Industry Insiders and Consumers Hope for the Best but Prepare for the Worst as Lawmakers Tackle Property Insurance Crisis | Business Observer
Lawmakers will reconvene in Tallahassee at the behest of Governor Ron DeSantis to tackle the impending, if not impending, property insurance disaster that could leave the state on the hook for billions and homeowners who have to hard to get repaired if a major storm hits this hurricane season.
The session is scheduled for May 23-28. The goal is for lawmakers to find solutions to a problem driving carriers out of state or into insolvency and ease pressure on Citizens Property Insurance Corp., designed to be the carrier of last resort. . This while bringing skyrocketing property insurance rates under some sort of control.
But it’s unclear whether anything will come out of the five-day session, given that efforts to stabilize the insurance market came to nothing when the Legislative Assembly convened earlier this year for its regular session. One concern, according to insurance industry analysts, is whether lawmakers are willing to tackle what many see as the root cause of much of the problem: the legal fees that lawyers are authorized to charge and the number of lawsuits filed in the state.
Potential legislation expected to be proposed during the special session ranges from basing reimbursements for roof losses on actual cash value rather than replacement cost to eliminating one-way attorney fees unique and their replacement by a scale of fees.
Another potential bill that could arise is the creation of a Lodestar royalty. These are lawyers’ fees calculated by multiplying “a reasonable number of hours” spent on a case by a reasonable rate.
Another thing being considered, and reportedly supported by DeSantis, is enacting Texas-style litigation reform.
Texas had similar issues to Florida, but with hail damage when the state passed HB Approval 1774. The bill helped eliminate abuse and self-serving roofers, adjusters and torts of the claims process, says Matthew Mercier, national practice leader for the community. association division of CBIZ Insurance Services in Sarasota. Mercier is a recognized leader on the subject of property insurance and will be in Tallahassee for the special session.
The Texas bill requires 60 days notice before a lawsuit can be brought and the notice must include the specific amount owed by the insurer as well as “reasonable and necessary” attorney fees which are calculated according to a predetermined formula.
The insurance company also has 30 days to ask to inspect the damage.
Florida has a 10 day notice requirement, but not the 30 day inspection requirement like Texas.
“Maybe if we had a fee schedule in play it would help with attorney fees and not incentivize lawyers and bad actors to sue insurance companies for roofing claims, claims water and the like,” said Mercier.
Another potential example that Florida can borrow from Texas is 2015 legislation where the state tightened its public adjuster status that banned a practice seen in Florida where adjusters signed owners for attorneys. In Texas now, public adjusters can only enroll a customer if they intend to actually adjust the claim and resolve it.
The Perfect Storm
Much of the legislation is aimed at reducing litigation costs, which the insurance industry and state officials blame for the rising costs of property insurance.
They argue that capping fees or implementing a fee schedule will begin to bring back carriers who have left. Speaking during a webinar about the upcoming session, Mercier shared a list of more than 20 carriers who have left the state in recent years due to difficulties operating in Florida. This exodus, which shows few signs of abating, is putting enormous pressure on the state insurance system.
“It’s sad to see. We should have a healthy real estate market. We should have the opposite. We should have a list at the door of carriers who want to write in the state,” he says.
“However, until we get the litigation under control, that will not change. And until we get the litigation under control, we won’t have a free market in Florida. We are going to have a litigation market.
DeSantis echoed the sentiment when announcing the special session.
He says Florida accounted for 79% of nationwide insurance lawsuits for claims, while accounting for only 9% of actual insurance claims. The Florida Association of Insurance Agents says that between 2013 and 2020, Florida insurers paid $15 billion in claims costs. Of this amount, only 8% was paid to consumers. Lawyers got 71%.
To offset legal costs and stay competitive in Florida, some insurers seek and get massive rate increases while others, frustrated with Florida’s system, simply leave rather than do business here.
But rate increases or store closures may not be enough. In the past three months, three insurance companies providing coverage for homeowners have become insolvent and are in liquidation or rehabilitation and several others have either stopped renewing their policies or stopped writing new business, DeSantis said.
