more than one million policies in force by year’s end and no end in sight to the growth.
The 53-page SB 2D appears to address at least some consumer concerns.
The measure would forbid insurers from refusing to write policies on homes with roofs less than 15 years old. Several insurance carriers in the last two years have announced they would not write or renew coverage on roofs more than 10 years old. That section is likely to meet with the most some opposition from insurers in hearings this week, trade group members said.
Another section would require more scrutiny of insurers by the Florida Office of Insurance Regulation, and more transparency. Insurers are now required to submit data on the number of policies in force, plus other information, to the OIR. But for years, some have claimed the information was considered a trade secret and declined to post it.
Boyd
“I am proposing that we clarify that such aggregate information is not a trade secret,” Boyd said in a memo explaining some of the proposed changes.
Another draft bill filed by Boyd, SB 4D, is less than two pages long, but it could also have a significant impact on the frequency and severity of room claims. It would codify changes to the Florida Building Code, which now requires that if just 25% of a roof is damaged, the entire, contiguous area of the roof must be replaced. The bill would allow repairs if the rest of the roof is up to code.
The Building Commission is currently reviewing such a change to the code, but is not expected to finalize it until late 2023. The legislation would codify the change faster: The law would take effect immediately upon the governor’s signature.
SB 2D can be read here. SB 4D is here. Boyd’s memo explaining the changes is here. A House summary is also available. Other bills also have been introduced. The Insurance Journal will be in Tallahassee all week providing coverage of the special session.
Overall, insurance interests seem pleased with the proposed measures.
Carlson
“It’s not perfect, but it’s a good bill,” Carlson said Sunday. “The governor should be commended for making this happen.”
The bills, released Friday afternoon, brought a sigh of relief from some who just days before had worried that only modest changes would be possible.
“Several legislators have gone on record in the last 24 to 48 hours and they’re not very encouraging, based on their comments,” the Insurance Information Institute’s Friedlander had said in a webinar on Thursday. “They said, ‘Don’t expect major changes to take place. Don’t expect relief for homeowners or insurers, at least in the short term.’”
Limited changes may yet prove to be the case, depending on the lobbying effort that trial lawyer groups are expected to mount at the session. As in the regular legislative session that ended March 11 without significant reforms, House leaders also are said to be reluctant to adopt new rules that could be seen as trimming homeowners’ access to generous policy coverage.
Florida has a property insurance problem. Rates are already high and headed higher. The issue is so pressing that the governor has called lawmakers back to Tallahassee for a special session that starts Monday. There is no single solution to this complex challenge, but one vein to mine: Dig deep into why so many insurance companies have failed in Florida recently. “Well, duh,” you might say. “That’s too obvious.” Maybe so, but unfortunately on this important question, Florida hasn’t moved past “duh.”
The last hurricane hit Florida in 2018. Since then, seven property insurers have gone belly up, four of them in the last 13 months. A few others are on shaky financial footing. As required by law, the Department of Financial Services writes a report on each insurance company that fails. But as the Times’ Lawrence Mower reported this week, the department often doesn’t release those financial autopsies until years after the company went under. The Times asked for reports on five of the insurers that had failed since 2014. The department had finished only one. The framers crafted the U.S. Constitution in 116 days. Stephen King wrote “The Shining” in less than six weeks. Can the state not release a report about an insolvent insurance company in less than a year?
Worse yet, few people know about the reports — people who should know. Multiple insurance trade groups including the Federal Association for Insurance Reform told the Times they didn’t know the reports existed. Only two state lawmakers — Sen. Jeff Brandes, R-St. Petersburg, and Rep. Evan Jenne, D-Dania Beach — request or were sent the reports, a spokesperson for the Department of Financial Services said.
Florida Insurance Consumer Advocate Tasha Carter said last year that she wasn’t aware of the reports, and her spokesperson did not answer questions last week about whether that had changed. That’s right. The state’s insurance consumer advocate — whose website says the office is “committed to finding solutions to insurance issues facing Floridians” — hadn’t as of last year read any of the reports which could provide clues on how to carry out that mission. We’d like to think that this is just a lack of awareness, and not indifference or negligence.
