Too Little, Too Late? Breaking Down Florida’s Latest Property Insurance Reforms

June 1, 2021 by

A bill passed by the Florida Legislature to address the state’s property insurance crisis has created optimism among some stakeholders, while others say it will not reduce rates over the next 18 to 24 months or stop the state’s out-of-control claims litigation.

This year’s effort to pass property insurance reforms came down to the wire with the passage of Senate Bill 76 on the last day of session. The bill attempts to solve some of the issues plaguing the state’s homeowners insurance market in which insurers lost more than $1.5 billion last year. Consumers are facing double-digit rate increases, restricted coverage, or having to turn to the state’s insurer of last resort, Citizens Property Insurance.

Shortly after the bill passed, the state regulator approved three Florida insurers’ requests to drop more than 50,000 homeowners policies as the state heads into hurricane season.

The passed bill includes changes to the state’s one-way attorney fee statute, the eligibility and glidepath of Citizens, and the deadline to file claims. It also places new requirements and restrictions on roofing contractors.

But two pieces the industry and experts identified as critical to addressing cost drivers and stabilizing the market were left out of the final bill — the elimination of the state’s attorney fee multiplier and a provision allowing insurers to implement policy language to mitigate roof replacement costs. The provisions were sticking points in both legislative chambers.

“It’s a watered-down bill that won’t restore market stability. It will not curb rate increases,” said American Integrity CEO Robert Ritchie. “Everybody is set up for these expectations and everybody’s going to be mad at each other.”

“In my view, the most important provisions are the ones that didn’t get in it,” said Joseph Petrelli, president and founder of ratings analysis firm Demotech, which rates more than 40 Florida domestic insurers. Petrelli previously warned that it will be harder for several companies to enhance their financial results, and sustain their ‘A’ ratings, if the Florida Legislature did not pass “meaningful” reform this year.

Sen. Jim Boyd, also an insurance broker and owner of Boyd Insurance & Investments in Bradenton, Fla., acknowledged that what passed didn’t have everything he — or the industry — wanted, but he is confident what did pass will make a difference in stabilizing the market, encourage the return of insurance investment capital into the state, and cut down on contractor and litigation abuse in the system.

“Rates aren’t going to go down tomorrow, of course,” Boyd said. “But I firmly believe this will have a definite downward impact on what has been continually rising homeowners rates in Florida … I really, truly believe we have done a lot of good toward getting at the root causes of the problem.”

Sen. Jeff Brandes, who co-sponsored the legislation, voted to pass the bill but said it was only a “40% solution for what is needed in Florida to bend the cost curve.”

“Hopefully, it stabilizes rates, but really will ultimately do nothing to actually lower them,” he told his Senate colleagues.

If signed by the governor, the legislation would take effect July 1 and includes:

  • Changes the eligibility, rate glidepath and actuarily sound rate indication for Citizens Property Insurance Corp.
  • Replaces the one-way attorney fee-statute to make the recovery of attorney fees and costs contingent on obtaining a judgment for indemnity that exceeds the pre-suit offer made by the insurance company.
  • Reduces the claims deadline on all claims to two years from the date of loss, except for on supplemental claims which will have an additional year.
  • Requires plaintiffs to file a pre-suit demand at least 10 days before filing a lawsuit against an insurer that includes an estimate of the demand, the attorney fees and costs demanded and the amount in dispute; disallows pre-suit notices to be filed before the insurance company can to make a determination of coverage; and allows an insurer to require mediation or other form of alternative dispute resolution after receiving notice.

The bill also makes several changes to tackle what insurers claim has been an explosion of roofing claims and litigation, including making it illegal for roofing contractors or any person acting on their behalf to make a “prohibited advertisement,” including an electronic communication, phone call or document that solicits a claim. Offering anything of value for performing a roof inspection, an offer to interpret an insurance policy or file a claim or adjust the claim on the insured’s behalf will also be prohibited. Additionally, contractors are prohibited from providing repairs for an insured without a contract that includes a detailed cost estimate of the labor and materials required to complete the repairs. Violations could result in fines of $10,000.

Florida’s insurance regulator is optimistic the new reforms will have a positive effect on the state’s marketplace over the longer term.

“I think it’s a pretty meaningful step forward, in terms of stabilization, but certainly as with most things, there’s no quick fix, and this is going to take some time to implement,” said Insurance Commissioner David Altmaier. “We’re going to be very carefully monitoring a lot of different data points — most importantly, the impact to consumer rates.”

Locke Burt, chairman and CEO of Florida-based insurance company Security First, said the bill will ultimately change “the way that roofers do business, the way public adjusters do business, the way plaintiff’s attorneys do business, and the way that insurance companies do business,” which is “significant.”

But “it is not going to cause rates to go down [now]; the best that can happen is it will flatten the curve in 2023 or 2024,” he said. “It’s not going to make agents’ life easier in the foreseeable future.”

