Florida's property insurance reform bill SB 408 receivedapproval on April 5 from its final Senate committee. In its wakecame a frenzy of negative media coverage. A MiamiHerald.comheadline said the bill "benefits the industry," presumably at thesole expense of the consumer. A story in the SarasotaHerald-Tribune boldly declared it is " … legislation intended tohelp Florida's struggling carriers, while offering consumers higherrates, limited rights to challenge carriers and the public burdenof paying for sinkhole damage."

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

This has to be one of the most fully vetted bills of the Florida2011 legislative session. Prior to receiving a 9-3 approval in thecommittee meeting, it chalked up approximately 16 hours of Senatecommittee hearings and workshops, 70 amendments, and seven staffanalyses. (The companion HB 803 passed by a vote of 12-3 in the House's Insurance andBanking Subcommittee.)

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

Supporters of the legislation contend it will help Florida'sfragile property insurance market by cutting some costs and makingthe state more enticing to property insurers. Opponents see it as awindfall for insurers at the expense of consumers. 

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

A more realistic view of the legislation is expressed by PerryCone, an attorney at GrayRobinson and former general counsel forCitizens. Cone noted, "Senate and House leadership seem committedto helping consumers by revitalizing the private insurance marketrather than over-regulating and relying on assessments to subsidizedepressed rates."

Major Components of SB 408

An analysis of SB408 by the Florida Senate staff notes, in part, that thelegislation in its original form: 

• Requires the Florida Hurricane Catastrophe Fund to providereimbursement for "all incurred losses" including amounts paid asfees on behalf of the policyholder;
• Increases the minimum surplus requirements for residentialproperty insurers to $15 million;
• Modifies current replacement cost coverage and actual cashvalue provisions relating to dwellings and personal property;
• Requires windstorm and hurricane claims to be brought withinthree years and sinkhole loss claims to be brought within twoyears;
• Modifies provisions related to windstorm damage mitigationdiscounts for residential property insurance and repeals theprovision requiring the OIR to develop a method correlatingmitigation discounts to the uniform home grading scale;
• Revises the regulation of public adjusters by placing limits onpublic adjuster compensation, prohibiting certain statements inpublic adjuster advertising, and revising the contents of thepublic adjuster contract;
• Removes the requirement that a property insurer must offersinkhole coverage and eliminates application of statutes governingcatastrophic ground cover collapse and sinkhole loss coverage fromcommercial property insurance policies;
• Revises what constitutes a sinkhole loss.

The Art of Compromise

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

Senate Rules Committee members have agreed to allow insurancecompanies to make payments for structural repairs as those repairsare completed and receipts produced. Currently, insurers arerequired to pay replacement costs up front regardless of whetherrepairs are made. Insurers had wanted to flip that completely, onlypaying for repairs upon completion of all work. In the newlanguage, policyholders still may choose to insure the contents oftheir home for replacement value in a lump sum payment; however,they will pay higher premiums for that option. The changes areintended to bring Florida's handling of replacement cost coveragemore in line with the national norm and how it was handled inFlorida prior to a 2005 legislative change.

The bill currently requires Citizens to offer sinkhole coverage,but limits the coverage to the primary structure on thepolicyholder's property and includes several reforms, including onethat requires that all claims payments be used for repairs. Privateinsurers will be allowed to drop sinkhole coverage, although thebill continues the requirement that policies provide "catastropheground collapse coverage" for the principal building, covering ahome 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 useuntil May 2012. The amendment reversed an amendment sponsored bySen. Mike Fasano, R-New Port Richey, and adopted by the SenateBudget Committee two weeks ago that would repeal "use and file" forresidential filings.

The committee deleted a provision that would have allowedinsurers to raise rates if they are losing money because of themuch-maligned mitigation program. Introduced after Hurricane Wilmaswept through Florida in 2005, the program required insurers todouble-down on the discounts for property owners who madehurricane-proof improvements. The defeat of this provision is asetback for the industry. As Lynne McChristian noted in a January column for Florida Underwriter, "Insurers have reportedthat their underwriting profits have been slammed due, in part, tomitigation discounts." 

In a facetious moment, the committee also adopted a late-filedhandwritten amendment to change Citizens' name to "Taxpayer FundedProperty Insurance Corp." It is a safe bet that amendment will notsurvive.

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