Lawmakers move forward with bill to hike Citizens’ rates, expand reinsurance bailout

Hurricane Ian caused widespread damage in southwest Florida in late September.

Florida homeowners could soon find it more difficult to sue their insurer, and insurance companies are in line for another $1 billion in reinsurance backed by taxpayers after the Legislature moved forward with a bill designed to stabilize a struggling property insurance industry.

The Legislature kicked off its Special Session on Monday and the Senate Banking and Insurance Committee followed by passing SB 2A, which sets up a new reinsurance program on top of another state-backed reinsurance fund approved in May, seeks to limit lawsuits against insurers and makes state-run Citizens Property Insurance less attractive to homeowners.

“This is a good and balanced bill that covers a lot of the issues that we’re still seeing sadly in the market since we passed those bills in Special Session back in May,” said Sen. Jim Boyd, a Sarasota Republican who is sponsoring the bill.

Democrats on the panel weren’t convinced. They voted against the bill and took issue with many of its provisions, especially those limiting attorney fees and protecting insurance companies from bad faith claims.

“While we want to stabilize the insurance industry in Florida, I think we have to have an equal commitment to protecting the rights of the consumer,” said Sen. Geraldine Thompson, a Windermere Democrat. “We cannot leave the consumer behind while we work on stabilizing the market.”

Thompson offered an amendment, rejected by Republicans on a voice vote, that would have given homeowners the right to sue insurers over bad faith in handling their claim if an arbitrator ruled against the company. The bill still requires a court to find a breach of contract before a bad faith claim can be pursued against an insurance company.

The panel passed the bill on a 9-3 party line vote, with Republicans in favor and Democrats opposed. The bill was then sent to the Fiscal Policy Committee, which passed the bill on a 15-5 vote with Sen. Linda Stewart of Orlando the only Democrat to join Republicans supporting the bill.

One part of the bill allows insurers to offer coverage of a home at reduced cost if the homeowner agrees to mandatory binding arbitration in the event of a disputed claim.

Other provisions aimed at limiting lawsuits include the removal of one-way attorney fees and removing the ability of a homeowner to assign benefits to a contractor. The assignment of benefits (AOB) is typically done in an emergency to speed repairs, but insurers have long complained contractors abuse the practice by driving up costs through needless fixes.

Trial attorneys slammed the attorney fee and AOB provisions in the bill, saying they will make it impossible for a homeowner to recover the full cost of their damages because they’ll have to pay attorneys fees and the costs of experts used in litigation.

But Boyd and other Republican supporters of the bill said the measures necessary to bolster a beleaguered property insurance industry.

Six insurers have gone into receivership this year alone, one more has been placed under “administrative supervision” by regulators, and dozens more have hiked rates and canceled policies. The Demotech ratings agency in July also threatened to downgrade 17 companies before backing off.

Lawmakers have attempted to address what insurers say is the root of the problem, rampant lawsuits, by passing changes in the law to eliminate attorneys fees for assignment of benefits (AOB) cases and to require 10 days’ notice before filing a lawsuit.

But those reforms passed in 2019 and 2021 have had some effect in reducing lawsuits, insurers have still seen costs skyrocket, with the industry losing at least $1.5 billion over the last two years, and that was before Hurricane Ian hit the state in September.

The mounting losses have led global reinsurance giants to pull away from the Florida market, leaving smaller domestic insurance companies in Florida who rely on reinsurance coverage to help them, in turn, cover homes, without the necessary surplus to pay claims, especially with mounting litigation costs.

In a Special Session in May, lawmakers set up a $2 billion reinsurance fund for insurers, backed by taxpayer funds. That program was mandatory, but the Florida Optional Reinsurance Assistance program is not required. FORA offers another $1 billion in taxpayer-backed reinsurance padding for insurance carriers.

That reinsurance layer would be in addition to the Florida Hurricane Catastrophe Fund, or Cat Fund, but would pay out claims for insurers for a hurricane that causes damage below the Cat Fund’s retention level, or deductible, of $9 billion.

The bill also requires homeowners to file a claim within one year following a storm, down from the current two years.

But the legislation also has some provisions designed to help consumers and push insurance companies to pay claims promptly. Insurers are required to acknowledge and review a claim within seven days, instead of the current 14-day requirement; conduct a physical examination within 30 days, down from the current 45 days; and pay or deny a claim within 60 days, down from the current 90 days.

The Office of Insurance Regulation (OIR) will also get a budget increase of $1.7 million to recruit and retain employees to conduct market examinations of companies following a hurricane. OIR will also be able to punish insurers for abusing the appraisal process and suspend their ability to use the appraisal process for two years.

For Citizens policyholders, the bill will require them to move to the private market if they receive an offer from a company within 20% more than Citizens’ rates.

Also, Citizens policyholders who live in a flood zone must buy separate flood insurance — most homeowners’ policies cover wind damage but not flood — to remain within Citizens, starting on April 1 for new policies and on July 1 for renewal policies. That requirement will expand to cover all Citizens policies by 2027.

Other amendments offered by Democrats were rejected by Republicans, including one to require a rate reduction for companies that buy reinsurance through FORA. Boyd said he believes the bill will reduce rates over time by inducing more competition and making the state more attractive for insurers, but said it won’t happen overnight.

Insurance Commissioner David Altmaier echoed that view.

“This will take some time. It will take some time for the provisions of this bill to be effective in stabilizing the marketplace,” Altmaier said. “In the long run this bill’s going to go a long way to mitigating the rate increases that we’re seeing.”

House panels are expected to take up its version of the bill, HB 1A, on Tuesday. The Senate will discuss the bill on the floor Tuesday and could pass the measure, sending it to the House.