Florida Insurance Market: Legislation Update

Last week the Florida Legislature passed major insurance reform legislation in a special session. It is too early to predict the long-term results of the law changes. Legal challenges have already been filed. We do not expect any immediate changes in the troubled Florida insurance market.

Following is a summary of the significant items and my initial opinion on the impact the new law will make on residential insurance in South Florida. 

Background: Since 2019 the South Florida insurance market has been nose diving into an affordability and availability crises. The primary causes have been evident for years and have now grown to a true crisis condition. 

These include:

  • Ongoing underwriting losses by insurance carriers providing homeowners insurance in South Florida.
  • Excessive claim litigation in homeowners insurance in Florida. Originally this began with sinkhole litigation, moved to water damage claims, and during 2018-2020 centered on roof claims from Hurricane Irma.
  • Claim fraud and abuse arising from Florida laws relating to Assignment of Benefits [AOB] in property insurance claims.
  • The High cost and scarcity of reinsurance needed by Florida’s domestic insurance carriers.
  • The lack of investment capital to fund insurance company creation and growth.

2022 Florida Insurance Legislative Action

Florida Insurance Market: Legal/Litigation Reforms

  • Several portions of the new law reduce or eliminate some of the financial incentives for the plaintiff bar to bring litigation on property insurance claims.
  • Restrictions were added to restrict bad faith insurance claims against insurance companies.
  • Provisions were enacted to require insurance companies to be more responsive and accountable in processing property insurance claims.

Comment: The provisions reducing litigation incentives are already being challenged in court. The short term [6-12 months] impact on the Florida insurance market will be negligible. If these changes reduce litigation, the long-term benefits may prove significant. The claim provisions applying to insurance carriers should impact some of the more uncooperative claim departments.

Assignment of Benefits/Claim Solicitation/ Claim Fraud

The new law attempts to curb continuing AOB abuses and limit aggressive solicitation of property claims.

Comment: From legislators’ mouths to God’s ears. Lawsuits have already been filed to undermine or rule unconstitutional portions of the new law. The bad guys, lobbyists, and crooks are normally smarter than the politicians. 

Consumers can only pray that significant reform curbs the rampant abuse driving insurance claim costs. Time and litigation will tell if progress was made in this area. No immediate impact will be felt in the Florida insurance market from these sections.

$2 Billion in Free Reinsurance

The legislation provides a $2 billion level of FREE reinsurance [sort of free—it is complicated] to residential insurance companies on an optional basis. Companies accepting the reinsurance gift must agree to nominal premium reductions.

Comment: Call this the “We screwed up and failed to act two years ago, Bail Out Bill”. Faced with evaporating insurance availability, and the pending insolvency of additional insurance companies, the politicians provided a reinsurance bail out to carriers that could not afford to renew reinsurance contracts on June 1st. This is creative financing at the expense of every taxpayer with the state subsidized failing insurance companies. 

As an insurance agent I have a vested interest in a healthy insurance market. Self-serving perspective aside, Florida citizens would have benefited by the legislators acting two years earlier before the patient needed a defibrillator. This is a one-time freebie to forestall a total Florida insurance market collapse. If claim fraud, abuse and excessive litigation are not remedied this is a $2 billion game of “kick the can down the road”.

The above critique aside, this bail out may be the most short-term benefit of the bill. Florida requires a viable insurance market. We may have been days away from a market meltdown. The meltdown still looms. We may have paid $2 billion to live to fight another day.

Policy Cancellation and Nonrenewal Restrictions

The law imposes new restrictions and limitations on how and when an insurance carrier may cancel or non-renew a policy.

Comment: A wonderful idea and nice consumer protection. Also, political fluff to voters. Tell an insurance company it can’t non-renew a policy because a roof is 15 years old, and the insurance company will non-renew the policy because the house is painted green. Better idea, tell an insurance company in financial trouble that it can’t non-renew policies and watch it go bankrupt. Well intentioned, but this section is trying to legislate morality.

Political Theater. No impact on the market.

Home Hardening Grants

Provides up to a $10,000 grant [$2 for every $1 spent by a homeowner] for hurricane mitigation inspections and home hardening improvements. Applies to homesteaded properties valued at $500,000 or less.

Comment: A lovely political gift to homesteaded residents. This encourages home hurricane safety improvements. Bravo to the recipients but this item has nothing to do with impact on the current crisis.

Note: 10 days post enactment and the insurance industry and legal profession are digesting the legislation and determining their next steps. Meanwhile, one additional insurance company has failed.

This is my best insight to what was accomplished and fumbled in Tallahassee. It could have been worse, but it could have been better and should have been two years ago.

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