With the pressure of Hurricane Ian upending an already fraught Florida property insurance market, Gov. Ron DeSantis called a second insurance-focused special legislative session to close out 2022.
If you’re still getting caught up, read here about the first Florida insurance special session, or read here about the historical pressures that have catalyzed the homeowners insurance market in the state. Or, if you’ve decided you need a break and would rather read something else, we can help you out there, too.
In a matter of days in December, the legislature nailed down a bill of substantial actions to address the unsteady market – something that otherwise eluded them during the rest of the regular session. In interviews beforehand, DeSantis indicated the pressure of Hurricane Ian made it more likely legislators would cooperate over legislation they previously wouldn’t agree to (10/10 can confirm, that happened).
DeSantis signed the 105-page bill on Dec. 16, 2022, and it’s super understandable if you don’t want to read the whole thing. The Florida CFO, Jimmy Patronis, put a helpful redux on the CFO website to summarize the legislation into 10 neat bullets. If you’re looking for something in the middle of a 10-bullet list and 105 pages, we read through and contextualized some for you:
1. Creation of the Florida Optional Reinsurance Assistance program
The Florida Optional Reinsurance Assistance (FORA) program will require current property insurers in Florida to buy into the program for some degree of reinsurance, while also providing them the option of buying different levels of reinsurance beyond the basics. Each reinsurance layer – which goes beyond the already-mandatory participation of property insurers in the Florida Hurricane Catastrophe Fund (FHCF) – reinsures insurers in increments of billions of dollars.
The program will be administered by the State Board of Administration, and is operating off emergency-based rules that the law says will likely be replaced in 2024 or 2025 as the program matures and, hopefully, enters a non-emergency phase of operation.
If an insurer goes insolvent, the FORA program will pay out reinsurance claims into the appropriate state guaranty fund or to the stable insurer that has agreed to take on the insolvent insurer’s obligations.
As the state OIR says:
“Reinsurance rates are expected to increase at least 50%. To cover the increased cost, insurance companies pass on those expenses to policyholders in the form of premium increases. The Legislature is hopeful that lower reinsurance rates offered through the Florida Optional Reinsurance Assistance program will decrease the need for insurance companies to increase premiums.”
Under the provision, if a catastrophe warrants FORA coverage beyond the premiums paid by insurers, funding can be drawn from the state’s general revenue fund. Currently, the total for funding drawn from the general fund is capped at $1 billion for reinsurance claims and $6 million for administrative costs of the program.
2. Changing guidelines for dispute resolution between policyholders and insurers
The claims process is nobody’s favorite even when we’re talking about clean claims, where all the information and justifications for assessing damage and adjusting claims is neatly compiled and submitted in proper order. So when you have disputed claims, where the policyholder and property insurer disagree on the value or cause of damages, the process to resolve these disagreements is lowkey hellacious.
With claims-related lawsuits bearing blame for market insolvency, the new law adds some parameters to end the loop of incessant litigation:
Bad faith cases
The new law elaborates on existing rules to clarify that a claimant can’t bring a suit against an insurer for acting in bad faith unless a court has judged that the insurer was in breach of contract. To rephrase, an insurer settling a case with a claimant by agreeing to a higher appraisal value on claims isn’t sufficient evidence for a civil suit for breach of contract on its own.
As the state summary says, “Receiving an appraisal award higher than an insurance company’s appraiser’s final estimate may be evidence of bad faith; but on its own, does not give rise to a bad faith claim.”
Ends assignment of benefits
The practice of “assignment of benefits” for property policies is null on any policies issued or renewed after Jan. 1, 2023. So, if you have to hire a roofer or other contractor to tackle structural repairs on your property, you can’t let them handle the reimbursement from the insurer.
Repeals one-way attorney fees
One of the oft-cited factors of the state’s fraud issues is one-way attorney fees. Attorneys previously have agreed to one-way fees when taking on property claims disputes for Floridians. If they succeed in appealing the claim, part of the settlement or court resolution will include payment for the claimant’s attorney, i.e., the insurance carrier will pay the cost of both their defense lawyers and the claimant’s lawyer. This only went one way. However, in the event that a claim is fully denied, the insurance carrier must pay for their own attorney.
Repealing this provision means the consumer making the claim and the insurance carrier disputing the claim will be responsible for paying their respective legal counsels, regardless of the outcome.
This was a provision that legislators proposed in May, but which many balked at as going too far, saying the one-way attorney fees enabled claimants who would otherwise lack the means to dispute their insurer’s claim denials.
Parameters on contractually mandated arbitration
A new section of the law was created to say property policies may not include mandatory binding arbitration unless:
- The mandatory arbitration requirements are a separate endorsement to the insurance contract
- The policyholder’s premium will include a discount for agreeing to the endorsement
- The policyholder specifically signs a form agreeing to the endorsement, acknowledging the rights they’re relinquishing
- The endorsement mandates that an insurer will engage in mediation before arbitration
- The insurer also offers a policy that doesn’t include the binding arbitration endorsement
To summarize in lay terms for those of us who really, really don’t care to get a juris doctorate: If an insurance company wants to require policyholders to engage in arbitration and never ever take disputes to court, the company has to be transparent and offer a policy-with-mandatory-arbitration at a discount, and let consumers know that, for full price, they can get a policy-with-no-mandatory-arbitration.
