Property Insurance Reforms – Senate Bill 2A
Property Insurance Reforms – Senate Bill 2A: View Here
If you had to sum up the major outcomes of the insurance reform bill in a single sentence, it would indicate that the bill will curb the massive amounts of lawsuits that are driving up premiums, stabilize reinsurance coverage and shrink the state-backed Citizens Property Insurance Corp. Thankfully, we have this entire email to break things down rather than a single sentence, so details about the major points as they relate to the industry are below.
Before we get to that breakdown, it must be noted that these reforms are a huge win for the state of Florida and are absolutely essential steps Florida needs to take to attract insurance and reinsurance capital back to the state. If Floridians want to have competitive rates and a choice of insurers, then Florida needs to tackle the root causes that are driving insurers away, such as excessive amounts of frivolous lawsuits and a state-backed insurer whose rates make it impossible for private insurers to compete. Senate Bill 2A does that.
Here is a breakdown of the major components of the bill:
- Elimination of One-Way Attorney Fees: Perhaps the most significant reform contained in the bill is the elimination of one-way attorney fees in property insurance cases. Insurance industry experts have long blamed lawsuits for driving up costs that lead to financial losses and higher homeowner premiums. The chief driver of these lawsuits is a provision known as “one-way” attorney fees in property-insurance cases. One-way attorney fees allow the plaintiff (policyholder) to recover attorney fees but not the defendant (insurer). This type of practice incentivizes unwarranted litigation
- Elimination of Assignment of Benefits: The bill also prohibits the use of Assignment of Benefits (AOB) in property insurance-related claims. AOB has been another litigation-related cost-driver for insurers that has fed into higher rates for policyholders in Florida. AOB is where homeowners “assign” their post-loss insurance benefits over to a contractor who deals directly with the insurance company
- New Temporary Reinsurance Program: Another major part of the bill focuses on helping provide reinsurance, which is important backup coverage, to private insurers. Private reinsurance prices have increased, while the coverage has become harder to buy, with the higher costs baked into the rates homeowners pay. Property insurers buy a combination of reinsurance coverage on the private market and from the Florida Hurricane Catastrophe Fund, a state program. The bill would essentially offer additional levels, known as “layers,” of reinsurance funded through $1 billion from the state and premiums paid by insurers
- Efforts to Depopulate Citizens: The troubles in the overall insurance market have led to massive growth in Citizens Property Insurance, which has more than doubled in size during the past two years to about 1.13 million policies. The bill seeks to move policyholders from Citizens into the private market. For example, Citizens policyholders would not be able to renew their coverage if they receive policy offers from private insurers that are within 20 percent of the cost of the Citizens premiums. The state-backed insurer is oftentimes unable to charge rates competitive with private insurers, creating a disincentive for policyholders to get coverage in the private market. The bill will also phase in a requirement that Citizens customers buy flood insurance, which is not included in a homeowners’ policy.
- Shortened Claims Filing Deadline: The bill reduces the deadline for policyholders to report a claim under the policy from 2 years to 1 year for a new or reopened claim, and from 3 years to 18 months for a supplemental claim. This is intended to help reduce the occurrence of frivolous lawsuits.
- Accelerating Claims Payment: The bill amends the prompt pay laws to encourage the faster payments of claims. Among other things it reduces the time for insurers to pay or deny the claim from 90 to 60 days, reduces the time for insurers to review and acknowledge a claim communication from 14 days to 7 days, reduces the time for insurer to begin an investigation from 14 days to 7 days, and reduces the time for insurer to conduct a physical inspection from 45 days to 30 days.
- More Funding for the Office of Insurance Regulation: The bill allocates $1.7 million for the Office of Insurance Regulation to investigate bad faith carriers and hire and retain the staff they need to properly regulate the industry.
The full Senate staff analysis of the bill can be found here.
It’s important to note that the leaders of these reform efforts acknowledge that the bill likely would not lead to immediate rate reductions for homeowners. But they say it is designed, at least in part, to draw investments in the insurance market and spur competition.
The sponsor of the bill, Senate Banking and Insurance Chairman Jim Boyd, put it best, “Private carriers, hopefully and I believe they will, will be thriving . and want to bring capital to this market. National carriers will want to come back to this market and participate. That drives opportunity. That drives competition, which will drive rates down.”