This isn’t about pushing paper; the reports provide valuable insights on how to close loopholes and where the state needs to better enforce existing laws. For instance, the report on Jacksonville-based Sunshine State Insurance Company’s failure showed how the CEO received a $200,000 bonus months before the company was liquidated. Sunshine State’s parent and sister companies also took millions of dollars out of the company through written and “verbal” agreements, including $708,830 in two separate oral agreements in the 10 months before the company liquidated, the report said. Florida law requires such agreements to be in writing and pre-approved by the Office of Financial Regulation. One wonders what valuable nuggets about other failed companies are in the reports that haven’t been released.
With a deeper understanding of why insurance companies fail, lawmakers could enact better policies and insurers could avoid the pitfalls that ruined their competitors. As it stands, the failures take a bite out of our pocketbooks. Orlando-based St. Johns Insurance Company went under this year, which forced the Florida Insurance Guaranty Association to pay off the company’s outstanding claims. The 1.3 percent fee hits every policy sold in Florida, from homeowners’ insurance to flood and malpractice policies, the Times reported. That’s just the cost of one company going under.
The Department of Financial Services said it would begin posting the reports online before the special legislative session on Monday. That’s a good start. But how about promoting them, too? The state sends out news releases encouraging Elon Musk to move Twitter’s headquarters to Florida and for the latest appointment to the board of optometry. How about doing the same for the insolvency reports? At a minimum, send them to every insurance company and trade association in the state. Of course, more of the reports need to be completed in a timely fashion. It would also help if more lawmakers and state leaders actually read them. Sen. Brandes has pushed for requiring the board of directors of failed insurance companies to hold public hearings about what went wrong and how other companies can avoid a similar fate. After all, their failure costs us money. And should they profit from their own mistakes?
There is a lot more to the property insurance crisis than reports on failed companies — rampant litigation, reinsurance costs and building requirements top many lists. But writing and distributing these reports is low hanging fruit, low cost and easy to do. On this important issue, let’s at least get beyond “duh.”
Editorials are the institutional voice of the Tampa Bay Times. The members of the Editorial Board are Editor of Editorials Graham Brink, Sherri Day, Sebastian Dortch, John Hill, Jim Verhulst and Chairman Paul Tash. Follow @TBTimes_Opinion on Twitter for more opinion news.
The Florida property insurance market is in freefall, according to the Insurance Information Institute, and Southwest Florida isn’t immune from the consequences: People’s policies are being dropped with hurricane season starting in just two weeks.
It’s tough for those who are currently looking for property insurance. WINK News spoke with the Florida Association of Public Insurance Adjusters, which recommends getting as many quotes as you can from different companies.
Chris Cury, the president of the group, says the way rates are going up is very concerning for homeowners. Next week, Gov. Ron DeSantis is holding a special legislative session to address the issue. However, Cury says it will take more than a year for people to see some changes, and many companies are canceling thousands of policies because they just can’t afford to keep their companies in business.
Naples resident William Littell is someone who is affected by that.
“I’m one of those unfortunate people that got the notice that the insurance company was pulling out,” Littell said. “My policy actually expires in July and I’ve been searching for a replacement. I was paying in about 12 $1,300 a month, I mean, a year for my insurance. And the quotes I’m getting now are anywhere, high 3000s to 4 and 5,000s.”
Increased premiums, declining coverage and fraud are some of the other problems people in our state are facing when it comes to finding property insurance. Cury goes as far as to call the state’s current situation a crisis. Littell says he understands the cost of living is going up but believes there has to be a solution for this.
“It’s just getting to be too much,” Littell said. “To the point where, you know, I mean, we’re on a fixed income, some of us down here. And where’s that money gonna come from, with insurance?”
“We have other [companies] that are on the brink of failure,” Cury said. “The Office of Insurance Regulation has been improving rate increases for insurance companies to try to make them more financially sustainable and survive in this market.”
The size of your home, its age and its location all impact how much you pay for property insurance. Experts say if you get quoted and the price seems high, double-check to see what coverage is included.
The Home Insurance Guru 