3. Extends Florida’s Office of Insurance Regulation powers for market conduct examinations (MCEs)
The legislature added to the Florida OIR’s power for market regulation by expanding the OIR’s ability to open market conduct examinations in the 18 months following a hurricane, for insurers in the following situations:
- Insurers in the top 20 percent of the market for claims/policies affected by a hurricane
- Insurers that compose the top 20 percent of complaints following a hurricane
- Insurers that made “significant payments” to a managing general agent following a hurricane
- Insurers that the OIR deems as needing an MCE
An interesting piece of this MCE power expansion: “An examination of an insurer under this subsection must also include an examination of its managing general agent as if it were the insurer.” This subsection undoubtedly will have ripple effects as the industry contemplates its meaning for an organizational structure that is often operating in the background.
Other market regulation changes that are part of the package:
- Insurers must now include claims tallies – claims closed, open, pending, in dispute – in their annual statement to the OIR.
- The OIR will publish an annual list of the insurers they determine have a pattern of unfair trade practices, like overuse of forced appraisal or denied claims, as well as a link to a broader public MCE for those companies. (Shameless plug: If adjuster licensing is a stumbling block in your claims process, get in front of it and avoid ending up on a name-and-shame list; get AgentSync.)
- The state will now have the power to revoke an insurer’s certificate of authority if the insurer without just cause forces an insured to enter an appraisal process to get their claims paid.
If you’re thinking “sure, but how will the Florida Office of Insurance Regulation actually stay on top of all of these new powers and requirements?”, you may also note: The legislative package appropriates more than $1.7 million in funding to recruit and train up new staff to enable the OIR to handle these MCEs.
4. Citizens Property Insurance Corporation changes
The laws regarding the organization of the last-resort insurer have been massaged to allow Citizens to combine its accounts. Previously, Citizens’ monies have been separated into a personal lines account for wind damage to residential homes, a commercial lines account for basic perils on commercial residential and nonresidential properties, and then a coastal account for personal and commercial properties in specific coastal areas. Special charges to insurers and policyholders to support claims that went beyond the last-resort insurer’s coverage abilities were then assessed based on those divided accounts.
The new provisions allow Citizens to manage and assess special charges and fees based on a single combined account.
Keeping private market competition
Additionally, to maintain competition in the market and discourage policyholders from an over-reliance on Citizens, the law will require Citizens policies that renew after April 1, 2023, to move to private authorized insurers in the state if the insurer’s offer of coverage is within 20 percent of the Citizens premium.
One new paragraph states, “Rates for coverage provided by the corporation must be actuarially sound… and not competitive with approved rates charged in the admitted voluntary market so that the corporation functions as a residual market mechanism to provide insurance only when insurance cannot be procured in the voluntary market.”
While Citizens rate increases on personal lines policies limit annual increases to 12-15 percent increases, the same doesn’t apply to personal lines policies that cover residences that aren’t the policyholder’s primary residence. Instead, personal lines policies for non-primary residences must be charged at least the last year’s rate, and up to a 50 percent increase over the previous year’s rate.
New Citizens’ language also allows the corporation to require flood insurance as a condition of coverage for residences that are applying for wind coverage; this is a significant departure from the previous iteration of the law, which forbade Citizens from requiring flood insurance for most applicants.
In order to further shore up the state’s exposure to flood risk, another paragraph makes it explicit:
“A corporation policyholder making a claim for water damage against the corporation has the burden of proving that the damage was not caused by flooding.”
5. Reduced claims-processing timelines for insurers and policyholders
The law regarding the claims-payment period now shortens the payment period for undisputed claims; insurance carriers must pay claims within 60 days after receiving them instead of the previous 90.
The law also broadens the methods an insurer can use to assess damages for claims, including explicitly allowing both digital and physical means of adjusting, and shortens the timeline an insurer has to respond to claims and damage estimates from 14 days to seven.
For policyholders, the new law also halves the time to file a property insurance claim. Now, a claim must be filed within a year of the date of loss (previously it was two years). Additionally, policyholders now must file supplemental claims within 18 months instead of three years.
As the CFO’s statement on the Florida website says, “Insurance companies report that many of the claims filed years after an event and closer to the filing deadline are usually fraudulent and orchestrated by a bad actor or third party.”
So, presumably, the reduced period to file a claim is to provide more assurance that the damages being assessed in the claim are related to a specific covered event.
There’s a lot there to unpack, and the country will be watching to see if these provisions attract reinsurers and property insurers back to the market after these last hard years, or whether the relentless march of coastal flooding and the proverbial and literal house built on sand will require further changes to find a stable foundation once again.
While we can’t directly affect solvency, AgentSync can help reduce your compliance risk with its solutions and managed services. If you want more information about how, schedule a demo today.