Industry insiders, consumers hope for best but prep for worst as legislators tackle for property insurance crisis

Legislators will reconvene in Tallahassee on Gov. Ron DeSantis’ order to tackle the looming, if not imminent, property insurance catastrophe that could leave the state on the hook for billions and homeowners struggling to get repairs done if a major storm hits this hurricane season.

The session is scheduled for May 23 through May 28. The goal is for lawmakers to find solutions to a problem driving carriers out of the state or into insolvency and ease the pressure off Citizens Property Insurance Corp., designed to be the carrier of last resort. This while brining skyrocketing property insurance rates under some kind of control.

But it is unclear if anything will come of the five-day session, given efforts to stabilize the insurance market went nowhere when the Legislature met earlier this year for its regular session. One concern, insurance industry analysts say, is whether there is an appetite from lawmakers to tackle what many say is the root cause of much of the problem: the legal fees attorneys are allowed to charge and the number of lawsuits brought in the state.

Potential legislation expected to be proposed during the special session ranges from basing the reimbursements for roof losses on actual cash value rather than on the basis of replacement costs to eliminating one-way attorney fees and replacing them with a fee schedule.

Another potential bill that may come up is the creation of a Lodestar Fee. This is an attorney’s fee calculated by multiplying “a reasonable number of hours” spent on a case by a reasonable rate.

Something else being considered, and said to have DeSantis’ support, is the adoption of a Texas-style litigation reform.

Texas had similar issues to Florida but with hail damage when the state passed approved H.B. 1774. The bill helped take the abuse and self-serving roofing contractors, adjusters and torts out of the claims process, says Matthew Mercier, national practice leader for the community association division of CBIZ Insurance Services in Sarasota. Mercier is a recognized leader on the topic of property insurance and will be in Tallahassee for the special session.

The Texas bill requires a 60-day notice before a lawsuit can be filed and the notice has to include the specific amount owed by the insurer as well as the “reasonable and necessary” attorney fees which are calculated using a predetermined formula.

The insurance company also has 30 days to request to inspect the damage.

Florida has a 10-day notice requirement, but not the 30-day inspection requirement like Texas.

“Maybe if we had a fee schedule in play, that would help with attorney fees and not incentivize attorneys and bad actors to go after insurance companies for roofing claims, water claims and such,” Mercier says.

Another potential example Florida can borrow from Texas is a 2015 legislation where the state tightened its public adjuster statute that outlawed a practice seen in Florida where adjusters signed homeowners up for lawyers. In Texas, now, public adjusters can only sign up a client if he or she intends to actually adjust the claim and get it resolved.

The perfect storm

Most of the legislation is aimed at curtailing the costs of lawsuits, which insurance industry and state officials blame for the rising costs of property insurance.

They argue capping fees or implementing a fee schedule will begin to bring back carriers that have left. Speaking on a webinar about the upcoming session, Mercier shared a list of more than 20 carriers that left the state in the past several years because of the challenges to operate in Florida. This exodus, which shows little sign of abating, puts a tremendous amount of stress on the state’s insurance system.

“This is sad to see. We should have a healthy property market. We should have the opposite. We should have a list out the door of carriers that want to write in the state,” he says.

“However, until we get the litigation under control that’s not going to change. And until we get the litigation under control we’re not going to have a free market in Florida. We’re going to have a market of litigation.”

DeSantis echoed the sentiment when announcing the special session.

He says Florida accounted for 79% of the entire country’s insurance lawsuits over claims while making up only 9% of actual insurance claims. The Florida Association of Insurance Agents says that between 2013 and 2020 insurance carriers in Florida paid out $15 billion in claims costs. Of that, only 8% was paid to consumers. Attorneys got 71%.

To make up for the litigation costs and to remain competitive in Florida some insurance carriers are asking for and getting massive rate increases while others, frustrated by Florida’s system, are simply leaving rather than doing business here.

But rate increases or closing shop may not be enough. In the past three months three insurance companies offering coverage for homeowners have become insolvent and are either in liquidation or rehabilitation and several other others have either stopped renewing policies or stopped writing new business, DeSantis says.

