The Florida GOP’s insurance reforms—which would give another $1 billion subsidy to the carriers while restricting policyholders’ ability to sue them and still won’t lower premiums anytime soon—passed the Florida Senate on Tuesday, December 13th.

Members of the minority party lamented that the bill would tie policyholders’ hands in fights with insurance companies by eliminating financial incentives for plaintiffs’ attorneys to represent them in court.

“Not only do we set up a David-versus-Goliath system. We take away the stone from David,” Orange County Democrat Geraldine Thompson argued.

Meanwhile, the bill’s sponsor—Republican Banking and Insurance chairman Joe Boyd, who runs an insurance and investment firm in Bradenton—conceded his reforms could take a year to 18 months to filter through the regulatory system and begin to show results.

“Immediately, there is no impact,” he said.

Still, he argued it would be in consumers’ best interests because it would prevent the collapse of the insurance market in the nation’s third-largest state and slow the rate of increase in premiums. And a healthier market will attract insurance companies to the state, Boyd added.

The bill “continues our effort to focus on fair costs and strong protections for consumers while adding some reasonable guardrails for companies against the frivolous litigation and fraudulent claims that drive costs up for everyone,” he asserted.

“The market is in crisis. We have to do something,” Boyd said.

The chamber’s Republican supermajority spent the day voting down a score of Democratic amendments whose sponsors argued the 105-page bill, SB 2-A, needed to be fairer to policyholders struggling with escalating premiums, before approving its final passage on a largely party-line vote of 27-13.

Similar legislation is pending in the Florida House.

FORA

About that $1 billion: The bill would create a Florida Optional Reinsurance Assistance program—referred to as FORA—in that amount that would help insurers pay the deductibles on their reinsurance policies, William Stander, who lobbies for Florida-based insurers, explained in an interview with the Phoenix.

Those costs have been rising because of a tightening in global capital availability. State regulations require insurers to carry certain levels of reinsurance coverage and they can’t operate in Florida if they don’t, he said.

Earlier this year, the Legislature set aside $2 billion in taxpayer money to help the insurers meet that burden; they could dip into the money during the first or second years of the two-year program. In return, the carriers must lower premiums.

The companies won’t have to pay to participate in the $2 billion fund but will have to buy in to the second fund, money that will contribute to its value. Since they’re paying, they won’t have to lower premiums this time.

“It’s meant to stabilize the market,” Boyd said of the program.

“The global reinsurance market is shrinking; Florida is not as attractive as it used to be. Many of our domestic carriers, that are the ones doing business in Florida now, are finding it hard to access reinsurance in the market at a reasonable cost, which gets passed on to the consumer,” he added.

As outlined in a legislative analysis, Fitch Ratings has predicted that insurance prices will rise by more than 10% next year nationally, with Florida at the top of that curve. Reinsurance costs grew by 54 percent during the 2020-2021 financial year above rates in 2019, according to the Florida Office of Insurance Regulation.

Citizens Stressed

Meanwhile, eight insurance companies have entered receivership in Florida since 2019, five of them during 2022 alone. Florida insurers together ran $1 billion in the red during 2020 and 2021; the last time they showed a profit was in 2016.

Then hurricanes Ian and Nicole struck Florida, with Ian alone causing damage estimated in the range of $40 billion to $64 billion, including uninsured flood losses of $10 billion to $16 billion.

Citizens Property Insurance Corp., Florida’s insurance of last resort, sells policies at a discount compared to the private market, according to Boyd—30% statewide and as much as 40% in Miami-Dade County.

These trends have contributed to a surge in policies written by Citizens, which reported an increase in policies from 759,305 worth more than $232.5 billion at the end of 2021 to more than 1.1 million policies worth around $399 billion as of Oct. 31 this year.

State policy has been to kick policyholders out of Citizens to the extent possible in favor of the private market. Partly, this is meant to preserve the company as an insurer of last resort, but it’s also to avoid burdening Citizens’ capital reserves in case of a major disaster. If Citizens can’t pay its claims, it can demand extra money in assessments, first from its customers and, if necessary, against every private insurance policy in Florida.

Boyd emphasized that none of the changes in the bill would apply to claims filed following Ian and Nicole—only prospectively. Democrats didn’t buy that reassurance, but the Republicans voted down their effort to amend a written guarantee into the legislation.

Plaintiffs’ Attorneys

The bill’s main thrust is to discourage lawsuits accusing carriers of delaying or shortchanging claims, which insurers (and even Insurance Commissioner David Altmaier) blame for driving up the costs of insurance.

We explained this in earlier stories (here and here) but the basic idea is to make it harder for trial attorneys to force insurers to pay their fees if they prevail in court for policyholders (this is called the one-way attorney fee, because policyholders aren’t obliged to reimburse insurers that win in court; the law laying this out was passed in 1893).

Insurers end up paying three times as much on litigated claims as opposed to unlitigated claims, Boyd said.

The Legislature limited recovery of attorney fees via SB 76 in 2021, establishing a sliding scale based on the degree to which a recovery exceeded an offer, but that hasn’t done enough to limit litigation, Boyd added.

Last year, Florida accounted for around 7% of property insurance claims filed nationally but 76 percent of related litigation—although Boyd conceded under questioning that New York and Texas weren’t included in that analysis.

Republished with permission from Florida Phoenix, by Michael Moline

Florida Phoenix is part of States Newsroom, a network of news bureaus supported by grants and a coalition of donors as a 501c(3) public charity. Florida Phoenix maintains editorial independence. Contact Editor Diane Rado for questions: info@floridaphoenix.com. Follow Florida Phoenix on Facebook and Twitter.