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.”
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.
“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.
“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.
“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.
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