Florida's property insurance reform bill SB 408 received approval on April 5 from its final Senate committee. In its wake came a frenzy of negative media coverage. A MiamiHerald.com headline said the bill "benefits the industry," presumably at the sole expense of the consumer. A story in the Sarasota Herald-Tribune boldly declared it is " … legislation intended to help Florida's struggling carriers, while offering consumers higher rates, limited rights to challenge carriers and the public burden of paying for sinkhole damage."

Here's the real story: The bill will increase competition by making Florida a less-onerous place to conduct insurance business, help return Citizens Property Insurance Corp. to its roots, and hopefully prevent sinkhole claims from going the way of PIP fraud.

This has to be one of the most fully vetted bills of the Florida 2011 legislative session. Prior to receiving a 9-3 approval in the committee meeting, it chalked up approximately 16 hours of Senate committee hearings and workshops, 70 amendments, and seven staff analyses. (The companion HB 803 passed by a vote of 12-3 in the House's Insurance and Banking Subcommittee.)

The bill was destined for controversy, given its scope and the prevailing economic climate. It addresses several major problem areas in property insurance: Cost drivers such as sinkhole coverage and claims, replacement cost coverage/actual cash value provisions, and public adjusters; the size of Citizens; and excessive private market rate regulation.

Supporters of the legislation contend it will help Florida's fragile property insurance market by cutting some costs and making the state more enticing to property insurers. Opponents see it as a windfall for insurers at the expense of consumers.

Apparently only in insurance is encouraging competition and removing barriers to solid economic growth a bad thing.

A more realistic view of the legislation is expressed by Perry Cone, an attorney at GrayRobinson and former general counsel for Citizens. Cone noted, "Senate and House leadership seem committed to helping consumers by revitalizing the private insurance market rather than over-regulating and relying on assessments to subsidize depressed rates."

Major Components of SB 408

An analysis of SB 408 by the Florida Senate staff notes, in part, that the legislation in its original form:

Requires the Florida Hurricane Catastrophe Fund to provide reimbursement for "all incurred losses" including amounts paid as fees on behalf of the policyholder;
Increases the minimum surplus requirements for residential property insurers to $15 million;
Modifies current replacement cost coverage and actual cash value provisions relating to dwellings and personal property;
Requires windstorm and hurricane claims to be brought within three years and sinkhole loss claims to be brought within two years;
Modifies provisions related to windstorm damage mitigation discounts for residential property insurance and repeals the provision requiring the OIR to develop a method correlating mitigation discounts to the uniform home grading scale;
Revises the regulation of public adjusters by placing limits on public adjuster compensation, prohibiting certain statements in public adjuster advertising, and revising the contents of the public adjuster contract;
Removes the requirement that a property insurer must offer sinkhole coverage and eliminates application of statutes governing catastrophic ground cover collapse and sinkhole loss coverage from commercial property insurance policies;
Revises what constitutes a sinkhole loss.

The Art of Compromise

During its laborious journey in the media and lawmakers' meeting rooms, compromises have been reached in significant areas.

Senate Rules Committee members have agreed to allow insurance companies to make payments for structural repairs as those repairs are completed and receipts produced. Currently, insurers are required to pay replacement costs up front regardless of whether repairs are made. Insurers had wanted to flip that completely, only paying for repairs upon completion of all work. In the new language, policyholders still may choose to insure the contents of their home for replacement value in a lump sum payment; however, they will pay higher premiums for that option. The changes are intended to bring Florida's handling of replacement cost coverage more in line with the national norm and how it was handled in Florida prior to a 2005 legislative change.

The bill currently requires Citizens to offer sinkhole coverage, but limits the coverage to the primary structure on the policyholder's property and includes several reforms, including one that requires that all claims payments be used for repairs. Private insurers will be allowed to drop sinkhole coverage, although the bill continues the requirement that policies provide "catastrophe ground collapse coverage" for the principal building, covering a home only if it is destroyed in a sinkhole.

The Rules Committee has adopted an amendment that would retain "use and file" for residential rate files, but suspend its use until May 2012. The amendment reversed an amendment sponsored by Sen. Mike Fasano, R-New Port Richey, and adopted by the Senate Budget Committee two weeks ago that would repeal "use and file" for residential filings.

The committee deleted a provision that would have allowed insurers to raise rates if they are losing money because of the much-maligned mitigation program. Introduced after Hurricane Wilma swept through Florida in 2005, the program required insurers to double-down on the discounts for property owners who made hurricane-proof improvements. The defeat of this provision is a setback for the industry. As Lynne McChristian noted in a January column for Florida Underwriter, "Insurers have reported that their underwriting profits have been slammed due, in part, to mitigation discounts."

In a facetious moment, the committee also adopted a late-filed handwritten amendment to change Citizens' name to "Taxpayer Funded Property Insurance Corp." It is a safe bet that amendment will not survive.

The legislation, which is scheduled to take effect June 1, now heads to the floor of the Senate for further debate.

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