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Florida lawmakers want to fix property insurance. Here are the big issues.

The proposed legislation for the special session is the most substantive in years.
Roofers install shingles on a stilt home on Mexico Beach, seven months after Hurricane Michael made landfall, destroying many of the structures in the small coastal Panhandle town.
Roofers install shingles on a stilt home on Mexico Beach, seven months after Hurricane Michael made landfall, destroying many of the structures in the small coastal Panhandle town. [ DOUGLAS CLIFFORD | Times (2019) ]
Published May 23|Updated May 23

TALLAHASSEE — Legislators, in coordination with Gov. Ron DeSantis, are proposing a number of fixes during their special session this week on Florida’s spiraling property insurance market.

Industry observers have expressed skepticism that the legislation will make a significant difference on skyrocketing homeowners’ rates — at least any time soon.

But this week’s legislation is the most substantive in years, aiming to address some short-term and long-term problems.

Here are some of the main problems facing the industry and what lawmakers are doing about it:

1. Lawsuits, roofing and fraud

For years, insurance companies have been complaining about how often they’re being sued in Florida.

Data from the National Association of Insurance Commissioners, collected by Florida Insurance Commissioner David Altmaier, shows that Florida’s lawsuit-heavy environment is driving up costs for everyone. Between 2016 and 2019, Florida accounted for somewhere between 7.75 percent and 16 percent of the nation’s homeowners’ claims, but between 64 percent and 76 percent of the nation’s litigated homeowners’ claims.

(There are some caveats to the figures. New York isn’t included, and critics have raised questions about what counts as a litigated claim. But the data is fairly consistent over the years.)

Some insurance companies blame a 2017 state Supreme Court opinion, which opened the door for attorneys to collect bigger fees when they win lawsuits against insurance companies, for triggering a surge in litigation.

They also point to roofing contractors, some of whom go door to door convincing homeowners they can file claims for minor or insignificant roof damage. This has caused insurance companies to refuse to insure homes with older roofs, requiring some homeowners to spend up to $20,000 out of pocket before receiving coverage.

This month, the state-run Citizens Property Insurance settled a lawsuit against an attorney, a public claims adjuster and a restoration company for $1 million after finding suspicious litigation patterns between the companies. Although Florida’s elected chief financial officer, Jimmy Patronis, alleged they committed “fraud,” criminal charges weren’t filed.

State lawmakers have made some minor fixes to the state’s litigation statutes. Last year, they passed a law limiting advertisements by contractors. But a federal judge quickly blocked it as a violation of free speech.

Related: Judge blocks key portion of Florida property insurance law

Are lawmakers addressing this? Yes. They want to limit attorney’s fees in a number of situations, while also making it harder to win lawsuits against insurers when arguing the company acted in bad faith. (The homeowner would have to show the insurer breached their contract.) Lawmakers are also proposing to allow insurers to offer policies with a separate roof deductible, with some caveats.

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2. Standards for handling claims

Following 2018′s Hurricane Michael, thousands of Floridians struggled with insurance companies denying claims, delaying them for months or assigning multiple adjusters.

About the only tool regulators have to crack down on insurer claims handling practices is state law requiring claims be paid or denied within 90 days.

That’s a time frame that leaves few people satisfied, however, and ideas have been tossed around about how to amend that. Trial lawyers want the timeline moved up to 30 days. There’s also been an idea to have the Office of Insurance Regulation adopt a series of industry “best practices” for handling claims.

With many Florida insurers relatively new to the industry, mandating best practices could improve the customer experience and possibly prevent lawsuits, the thinking goes.

Are lawmakers addressing this? Somewhat. They want to require insurers to provide a “reasonable explanation in writing” to the policyholder for any payment, partial payment or denial of a claim. They also want insurers to provide their adjuster’s reports within seven days after policyholders ask for them.

3. Resources for regulators

Staff at Florida’s Office of Insurance Regulation are being inundated with bigger and more complicated rate requests and with monitoring companies on the verge of insolvency.

Yet the number of state workers regulating insurance fell by nearly 14 percent between 2016 and 2020, according to data from the National Association of Insurance Commissioners. (The figure includes staff from the Office of Insurance Regulation and the Department of Financial Services.)

Florida’s staffing is roughly half the size of their counterparts in Texas, despite the fact that Florida has more state-based (domestic) insurers, which occupy regulators’ attention more than insurers based in other states. Florida has more domestic insurers (437) than every state but New York (555), according to the data.

Florida also has 17 positions for financial examiners — the people who check the financial health of each insurer every five years. Compare that to New York (98), Texas (71), Missouri (37) and Wisconsin (26).

