Property insurance reforms passed in Florida last month will help stabilize the state’s difficult market for insurance buyers, but more changes are needed, say insurance experts.
The law, which may still face court challenges, could bring some relief to policyholders who have seen soaring homeowners property insurance rates, insurer insolvencies and a contraction in capacity over the past several years. Reinsurance capacity for commercial insurers has also been affected by the volatile market.
Senate Bill 2-A, sponsored by Sen. Jim Boyd, a Republican, was signed into law by Gov. Ron DeSantis after a special legislative session last month.
Provisions in the lengthy law include:
- The creation of the Florida Optional Reinsurance Assistance program, administered by the State Board of Administration, which will authorize eligible insurers to purchase reinsurance coverage from a $1 billion fund. This follows the creation of a $2 billion reinsurance fund in May 2022.
- The prohibition of policyholders from assigning post-loss insurance benefits under residential or commercial property insurance policies.
- The elimination of so-called one-way attorneys fees.
- Additional market conduct examinations of property insurers by the Office of Insurance Regulation after a hurricane under certain circumstances.
- The specific conditions that must be met for a property insurance policy to require mandatory binding arbitration.
Industry critics have long said assignment of benefits and one-way attorneys fees have resulted in inflated property insurance claims in Florida. Assignment of benefits is an agreement that transfers the insurance claims rights or benefits of a policy to a third party, such as a roofer or other property repair company, authorizing it to file claims, make repair decisions and collect insurance payments without the involvement of the homeowner.
A one-way attorneys fees provision allows policyholders to collect their legal costs from insurers if they win a dispute over claims.
The legislation represents a “much-needed reform” to the Florida insurance market, said Taylor Davis, an Atlanta-based partner at insurer defense law firm Clyde & Co.
“SB 2-A eliminates one-way attorneys fees for insureds, allows for mandatory binding arbitration clauses in policies, narrows the circumstances under which an insured may file a bad faith failure-to-settle action, and reduces the deadline for policyholders to report claims, among other changes,” she said.
“Senate Bill 2-A puts Florida consumers first by eliminating the state’s one-way attorney fee statute, which will help reduce the abusive number of lawsuits occurring in Florida over property insurance claims and help lower property insurance costs long term,” said Logan McFaddin, vice president of state government relations for the Washington-based American Property Casualty Insurance Association.
Assignment of benefits and one-way attorneys have led to a significant spike in homeowners’ litigation in Florida, Oldwick, New Jersey-based rating agency A.M. Best Co. said in a Dec. 21 report. Florida accounts for about 10% of the U.S. homeowners insurance market by premium but accounts for over 30% of claims defense and cost-containment expenses, the report stated
“One-way attorney fees and assignment of benefits lead to excessive levels of frivolous litigation. Eliminating both is necessary to slow down the mass volume of lawsuits being filed against Florida insurers,” said a spokesman for the New York-based Insurance Information Institute.
Best called the legislation “credit positive” for insurers. “If these measures prove effective, they could significantly lower insurers’ defense and cost-containment expenses,” the report said.
The law could benefit the insurance-linked securities sector by reducing the amount of time to file a supplemental claim to 18 months, which could help alleviate concerns about so-called trapped capital, where ILS investors can’t access funds for long periods after a loss.
Best cautioned, however, there could be “judicial challenges” to the new law. “Until the courts rule, national writers may still be wary of the environment in Florida,” the report said.
Scott Popilek, Atlantic region leader for Risk Strategies Co. and chairman of the Legislative Council for the Florida Association of Independent Agents, said the new law is a very important step forward in what will be a multiple-step process to address the market crisis in the state. “I do feel that progress was made toward both market stabilization and eventually lower property rates for Florida property owners,” he said.