Litigation Reform

Altmaier called the reforms to the one-way attorney fee statute one of the more impactful features of the bill. The new statute stipulates that if a claimant recovers at least 50% of the disputed amount (the difference between the pre-suit demand excluding attorney fees and costs and the indemnity award obtained at trial), full attorney fees would be awarded to the plaintiff attorney. If the indemnity award obtained is less than 20% of the amount in dispute, then no attorney fees are awarded to the plaintiff attorney. Indemnity awards between 20% and 50% of the disputed amount would merit the same proportional award of attorney fee and costs as the percentage of the disputed amount obtained at trial.

The fee reforms were modeled after the assignment of benefit legislation that passed in 2019, Altmaier said, which appears to be having a “meaningful impact in reducing the incentive for some of the excessive litigation that we were seeing with AOB.”

The Florida Office of Insurance Regulation sent a report to lawmakers during session that found while Florida homeowners insurance claims accounted for just over 8% of all homeowners claims opened by U.S. insurers in 2019, homeowners insurance lawsuits in Florida accounted for more than 76% of all litigation against insurers nationwide.

“Litigation trends in Florida have been consistently many times higher than any other state,” the report stated, citing data from the National Association of Insurance Commissioners (NAIC) showing that Florida lawsuits rose steadily from 64.4% of all nationwide homeowners lawsuits in 2016, to 68% in 2017, to 79.9% in 2018 and 76.4% in 2019.

“I really think that [attorney fee reform] is going to go a long way in helping to disincentivize some of the excessive litigation, while still allowing the opportunity for consumers to pursue civil remedies against their insurance companies if they feel as if they’ve run out of other options,” Altmaier said.

Burt said changes to the one-way attorney fee statute, which has been in place for 125 years, are a “big deal,” but noted it is hard to quantify at this point what litigation savings companies will see. The pre-suit demand requirement will also be “very significant” for insurers.

“It is usually very difficult to extract that information from plaintiff attorneys,” he said. “Now we will know what we are dealing with in terms of a demand.”

Roofing Claims Abuse

Many in the industry, like American Integrity’s Ritchie, said addressing roofing claims was a critical element left out.

“Seventy percent of my lawsuits are for uncovered roof claims. Will this curb the lawsuits for roofs? I say no,” Ritchie said.

Sen. Boyd said roofing claims are “one of the biggest drivers of rate increases” for Florida homeowners, but the House rejected provisions in the passed Senate bill aimed at stemming these losses by allowing insurers to only offer homeowners policies that adjust roof claims to actual cash value if the roof is older than 10 years. Also rejected was allowing property insurers to offer homeowners to purchase a stated value limit for roof coverage and implement a reimbursement schedule for total losses to a primary structure.

OIR did not support the roof ACV provisions, Altmaier said. He expects carriers will see positive results from the combination of curbing roof claims solicitations and the one-way attorney fee reforms.

“I think those two things combined are going to make the absence of those other two items much less significant in the overall impact of the bill,” he said.

State agencies will be responsible for enforcement of the roofing provisions in the law. The Florida Department of Professional Regulation will handle licensing and the Florida Department of Financial Services will investigate and work to prosecute insurance fraud related to roofing solicitations and claims.

“As we await the Governor’s signature on consumer protection legislation passed this session, the Department is preparing to implement measures to curb unlicensed adjusting by holding anyone accountable who looks to profit off of a business model of improperly soliciting insurance consumers and coming between them and their insurance claims,” DFS Communications Director Devin Galetta said in a statement to Insurance Journal.

Today’s Market

For the insurers that are struggling now, there isn’t time to wait and see if the bill goes far enough.

Demotech’s Petrelli said Florida companies are taking action to nonrenew and cancel policies to lower their exposure in particular geographic areas and their reinsurance costs. Southern Fidelity Insurance, Universal Insurance Co. of North America and Gulfstream Property & Casualty were recently approved by OIR to drop more than 50,000 policies because of hazardous financial conditions.

“Between the geographical issues and the disproportionate reinsurance cost issues, we think that’s a smart move on behalf of companies,” Petrelli said.

Without addressing the other major cost drivers for insurers going forward, Petrelli said the passed legislation is merely “nibbling around the edges.” He does not expect more investment capital or competition in the state and said there soon could be less. Demotech is waiting to review the first quarter results and final reinsurance programs of the companies it rates, but Petrelli noted about five companies could be downgraded.

The ratings firm would have been more lenient if Florida had passed “meaningful” reforms, and “there was a true light at end of a litigation tunnel,” Petrelli said. “What would have saved companies, in terms of their rating, is reforms that had immediate teeth. I don’t see these as being immediate nor having the sharpest of teeth.”

Florida Association of Insurance Agents (FAIA) President and CEO Kyle Ulrich said while the association is encouraged and supportive of the reforms that passed and thinks it will have a positive impact on the market, significant changes aren’t likely for at least 18 to 24 months.

FAIA is advising agents to become comfortable with placing business with Citizens, if they aren’t already, as it is likely more policies are headed that way.

“Unfortunately, as much as agents don’t want to have to do it, there are going to be some relying on Citizens in ways that they either never have, or haven’t had to in probably 10 years,” Ulrich said. “The good news is, at least from our perspective, is that Citizens is in a much better place right now to handle that and are easier to do business with than they have been in the past.”

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