• 300 Words (more or less), 2011

    AdvocacySmallEach year, FAIA's advocacy staff develops succinct summaries of insurance-related issues to help lawmakers, the media, and the public better understand these often-complicated insurance topics. 

    Bad Faith Reform 
    Citizens Property Insurance Corp. Regular Assessments 
    Citizens HO-8 vs. HO-3 
    “True" Consumer Choice 
    Public Adjusters 
    Replacement Const Insurance Coverage 
    Commercial Insurance Rate Regulation Modernization 

    Bad Faith Reform

    PROBLEM—Insurers are often forced to pay when they should not because current law allows “any person,” not just one who is a party to an insurance contract, to bring a “civil remedy” suit alleging “bad faith” when an insurer fails to settle a claim within policy limits. Fear of being hit with awards far in excess of policy limits forces many insurers to settle or pay claims that probably should not have been settled, increasing the premiums for everyone.

    BACKGROUND—Under the current provisions of §624.155, F.S., any person, not just the insured , can bring a civil action against an insurer for failure of that insurer to, in good faith, settle the claim within policy limits.

    There is also a similar “common law” cause of action and the plaintiff is free to choose which course of action to pursue. Plaintiffs’ attorneys routinely demand policy limits in almost every case, even those where the liability of the insurer is doubtful, and the insurer usually has only 60 days in which to investigate the claim and make a decision on whether or not to pay. This is compounded by some courts granting a “multiplier” or enhancement when granting attorneys’ fees. This threat of almost unlimited damages far in excess of policy limits, coupled with extravagant attorneys’ fees, often forces insurers to pay policy limits even in cases where liability is truly in doubt. This is especially true given the trend in case law that merely losing a court case is often equated with bad faith. Those forced settlements lead to increases in the overall cost of insurance for everyone.

    DISCUSSION—Senate Bill 1592 by Sen. Thrasher and HB 1187 by Rep. Baxley address the problem in a number of ways.

    • First, it requires “gross disregard” of the insured’s interests in order to trigger the bad faith provisions.
    • It specifically provides that failure of the insurer to pay within the time limits in the statute does not give rise to a presumption that the insurer acted in bad faith, and gives an insurer an affirmative defense against bad faith if the other side fails to fully cooperate.
    • It provides additional steps for a third-party claimant to take before alleging bad faith.
    • It provides that, with respect to a third-party claim, the insurer does not violate the bad faith criteria if, within 60 days after receiving the written demand from the third party or within 90 days after the insurer receives notice of the claim, the insurer offers to pay the lesser of the amount demanded by the third-party or the policy limits.
    • It provides that, if there are multiple third-party claimants, the insurer can avoid bad faith if, within 90 days, the insurer files an “Interpleader” action, asking a court to decide what portion of the limits go to each claimant. The insurer can also pay for binding arbitration and make the policy limits available to the arbitrator to disburse.
    • Additionally, as to bad faith actions, the bill specifically provides that an award of attorneys’ fees and costs “…may not include any form of multiplier or enhancement,” and that damages recoverable from an uninsured motorist carrier in an action brought under the bad faith criteria are limited to two times the policy limits.
    • Finally, the bill provides that, in bad faith claims, the new provisions are “… the sole remedies and causes of action for extra-contractual damages for bad-faith failure to settle an insurance contract.”

    Taken together, these reasonable changes will take the bad faith laws back to where they were first intended: to punish egregious behavior; not to force unfair settlements.

    SOLUTION—Support passage of SB 1592 by Sen. Thrasher and HB 1187 by Rep. Baxley.


    Citizens Property Insurance Corp. Regular Assessments

    BACKGROUND—Passed during a special session of the Legislature in January 2007, HB 1A removed any reasonable barriers to Florida's state insurer. Those who apply to Citizens Property Insurance Corporation (Citizens) are now allowed to stay as long as they want and return if they ever leave. Those seeking Citizens’ superior coverage and overly-subsidized rates easily hurdle a meaningless entry barrier requiring a private market quote more than 15 percent higher than Citizens’ quote.

    PROBLEM—The result has been devastating for three reasons. One: already the most overexposed property insurer in America, Citizens now receives over 40,000 new applications every thirty days. Its policy count has catapulted to 1.3 million and its board just budgeted for 1,300 employees this year. Two: private market solvency is jeopardized. Because Citizens’ premiums are often 50 percent less for the same coverage and it is guaranteed to pay its claims, it always wins the business. How can anyone compete against that? And finally: Citizens’ exposure and the legislativelymandated 10 percent rate cap not only make it the first option (instead of the last resort), but with nearly a half-trillion in growing exposure, its assessment burden threatens everyone, including those who don't even own property. This is true even though Citizens insures only 17 percent of Florida's homeowners.

