New Florida law adds guardrails to lender-placed property insurance

Companies in Florida that provide lender-placed property insurance will soon have to operate under a new set of rules due to a law going into effect next month.

The measure (HB 793) addresses collateral protection insurance, also called CPI, which protects a lender’s interest in a piece of collateral property — typically a car or home — in the event a borrower fails to maintain required insurance coverage.

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

If a mortgage holder fails to maintain the required insurance coverage, however, the lender can purchase CPI to protect its interest in the collateral property. This can be pricier than regular insurance, and it is usually added to the borrower’s mortgage balance, meaning home or car owners must pay interest on it.

HB 793, which Gov. Ron DeSantis signed this month, provides terms and calculations of CPI coverage and premiums. It also bans certain double-dipping practices and sets filing requirements similar to those of the National Association of Insurance Commissioners.

The new law limits CPI coverage only to the time a property owner does not have regular insurance. CPI coverage and premiums must 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 goes to the lender.

Notably, the new law prohibits 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.

It also requires all insurers writing CPI to have separate rates for CPI and voluntary insurance and establishes requirements for proof of CPI in an individual policy or certificate of insurance.

Every April, insurance companies operating in Florida with at least $100,000 in direct written premiums for CPI in 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 consecutive years, the insurer must submit to the OIR a filing either adjusting its rates or supporting their continuance.

HB 793, sponsored by Miami-Dade County Republican Rep. Juan Fernandez-Barquin and co-sponsored by Miami Gardens Democratic Rep. Christopher Benjamin, won unanimous approval in both chambers of the Legislature this past Session.

Miami Republican Sen. Ileana Garcia carried an identical companion (SB 410), with co-sponsorship from Palm Coast Republican Sen. Travis Hutson. It cleared all three committees to which it was assigned without a single “no” vote before Garcia laid it on the table in favor of Fernandez-Barquin’s version, which passed May 1.

“Owning a home is quite possibly the largest investment anyone can make in their lifetime,” Fernandez-Barquin said in a statement upon introducing the legislation in January. “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.”

Garcia was the first to file the legislation in late January, roughly two months after DeSantis signed SB 2A, a sweeping property insurance measure meant to stabilize a tumultuous market while reducing avenues by which claimants can seek recompense.

SB 2A passed last year along party lines, drawing rebuffs from Democrats who complained it gave too much to insurers without mandatory rate reductions or consumer protections.

DeSantis, who in February appointed former Florida Gaming Control Vice President Michael Yaworksy to lead the OIR, said SB 2A provides “historic reforms” that “create an environment which realigns Florida to best practices across the nation, adding much-needed stability to Florida’s market, promoting competition and choice.”

But property insurance in the Sunshine State remains a weak spot for the Governor, who has since launched a presidential campaign. Donald Trump, the front-runner for the Republican nomination, said in March that Florida has the “worst insurance scam” in the nation. The former President labeled SB 2A as “the biggest insurance company bailout to globalist insurance companies in history.”

Speaking last month at a private school in Miami, DeSantis acknowledged insurance relief has been slow-coming but blamed national inflation rather than mismanagement by the state.

On June 1, he signed another measure (SB 7052) to increase fines on insurers that mishandle claims, require the OIR to issue quarterly reports on enforcement measures, mandate more frequent reviews of “high-risk” insurers and insurers with high volumes of consumer complaints following a hurricane, and require carriers to inform the OIR when they stop issuing new policies and why.

Like HB 793, that measure — which also received uniform support in the Legislature — goes into effect July 1.