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Ten big issues addressed during Florida's insurance overhaul

Hurricane Ian Special Session
Phil Sears/AP
FR170567 AP
State Rep. Tom Leek, R-Ormond Beach answers a question from Rep. Anna V. Eskamani, D-Orlando, left, back to camera, on the SB 2-A Property Insurance bill, Wednesday, Dec. 14, 2022 in the House of Representatives in Tallahassee, Fla. At far right is Rep. Bob Rommel, R-Naples, co-sponsor with Leek on the bill. Florida lawmakers are meeting to consider ways to shore up the state's struggling home insurance market in the year's second special session devoted to the topic. The bill passed 84-33. (AP Photo/Phil Sears)

Florida lawmakers this week held a special session and passed a 105-page bill aimed at stabilizing the state’s troubled property-insurance system. The bill (SB 2-A) deals with numerous issues, including lawsuits, the state-backed Citizens Property Insurance Corp. and critical reinsurance coverage. Here are 10 key issues that lawmakers addressed:

Property insurers have long blamed lawsuits for driving up costs and contended that what are known as “one-way attorney fees” encourage litigation. The bill eliminates one-way attorney fees, which have required insurers to pay the attorney fees of policyholders who successfully file lawsuits. Critics say the change will hurt the ability of homeowners to fight insurers in claims disputes.

As private insurers have dropped policies and raised rates, the number of Citizens Property Insurance customers has ballooned. The bill tries to stem that trend, preventing Citizens policyholders from being able to renew coverage if they receive policy offers from private insurers that are within 20 percent of the cost of the Citizens premiums. The change could lead to higher rates for homeowners shifted to private companies.

The Florida market has been hammered by higher costs and lack of availability of reinsurance, which is vital backup coverage for insurers. The bill creates a program that seeks to temporarily help insurers obtain adequate reinsurance. It would effectively offer additional levels, known as “layers,” of reinsurance funded through $1 billion in state tax dollars and premiums paid by insurers.

Like one-way attorney fees, insurers have long argued that a practice known as “assignment of benefits” drives up costs and leads to litigation. Assignment of benefits, or AOB, involves policyholders signing over claims to contractors, who then pursue payment from insurers. The bill bars AOB for property-insurance claims. Contractors contend AOB helps homeowners, who need damage repaired and do not have experience dealing with insurers.

As many homeowners learned the hard way in Hurricane Ian, typical insurance policies do not provide flood coverage. The bill includes a phased-in requirement for Citizens customers to buy flood insurance. People who live in designated flood zones and have mortgages are required by lenders to have flood insurance. But the new requirement will mean extra costs for Citizens customers who don’t currently have the coverage.

Disputes about property-insurance claims can sometimes drag out over years. But the bill takes a series of steps to try to make insurers respond faster and to shorten the time for reporting claims. For example, the bill reduces the time from 90 days to 60 days for insurers to pay or deny claims, with exceptions for certain circumstances. Meanwhile, it reduces the time from two years to one year to file notices of claims with insurers.

Trying to keep disputes out of courtrooms, the bill offers a tradeoff to property owners: Agree to take cases to binding arbitration and get a break on your insurance premiums. Regulators had already started allowing such arrangements, but the bill makes clear that insurers can sell policies that include the arbitration option. Critics, however, say insurers will have the upper hand in arbitration proceedings.

In the insurance world, it is known as the “glidepath.” State law restricts annual rate increases that can be passed along to Citizens customers. In 2023, for example, the limit is 12 percent, and in 2024 it is 13 percent. While the bill keeps the glidepath in place for primary residences, it removes the limits for second homes. Supporters say Citizens shouldn’t give breaks to people such as out-of-state owners of beach houses.

The words “bad faith” make the insurance industry wince. Lawsuits alleging bad faith — such as allegations that insurers did not properly settle claims — can be expensive and have long been a target of insurers and their lobbyists. The bill includes changes that could help shield insurers from at least some bad-faith cases. It prevents bad-faith lawsuits from moving forward until courts have ruled that insurers have breached contracts.

While it tips the scale at 105 pages, the bill does not include what many homeowners want: immediate rate reductions. Republican leaders said it will take time for the changes, such as reducing litigation costs, to filter through the system and ultimately help curb rates. But Democrats, who unsuccessfully proposed numerous amendments during the three-day special session, criticized the absence of rate relief.