All of this is creating massive problems for Citizens, which is only allowed to raise rates 11%. Citizens was created in 2002 for property owners unable to secure coverage from private companies. But industry leaders and critics say it is too often the only choice or one of the few choices.

Citizens has seen an increase of 399,822 policies since the start of 2020 and is on track to have more than one million policies by year end. Citizens had 421,332 policies at the end of 2019.

Legally speaking

The legal community doesn’t see the problem the same way.

Amy Boggs, a St. Petersburg attorney at the Boggs Law Group and chair of the Florida Justice Association’s property insurance section, says lawyers are being unfairly targeted. Formed a few years after World War II and named the Academy of Florida Trial Lawyers through 2007, the FJA, on its website, says its mission has been the same for generations: to "shift the focus of justice to protect Florida’s consumers" in a "civil justice system (that) favored business interests over the interests of the individual and injured persons."

Attorneys work with consumers  trying to collect on claims they are legitimately entitled to, Boggs says, adding fees  paid for the work are calculated by judges who carefully scrutinize the requests.

She says a reform bill passed during the 2021 session, S.B. 76, that changed how fees are calculated and has helped cut down on frivolous lawsuits, but the state is not releasing data that could show it’s working.

Boggs, who says the association is vehemently against a change to the fee structure, disputes the notion it’s the legal industry causing Florida’s insurance problems. She lays the blame instead on Florida Insurance Commissioner David Altmaier and the insurance industry. Altmaier, she says, has failed to keep costs under control by approving rate increases for companies without forcing them to make their financials public.

The association also disputes the numbers the governor and others use to justify changing the litigation system. The organization says these figures are old and don’t take into account what’s happening in New York State or include data from Texas’ Windstorm Association, painting a false picture of what’s really happening nationwide.

By limiting litigation based on these numbers, the association says, what legislators are doing is taking away the rights of consumers who have legitimate claims against insurance companies. “Consumer rights should not be taken away by ‘widespread agreement’ of the industry,” Boggs says. 

The association adds that the lack of transparency extends beyond the regulators to the industry, which isn’t publicly required to open its books for inspection.

“I think the answer is follow the money,” Boggs says. “We don’t know what the situation is. Is the situation really this dire? We don’t know, we’re not privy to that information. And it seems to me before the lawmakers go headlong into instituting sweeping changes, they should be entitled to have their hands firmly around what the actual financials are.”

What else?

If Florida lawmakers aren’t able to fix the issue, one state politician has proposed a federal solution.

U.S. Rep. Charlie Crist, D-St. Petersburg,  currently running for governor, has introduced legislation that would allow state insurance commissioners to get low-interest loans to help offset catastrophic losses. States would have 10 years to repay the loans.

The plan, which Crist’s office says in a statement is similar to Terrorism Risk Insurance, “would eliminate the uncertainty for insurers that drives the need for excessive ‘risk-of-ruin’ reinsurance coverage, stabilizing markets, increasing competition and lowering premiums.”

“While Florida’s government is busy fighting culture wars, our people are facing a chaotic and deteriorating property insurance market, driven by excessive reinsurance at exorbitant rates,” Crist says in the statement. “With hurricane season right around the corner, premiums are increasingly unaffordable, and carriers are leaving the market altogether. Floridians cannot wait for bold action to bring down premiums, and that's exactly what my bill would do.”

The bill, H.R. 7643, has been referred to the House Financial Services, according congress.gov, a website run by the Library of Congress that tracks federal legislation.

Closer to home, Florida CFO Jimmy Patronis, an elected cabinet-level official, plans to introduce five legislative proposals during the special session to combat fraud.

The proposals include creating three Anti-Fraud Homeowner Squads to investigate potential fraud; creating a $3 million anti-fraud and public education campaign;  amending Florida’s False Claims Act to allow whistleblowers to recover damages in where a member of the general public files whistleblower complaint; and changing to the assignment of benefits law, including banning the bundling of AOBs.