Miami-Dade lawmakers file bills adding guardrails to lender-placed property insurance

Two Miami-Dade County lawmakers are pushing legislation to add safeguards to how companies that provide lender-placed property insurance can operate in the Sunshine State.

Sen. Ileana Garcia and Rep. Juan Fernandez-Barquin, both Republicans, filed bills (SB 410, HB 793) that would further regulate collateral protection insurance. Both await hearings in their respective chambers.

In a statement, Fernandez-Barquin stressed that to shield homeowners from misfortune, it is necessary to fortify the financial structures they depend on, including insurers mortgage lenders turn to when in need of property insurance.

“Owning a home is quite possibly the largest investment anyone can make in their lifetime,” he said. “Homeowners insurance is considered essential to protecting a financial institution’s interests, (and) HB 793 will implement best practices for lender-placed insurance and provide Florida’s homeowners with protections in the event of a loss.”

Collateral protection insurance, also called CPI, is a type of insurance that protects a lender’s interest in a piece of collateral, typically a car or a home, in the event that the borrower does not maintain the required insurance coverage.

Basically, when someone takes out a loan to buy a car or house, the lender will want to ensure the car or house is protected in case of an accident or natural disaster. To do this, lenders frequently require loanees, including mortgage holders, to have insurance coverage on the car or house.

If a mortgage holder fails to maintain the required insurance coverage, the lender can purchase CPI to protect its interests in the collateral. CPI can be pricier than regular insurance and is usually added to the mortgage balance, meaning homeowners must pay interest on it.

SB 410 and HB 793, which would become effective July 1, would provide terms and calculations of CPI coverage and premiums, ban certain practices and set filing requirements similar to those of the National Association of Insurance Commissioners.

The legislation would limit CPI coverage only to the time a property owner does not have regular insurance. Any CPI coverage and premiums would have to be based on the replacement cost of the property, as determined by the last known coverage amount or unpaid principal balance of the mortgage loan.

In the event of a covered loss — damage to the property for which the insurer is financially liable — the replacement cost the insurer pays beyond the unpaid principal balance of the mortgage loan would go to the lender.

The bills also would prohibit insurance companies and agents from engaging in several unscrupulous practices, including insuring property they or an affiliate owns, making payments for a lender, insurer, investor or servicer for the purpose of securing more CPI business, and providing free or below-cost outsourced services to any of those parties.

Further, the bills would require all insurers writing CPI to have separate rates for CPI and voluntary insurance and establish requirements for proof of CPI in an individual policy or certificate of insurance.

By April 1 each year, insurance companies in Florida with at least $100,000 in direct written premium for CPI for the previous year would have to report their actual loss ratio, earned premiums, itemized expenses, paid losses and loss reserves to the Florida Office of Insurance Regulation (OIR).

Except in cases of flooding, if an insurer experiences an annual loss ratio of less than 35% for two straight years, the insurer must submit to the OIR a filing either adjusting its rates or supporting their continuance.

Garcia and Fernandez-Barquin’s bills come less than two months after DeSantis signed a sweeping property insurance bill meant to stabilize a tumultuous market while reducing avenues by which claimants can seek recompense.

DeSantis, who last week appointed Florida Gaming Control Vice President Michael Yaworsky to lead the OIR, said the bill’s “historic reforms … create an environment which realigns Florida to best practices across the nation, adding much-needed stability to Florida’s market, promoting competition and choice.”

The bill, which the Legislature passed along party lines, drew rebuffs from Democrats who complained it gave too much to insurance companies without mandatory rate reductions or consumer protections.

SB 410, which Garcia filed Jan. 26, has been referred to the Senate Banking and Insurance, Fiscal Policy and Agriculture, Environment, and General Government Appropriations committees.

HB 793, which Fernandez-Barquin filed Tuesday, awaits committee assignments from House Speaker Paul Renner.