Florida Lawmakers Approve Property Reform

By Michael Adams | May 16, 2011

In the closing days of Florida’s legislative session, lawmakers approved a bill that addresses sinkhole claims and a number of other property insurance issues.

In addition to redefining sinkhole losses, the measure (CS/SB 408) changes the holdback provisions on dwelling and contents coverage, places a statute-of-limitations on sinkhole and hurricane claims, caps public adjusters’ compensation, and repeals a provision that would have reduced the boundaries of Citizens’ Property Insurance Corp.’s high-risk zones.

The House approved the measure by an 80 to 35 vote and the Senate, 28 to 12. Gov. Rick Scott has not indicated whether he supports it, but Insurance Commissioner Kevin McCarty has publicly made it clear that he expects the bill will become law.

The bill does not go as far as the industry had hoped but lobbyists for agents and insurers said it moves in the right direction.

The measure limits what constitutes a sinkhole loss and imposes a filing deadline.

“I think as companies review the bill in detail the more they are going to like,” said William Stander, vice president for the Property Casualty Insurers Association of America.

Florida Association of Insurance Agents President Jeff Grady said the market will be better off due to the bill, however, he said he doubted the market would be transformed. “These are things desperately needed by private companies to give them a chance to catch their breath,” Grady said. “But as to the goal of attracting private capital to the state, I don’t think we are going to see a line-up of companies.”

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 instead, lawmakers drew 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.

Along with the technical provisions related to sinkholes, the industry succeeded in going after what they consider several causes of fraud. They placed a two-year statute of limitation on sinkhole claims, and a three-year statute of limitations on hurricane and windstorm claims.

They also modified the payment methodology by restoring a holdback on structural claims. A 2007 law prevents insurers from holding back a portion of a claim payment despite concerns that many homeowners do not spend all the money on fixing the damage. Under the new 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.

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 positive for reducing sinkhole claims. The bill caps adjusters’ 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 not doing away with the current cap on Citizens’ rates. 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.

“Citizens remains competitive with the private market,” said Miller.

Lawmakers did respond to agent groups by inserting a provision that requires applicants for Citizens sign a statement noting that due to a potential deficit, the policy could be subject to surcharges as high as 45 percent of their premium. This signing requirement will start in 2012.

“Agents will have a different conversation with their clients,” Grady said of the provision. “Agents will have a better shot to at least defensively sell against Citizens.”

Still, on the whole, insurers remained positive about the bill.

“The reforms contained in this package will help to promote a competitive and vibrant insurance market in the Sunshine State,” said Ray Farmer, southeast regional vice president for American Insurance Association.

Liz Reynolds, state affairs manager for the Southeast region for the National Association of Mutual Insurance Companies, expressed a similar sentiment. “While this final bill does not include everything the property insurance industry needs, we are grateful that the Legislature recognized the importance of strengthening the Florida property insurance market.”

From This Issue

Insurance Journal West May 16, 2011
May 16, 2011
Insurance Journal West Magazine

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