Florida Governor DeSantis has signed the recently passed legislation from the special session that commenced on December 12, 2022 that addresses many of the reforms needed to help fix Florida's property insurance crisis. The state has been in meltdown mode as a result of excessive and frivolous litigation brought against insurers in the state by contractors and roofers, and the failure of previous legislative actions including those in May of 2022 to stem the tide of insurance companies pulling back on writing policies or exiting the state completely. Insureds' have felt the rise of premiums, shrinking number of insurers writing business, cancellation notices, nonrenewals, and insolvencies.

The lengthy Senate and House bills were nearly identical, and go a long way in assisting insurers with financial stability measures, reinsurance access and relief from excessive and frivolous litigation. Insureds will in time feel the effects of more efficient and timely claims payments by insurers, and premiums will eventually decrease as the market stabilizes. This is a state where seven property insurers have become insolvent in the last two years with several more teetering on the brink for survival. The highlights of the legislation are discussed briefly in this article.

Fifteen percent of the property insurance market has been served by the five largest national insurers, and the rest of the property coverage has been provided by small domestic or regional insurers that are often undercapitalized. Because of the unavailability of coverage,Florida Citizens, the insurer of last resort, has also grown in size.

Citizens

Hurricanes Ian and Nicole in the fall of 2022 only strengthened that need. Florida Citizens in December had grown to over 1.14 million policyholders, and this legislation helps pave the way for the eventual depopulation of the insurer of last resort. The legislation spells out what constitutes an assessable insurer and insured under Citizens assessment capabilities should an assessment be required, the premium basis for assessments, emergency assessment and policyholder surcharges, some accounting changes to the three separate accounts held by Citizens, paving the way for them to potentially be consolidated into one operating account amongst some of the internal changes made. Citizens Plan of Operation including policy forms that must be used for both personal and residential property that must be approved and the Board of Directors amongst the items addressed. Policyholders with Citizens will now be required to secure flood insurance, and any policyholder after April 1, 2023 who receives a quote from another insurer at renewal time that is 20% or less of the Citizens premium will be required to take the non-Citizens policy. The take out of policies from Citizens by other insurers via assumption reinsurance is also addressed, as the goal is to depopulate Citizens. These are just some of the areas addressed in the legislation regarding Citizens.

Reinsurance

Reinsurance has been an issue for many of the Florida property insurers with several becoming insolvent or placed into run-off for failing to secure adequate reinsurance for the 2022-2023 renewal season. Concerns had been mounting regarding the next round of renewals. The reinsurance market has hardened with many reinsurers reluctant to take on the risks in the state. The new legislation creates a $1 billion state funded backstop called the Florida Optional Reinsurance Assistance (FORA) plan for insurers, and spells out the parameters, eligibility, premiums, coverage limitations per reinsurance layer along with the administration and operation of FORA. The effectiveness of FORA will not be known until the mid-year reinsurance renewals in 2023 when insurers seek reinsurance for the upcoming year and any FORA contracts are entered into. FORA hopes to help address reinsurance availablity for those carriers who qualify in order to avoid a repeat of 2022 for those insurers who are unable to secure adequate reinsurance in the private market. In the event that a FORA participating insurer becomes insolvent then the reimbursement will be paid to the applicable guaranty association for the policyholder benefits or Citizen's if it had accepted assignment of the FORA participating reimbursement contract.

Assignment of Benefits

Assignment of Benefits (AOBs) have been eliminated by the legislation effective January 1, 2023. This is a positive note for insurers, as it will help to reduce the excessive amount of AOB litigation that was driven by roofers and other contractors, who would file suit, sometimes without the insured's knowledge, against insurers. Excessive AOB litigation has been a driving factor in some of the recent insurance company insolvencies. However, the backlog of AOBs and any resulting litigation, including those from Hurricanes Ian and Nicole that may not have yet been filed will take some time to drop off. Until all policies come up for renewal, insurers will still see some AOBs, as the law only applies to policies issued by admitted carriers on or after the law's effective date.

One-way Attorney Fees

One-way attorney's fees have also been eliminated. Previously, insurers were required to pay policyholder attorney fees when a suit was successfully filed. This ran up litigation costs for insurers as often the attorney's fees were many times over the awarded claims payments. For example: a $5,000 claims award could result in $100,000 or more in attorney fees. By eliminating the one-way fees excessive and frivolous litigation will be reduced. Florida accounted for 79% of litigated property claims filed nationwide. Should the elimination of AOBs and one-way fees prove successful, these changes will assist insurers with their defense and cost containment issues, and provide the industry with some much needed relief.

Timing

Effective January 1, 2023 certain time frames have been adjusted. Insurers will have only 60 days to either pay or reject a claim, down from the previous 90 days. New claims must be filed within one year of the date of loss instead of two years. Insurers will have only 30 days, down from 45 days, after a loss to do an onsite inspection.