All this creates huge problems for citizens, who are only allowed to increase rates by 11%. Citizens was created in 2002 for homeowners unable to obtain cover from private companies. But industry executives and critics say it’s too often the only choice or one of the few choices.
Citizens have seen an increase of 399,822 policies since the start of 2020 and are on track to have over one million policies by the end of the year. Citizens had 421,332 policies at the end of 2019.
The legal community does not see the problem in the same way.
Amy Boggs, a St. Petersburg lawyer with the Boggs Law Group and president of the Florida Justice Association’s Property Insurance Section, says lawyers are being unfairly targeted. Formed a few years after World War II and named the Academy of Florida Trial Lawyers until 2007, the FJA, on its website, states that its mission has been the same for generations: “to shift the direction of justice to protect Florida consumers” in a “civil justice system (that) favored commercial interests over the interests of the individual and injured parties.”
Lawyers work with consumers trying to collect claims to which they are legitimately entitled, Boggs says, adding that the fees paid for the work are calculated by judges who carefully review the claims.
She says a reform bill passed in the 2021 session, SB 76, that changed the way fees are calculated and helped reduce frivolous lawsuits, but the state doesn’t release data that could show that it works.
Boggs, who says the association vehemently opposes changing the fee structure, disputes the idea that the legal industry is causing Florida’s insurance problems. Instead, she blames Florida Insurance Commissioner David Altmaier and the insurance industry. Altmaier, she says, has failed to control costs by approving rate increases for companies without forcing them to release their financial statements.
The association also takes issue with the numbers the governor and others are using to justify changing the litigation system. The organization says these numbers are old and do not take into account what is happening in New York State or include data from the Windstorm Association of Texas, painting a false picture of what is really happening. in all the countries.
By limiting litigation based on these numbers, the association says, what lawmakers are doing is taking away the rights of consumers who have legitimate claims against insurance companies. “Consumer rights shouldn’t be taken away by ‘broadcast agreement’ from industry,” says Boggs.
The association adds that the lack of transparency extends beyond regulators to the industry, which is not publicly required to open its books for inspection.
“I think the answer is to follow the money,” says Boggs. “We don’t know what the situation is. Is the situation really that serious? We don’t know, we are not aware of this information. And it seems to me that before lawmakers rush headlong into making sweeping changes, they should have the right to have a firm grip on what the real finances are.
If Florida lawmakers are unable to fix the problem, a state politician has offered a federal solution.
Rep. American Charlie Crist, D-St. Petersburg, currently running for governor, has introduced legislation that would allow state insurance commissioners to get low-interest loans to help offset catastrophic losses. States would have 10 years to repay the loans.
The plan, which Crist’s office said in a statement is similar to terrorism risk insurance, “would eliminate the uncertainty for insurers that drives the need for excessive reinsurance coverage against the risk of ruin. , stabilizing markets, increasing competition and lowering premiums”.
“While the Florida government is busy waging culture wars, our people face a chaotic and deteriorating property insurance market driven by excessive reinsurance at exorbitant rates,” Crist said in the statement. “With hurricane season fast approaching, premiums are becoming increasingly unaffordable and carriers are exiting the market altogether. Floridians can’t wait for bold action to lower premiums, and that’s exactly what my bill would do.
The bill, HR 7643, has been referred to House Financial Services, according to congress.gov, a website operated by the Library of Congress that tracks federal legislation.
Closer to home, Florida Chief Financial Officer Jimmy Patronis, an elected cabinet-level official, plans to introduce five legislative proposals in the special session to combat fraud.
The proposals include the creation of three anti-fraud landlord squads to investigate potential fraud; creating a $3 million anti-fraud and public education campaign; Amend Florida’s False Claims Act to allow whistleblowers to recover damages when a member of the general public files a whistleblower complaint; and amending the Assignment of Benefits Act, including prohibiting the bundling of AOBs.