Homeowners’ insurers in Florida are breathing a sigh of relief after succeeding in a months-long battle to obtain property insurance reforms designed to reduce costs and stabilize the market.
After watching state lawmakers refuse to rewrite the state’s no-fault automobile injury law and leave by the wayside a plan to revamp the state-run property insurer Citizens Property Insurance Corp., the industry found itself in the last week of the session betting all of its chips on the property bill, hoping that the “most business friendly” legislature in decades would finally deliver.
In the closing days of Florida’s legislative session, lawmakers approved CS/SB 408, which includes provisions limiting sinkhole losses along with provisions changing the holdback provisions on dwelling and contents coverage, placing a statute-of-limitations on sinkhole and hurricane claims, capping public adjusters’ compensation, and repealing a provision that would have reduced the boundaries of Citizens’ high-risk zones.
While the memory of former Governor Charles Crist’s veto of a similar albeit smaller bill last year still hangs in the hair, insurers are nonetheless banking on current Governor Rick Scott signing the bill into law. So far Scott has remained mum on the issue, but Insurance Commissioner Kevin McCarty has publicly made it clear that he expects the bill will become law.
Much of the bill is aimed at reducing sinkhole costs, which have exploded in recent years. Insurers early on attempted to remove a mandate that they cover sinkhole damage. But the specter of private companies’ non-renewing thousands of policies in sinkhole prone areas only to see them added to the rolls of Citizens’ 1.3 million policyholders proved too hard a sell.
Instead, lawmakers drew sharp limits on what constitutes a sinkhole loss. Namely, it only applies to the main building and no longer covers driveways, sidewalks, swimming pools, or separate structures. The bill also requires that sinkhole damage must be repaired in accordance with the insurer’s professional engineer’s recommended repairs.
But along with the technical provisions related to sinkholes, the industry succeeded in going after what they considered several causes of fraud. Number one, they placed a two-year statute of limitation on sinkhole claims, also including a three-year statute of limitation on hurricane and windstorm claims. Secondly, the modified the payment methodology by restoring a holdback on structural claims.
In 2007, Florida enacted a law that prevented insurers from holding back a portion of a claim payment which often meant that policyholders would receive a large check that insurers alleged many homeowners spent a portion of on other items. Under the current bill, insurers will pay a policyholder a down payment for structural damage, and once a contractor is hired the insurer will pay the contractor for the remaining work. The bill also allows insurers to offer a holdback policy on dwelling contents at a lower rate than policy without a holdback.
Florida Insurance Council Vice President Sam Miller said those provisions alone will help insurers’ rein in costs. “We’re going to see a lot less sinkhole claims than we would without the bill,” he said.
Miller also pointed to changes in public adjusters’ compensation, contracts, and advertising guidelines as other provisions promising to reduce sinkhole claims. The requirements and restrictions on public adjusters proved to be a running battle throughout the session, but the industry largely got what it wanted including a limit on public adjuster fees on reopened claims at 20 percent.
While insurers were successful in convincing lawmakers to adopt a large part of their agenda, the bill is also conspicuous for what it doesn’t include and at the top of the list is any provision that would increase Citizens’ rates. In a separate bill, lawmakers had proposed doing away with the current cap on Citizens’ rates at an annual rate of 10 percent and raising it to 20 percent. But lawmakers had 5.1 billion reasons not to make change, namely the amount of surplus currently accumulated by the insurer. But until the rate issue is addressed, the imbalance between Citizens and the private market will continue.
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