Florida’s salary ranges also lag behind numerous states, including small states such as Arkansas, according to the association.

Are lawmakers addressing this? No. State workers got a 5 percent pay bump this year. Lawmakers are proposing a new “insurer stability unit” within the Office of Insurance Regulation, but no new positions.

4. The role of the Hurricane Catastrophe Fund

The Florida Hurricane Catastrophe Fund, along with the state-run Citizens Property Insurance, is a property insurance market stabilizer created in 1993 after Hurricane Andrew.

The “cat fund,” as it’s called, is essentially a bank, or what’s known as a reinsurer: All property insurers are required to pay into it through premiums, and when a catastrophic hurricane hits, the fund helps insurers pay claims.

The fund, which ran dry in 2006, is now in great shape, with about $15 billion on hand. Lawmakers were previously considering allowing insurers to tap into the fund for weaker storms. They were also considering suspending the 25% fee the fund charges on premiums ahead of each storm season, a savings that could have a modest effect on lowering rates.

Those are short-term fixes that might bail out a handful of struggling domestic insurers.

Are lawmakers addressing this? Yes, but with a different approach. They want to assign $2 billion to a new reinsurance fund for insurers that would pay out earlier than the cat fund. Insurers who use it would have to reduce rates by June 30.

5. Understanding what insurers are doing with their money

Florida, like many states, allows an insurance company’s parent and sister companies to charge the insurance company fees for services.

For instance, an insurer’s parent company can charge the insurer for commissions or can charge fees for handling claims for it.

The fees can be more than 30% on premiums — an amount that, per dollar, increases as the insurance company’s rates rise.

The exact relationships between insurers and their affiliates have been a black hole for regulators. There have been questions raised over the years about whether these fees are for legitimate services or simply to suck money out of the insurer.

Florida produces reports on why insurance companies fail, and of the five reports obtained by the Times/Herald, four have a common thread: Financial auditors found the insurers’ affiliated companies were bleeding the host companies dry through bogus fees.

Related: When Florida's property insurers fail, few ask why

A report on an auto and general liability insurance company that went insolvent in 2009 states the officers were “stripping the company of cash” as it was going down. The 2014 failure of a property insurer found its CEO was getting bonuses based on how much the insurer paid an affiliate company, which, the report’s authors wrote, “may be an inherent conflict of interest in his fiduciary duties.”

Are lawmakers addressing this? Somewhat. They want reports on why companies fail within two months (instead of the years it normally takes). Last year, the Legislature passed a bill that allowed the Office of Insurance Regulation to seek additional data on these affiliate companies. A study on that data is still pending.

6. Updating building and inspection standards

After Hurricane Andrew in 1992, lawmakers updated the state’s building codes, part of a multi-pronged approach to shore up Florida’s insurance market that most consider widely successful. (Creating the state-run Citizens Property Insurance and Hurricane Catastrophe Fund are two other examples.)

Since 2018′s Hurricane Michael, there have been calls to update the state’s building codes, calls that were renewed after the Champlain Towers South collapse in Surfside that killed 98 people.

Related: Florida Legislature can't agree on bill to increase aging condo inspections

Since the collapse, as many as nine insurers have stopped writing policies on condominiums, sending many customers in older buildings to Citizens Property Insurance.

Despite that, lawmakers couldn’t agree on any changes to the laws this year, and they aren’t proposing any for this week’s session.

Related: As cost of condo insurance soars, Florida legislators remain silent

Are lawmakers addressing this? No.

7. A closer study of the issue

Property insurance is one of the most complicated issues lawmakers face.

But the Legislature this year did not commission any independent studies to understand factors influencing the market or form special committees to study it in depth. Critics note that a lot of lawmakers’ energy during the regular session went to passing bills on hot-button issues like abortion and immigration.

Longtime observers have noticed the shift in Tallahassee. Two decades ago, former Gov. Jeb Bush assigned his lieutenant governor to lead a task force on the property insurance crisis, which resulted in a 231-page bill released a month and a half before the 2007 special session. A decade ago, the leaders of the House and Senate’s banking and insurance committees wrote commentaries on the issue.

Even though lawmakers repeatedly said property insurance was one of their biggest constituent issues this year, the Senate passed a bill the House refused to accept, and they passed nothing. And despite the Surfside disaster, which was international news, lawmakers did nothing about it this year.

Are lawmakers addressing this? Somewhat. Legislative leaders and DeSantis’ office released proposed legislation less than 72 hours before this week’s session, leaving little time for lawmakers and the public to scrutinize the proposals. But they are increasing oversight of troubled insurers and requiring regulators to provide them with regular updates.

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