Commissioners Hear Summary Report on Florida Insurance Reform Law

John Mullens, Director of Communications, Government and Public Affairs gave a summary report on a recently passed bill aimed at tackling the problems associated with homeowners insurance. CS/SB 2-D passed both houses and was signed by the governor on May 26, 2022. Legislatures addressed the existing situation of rapidly rising homeowner insurance premiums, multiple insurance carriers dropping from the market and a spike in policy applications to Citizens Property Insurance, the state created and operated insurer. As of April 30, 2022 Citizens have issued 851,006 policies and is projected to eclipse one million by the end of this year.

Mullens started the presentation with statistics. Data shows that Florida’s homeowner insurance claims accounted for 8% of the national homeowner claims in 2019. Preliminary 2021 data has Florida at 7% of all opened claims. However, since 2019, Florida has accounted for at least 75% of all property insurance claims litigated nationally each year. Meaning most homeowner insurance lawsuits are taking place in Florida. According to the Florida Association of Insurance Agents, between 2013 and 2020, insurance carriers in Florida paid out $15 billion in claims costs. 8% was paid to consumers while attorneys received 71%. Litigation plays a significant role in rising premiums with the cost passed on to policyholders.

Mullens points to another catalyst in the legislation. The “Free Roof Consultation.” This scam happens when contractors offer a free roof inspection after a storm and/or weather event. They inform the homeowner that the roof will be covered by insurance and persuade that homeowner to sign away their rights to file the claims themselves. The contractor then files inflated, fraudulent damage claims and when the insurance company denies the claim as not legitimate or due to the storm, the contractor then sues the homeowner. The insurance company usually settled the disputed claim for several times the original claim – most of it going to the contractors lawyers in the form of a “contingency fee multiplier.” The homeowners premium rises due to the claim but not just the homeowner who received the “free” roof consultation. Premiums on all policyholders are raised due to the “cost of replacing thousands of roofs in a single season.”

There is a trickle-down effect to this fraudulent practice. According to the State “the insurance industry’s net losses have risen each of the last five years, surpassing $1 billion in 2021. Since 2021, eight insurance companies in Florida have gone out of business at the start of the Special Session and those that have remained “have sought approval of significant, wide-ranging rate increases; have chosen not to renew tens of thousands of policies; and have greatly tightened eligibility.” The State’s Hurricane Catastrophe Fund (FHCH) may be a band aid to help insurance companies that have exhausted their ability to pay claims following a serious storm but their $11 billion balance won’t help when, according to FEMA, Hurricanes Irma, Michael and Andrew caused the state $95 billion in damages.

So, what does the Florida Insurance Reform Law (CS/SB 2-D) do? Mullens details five main components.

Reinsurance relief helps bolster the reinsurance market. This is “insurance purchased by insurance companies to insure themselves against insolvency.” This new $2 billion program is called Reinsurance to Assist Policy Holders (RAP). Any insurer that participates in RAP for 2022 must reduce their policyholder rates by June 30, 2022 and “pass on the savings”.

My Safe Florida Home Program is directly for the homeowner providing $150 million for hurricane mitigation inspections and matching grants to help Floridians afford home hardening improvements to single-family residences valued at $500,000 or less. The grant provides $2 for every $1 provided by the homeowner – with exceptions made for low-income homeowners. Grants to applicants are capped at $10,000. Commissioner Saunders mentions that the average home cost in Collier County is over $800,000 and asks if the $500,000 is the assessed value or the market value. Mullens came back with info stating that the $500,000 or less is based on insured value, thus covering the cost of rebuilding the structure, not the market value or other value which would also include the value of the land.

The Denial Justification component requires insurance companies to provide policyholders with a reasonable explanation if they deny or partially deny a claim; and provide greater access to the info during the claim adjustment process.

The Attorneys and Lawsuits component creates a new standard for application of fee multipliers; limiting the assignment of fees in property insurance cases disincentivizing frivolous claims.

The last component about roofs is covered in three separate areas. Under roof condition, insurers may not refuse to write or renew policies on homes with roofs that are less than 15 years old solely based on the roof’s age. If a roof is at least 15 years old, an insurer must allow a homeowner to have a roof inspection done by an authorized inspector at the homeowners expense before requiring the replacement of the roof as a condition of issuing or renewing a policy. If the inspection indicates that the roof has at least five years of useful life remaining, the insurer may not refuse to issue or renew a policy solely based on the roof age. Under roof deductible residential property insurers can include an option for a separate roof deductible that may not exceed the lesser of two percent of the policy limits or 50% of the roof replacement costs. Policyholders who select a roof deductible must receive a premium credit or discount and, if a roof deductible is applied, no other deductible under the policy may be applied to the loss. The State goes on to explain areas/events where the roof deductible does not apply. Lastly is roofing fraud. In an effort to curb unscrupulous roof claims, it is now a third-degree felony for a contractor to pay or rebate an insurance deductible. It is also a third-degree felony to intentionally file an insurance claim containing false, fraudulent or misleading information.

For a full copy of the bill plus links to each component, go to flsenate.gov and search CS/SB 2-D.