Homeowners insurance reforms passed in Florida last month will help stabilize the state’s struggling market for insurance buyers, but more changes are needed, insurance experts say.
The law, which could still face court challenges, could provide some relief to policyholders who have seen skyrocketing homeowner’s property insurance rates, insurer insolvencies and a contraction in capacity in recent years. The reinsurance capacity of 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 of the lengthy law include:
- Creation of the Florida Optional Reinsurance Assistance program, administered by the State Board of Administration, which will allow 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 on policyholders assigning post-loss insurance benefits under residential or commercial property insurance policies.
- The abolition of so-called one-way attorney’s fees.
- Additional market research of property insurance companies by the Office of Insurance Regulation following 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 that awarding benefits and one-way attorneys’ fees have resulted in inflated property insurance claims in Florida. Assignment of benefits is an agreement that transfers the rights or benefits of an insurance 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 homeowner involvement.
A one-way attorney’s fee provision allows policyholders to collect their legal costs from insurers if they win a claim dispute.
The legislation represents “much-needed reform” in Florida’s insurance market, said Taylor Davis, an Atlanta-based partner at insurance firm Clyde & Co.
“SB 2-A eliminates one-way attorney fees for insureds, allows mandatory binding arbitration clauses in policies, limits the circumstances under which an insured can file a bad faith action, and shortens 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 fee for attorney fees, which will help reduce the abusive number of lawsuits that occur in Florida over property insurance claims and help lower property insurance costs over the long term,” says Logan McFaddin, vice president of state government for the Washington-based Property-Casualty Insurance Association of America.
Awarding benefits and one-way attorneys have led to a significant increase in homeowner litigation in Florida, Oldwick, New Jersey-based rating agency AM Best Co. said in a Dec. 21 report. Florida accounts for about 10% of the U.S. homeowner’s insurance premium market but accounts for over 30% of claims defense and cost containment costs, according to the report
“One-way attorney fees and awarding benefits lead to excessive levels of frivolous litigation. Eliminating both is necessary to slow the volume of lawsuits filed against insurance companies in Florida,” said a spokesman for the New York-based Insurance Information Institute.
Best called the legislation “credit-positive” for insurance companies. “If these measures prove effective, they could significantly lower insurers’ defense and cost containment costs,” the report said.
The law could benefit the insurance-linked securities sector by reducing the time to file a supplemental claim to 18 months, which could help alleviate concerns about so-called trapped capital, where ILS investors cannot access funds for long periods after a loss .
Best warning, but there may be “legal challenges” to the new law. “Until the courts rule, national writers may still be wary of the Florida environment,” the report states.
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 multi-step process to address the market crisis in the state. “I feel that progress has been made toward both market stabilization and eventually lower real estate prices for Florida property owners,” he said.