Lawmakers plan $1B for reinsurance to stabilize property insurance industry

The Florida Capitol, January 2021. Credit: Michael Moline

Florida property insurance companies could soon be able to buy another $1 billion in reinsurance coverage from a fund backed by taxpayer money.

Homeowners with coverage from state-run Citizens Property Insurance are likely to see rate increases. And insurers are likely to get more protections from lawsuits.

The reinsurance program, the changes to Citizens and the tort reforms are part of a sprawling 100-plus-page bill released by lawmakers Friday evening (HB 1A and SB 2A) designed to shore up the troubled industry, which has seen six companies fail this year and dozens of others hike rates and cancel policies.

The Legislature is poised to convene a Special Session on Monday to address the issue, along with property tax relief for Hurricane Ian victims and a toll credit program for frequent commuters.

The Florida Optional Reinsurance Assistance program (FORA) comes after lawmakers already passed a $2 billion taxpayer-backed reinsurance program for the industry earlier in the year. Despite that, the industry struggled and ratings agency Demotech threatened to downgrade 17 companies.

Three companies ultimately were downgraded before state regulators set up a plan to backstop the claims from failed companies with money from state-run Citizens Property Insurance Corp.

The reinsurance will cover hurricanes and other storms that bring damage below the Florida Hurricane Catastrophe Fund’s retention level, or the threshold that would kick in the Cat Fund’s coverage.

Insurers, especially smaller domestic companies, have said such coverage is needed because global reinsurance giants have either withdrawn from the Florida market completely or hiked prices so high as to make it unaffordable for them. That, in turn, has left many of them without enough coverage in hurricane-prone Florida.

Another change designed to help insurers is the elimination of the right to attorney’s fees in residential and commercial property insurance lawsuits. The provision has been long sought by property insurers, who have seen it as an incentive by law firms to file frivolous suits.

But it’s been fought off by the Florida Justice Association, a trade group for trial lawyers, who see it as necessary to ensure cases can be brought against insurers on behalf of homeowners if a claim isn’t paid in full.

A mechanism known as assignment of benefits, or AOB, where a homeowner signs over benefits to a contractor who runs the claim on their behalf, is also eliminated in the bill.

Homeowners also will have less time to file a claim after a storm, from two years currently down to one year. But insurers will also be required to review and acknowledge receipt of a claim in seven days instead of 14, and conduct an examination of damages within 30 days instead of 45 days.

The bills also contain some measures designed to protect consumers, including requiring market conduct examinations, or thorough reviews of a company’s practices by regulators, following a hurricane; and requiring detailed monthly reporting on the number of claims open, closed and pending.

For Citizens customers, there are a number of changes that could lead to higher rates or a move out of Citizens into the private market, likely at higher rates. The bills require Citizens customers to move to a private carrier if they receive an offer within 20% above the Citizens rate. Prospective new Citizens customers would fall under the same requirement.

Homeowners with Citizens coverage would also be required to get flood coverage to remain in Citizens. Another provision would eliminate rate reductions for some areas in the state, as happened this year. Citizens asked for a 10.8% increase statewide but only received a 6.4% increase on average. Some areas of the state saw rate cuts because lawsuits in those areas fell. The bill would prevent those rate cuts in the future.

Legislative leaders say the goal is to stabilize the insurance industry.

“To jumpstart Florida’s insurance market, our policymaking strikes a difficult but careful balance that ensures Floridians can access insurance, targets cost-driving frivolous lawsuits while protecting access to the courts, and sends a strong signal to insurance carriers that Florida is open for business,” said House Speaker Paul Renner, a Palm Coast Republican.

Senate President Kathleen Passidomo, a Naples Republican, said she wanted to ensure homeowners claims were “paid promptly and fairly,” while protecting insurers from frivolous lawsuits.

“I believe the goal we all share is for Florida to have a robust property insurance market that offers homeowners the opportunity to shop for insurance that meets their needs and budget,” Passidomo wrote in a memo to Senators on Friday evening.