    SOLUTION—SB 1714 and HB 1243 return Citizens to the where it was before HB 1A passed...almost. These companion bills make Citizens less competitive but without creating sticker shock. This is accomplished by increasing the rate cap to a 20 percent average per territory, with a 25 percent per policy cap, without averaging in decreases; by requiring it to sell a less competitive policy form (one already approved by the Office of Insurance Regulation (OIR) and Fannie Mae and widely sold by numerous carriers); and finally, by fixing glitches that allowed Citizens’ policyholders to avoid paying their first tier assessment liability. In addition, some of the other equally necessary Citizens reforms in SB 1714 and HB 1243 include:

    • Steps down eligibility for residential risks based on structure’s value to $1 million in 2012, $750,000 in 2014, and $500,000 in 2016.
    • Citizens’ policyholders are prohibited from using public adjusters.
    • The 15 percent admission barrier is raised to 25 percent for new risks.
    • Only agents who are appointed by an insurer writing property coverage in Florida may continue to be appointed with Citizens.
    • Agents who violate existing laws against unfair inducement and rebate prohibitions for Citizens’ policies are subject to termination.
    • Removes coverage for attached or detached screen enclosures.
    • Sinkhole losses will not include coverage for repair to driveways, sidewalks, or decks.
    • Citizens shall annually implement a residential rate increase not to exceed 15 percent per territory. The cap expires January 1, 2015, but does not apply to sinkhole coverage or reinsurance.
    • Homeowners and ground floor condominium unit owners in special flood hazard areas must purchase Flood insurance.

    CONCLUSION—Eighty three percent of Floridians, including a majority of residents in all but Monroe County, are asking for freedom from Citizens’ assessments brought on by its suppressed rates and inflated coverage forms. They deserve the return of a competitive and solvent private property insurance market. Support the Citizens reform bills: SB 1714 by Sen. Hays and HB 1243 by Rep. Boyd.

    Citizens HO-8 vs. HO-3

    BACKGROUND—Florida's subsidized state insurer (Citizens) is so competitive it impacts the solvency of private carriers unable to win the business. Result...it is one of the largest property insurers in America (over 1.3 million policyholders) and it receives approximately 40,000 new applications every thirty days.

    PROBLEM—Citizens’ rates are too low, but...a prime reason it is so attractive is its upscale coverages that are often better than private carriers and more than lenders require. Did you know Citizens covers luxury items like jewelry, watches, furs, and guns...for theft? It covers gold bullion, watercraft, car trailers, and even grave markers. For those with swimming pools, it covers the screens and porches and other high-risk property of wealthy homeowners. Though statutes require Citizens to file an HO-8, a less attractive yet adequate coverage form, it does not offer it for sale. Citizens should begin only selling an HO-8 instead of the more attractive HO-3 coverage form offered by private carriers.

    • Private carriers selling an HO-3 will be able to compete without subjecting those in Citizens to sticker shock rate increases. The OIR approves the HO-8 for use by private companies.
    • The HO-8 meets the requirements of the secondary mortgage market and every mortgage lender.
    • Florida's third largest insurer, with over 500,000 policies, sells an HO- 8 with little consumer complaints. So do other top writers.
    • An HO-8 will dramatically reduce new applications and make it easier for private carriers to "takeout" policies from Citizens.
    • The HO-8 will reduce Citizens’ assessments on non-Citizens policyholders while still providing "good" coverage for those who can't find it elsewhere. The primary difference is in the coverage approach—the HO-3 is based on named exclusions and the H0-8 is based on named perils instead.
    • Typical losses such as wind, hail, fire and so forth, are covered and a functional replacement cost provision applies to the building.

    The HO-8 was developed decades ago, in part, for residual market type dwellings and FAIR plans. Modest coverage is for high fraud areas with moral hazards. Leakage of pipes is excluded in the basic HO-8 coverage form and glass breakage is limited to $100 per window.

    CONCLUSION— It is wrong for a majority of consumers (80 percent) to subsidize Cadillac coverage from a state run insurer of last resort. Why can't Citizens’ subsidized policyholders get what thousands of private consumers who pay the subsidy are willing to buy?

    SOLUTION—Require Citizens to sell an HO-8 as provided in SB 1714 BY Sen. Hays and HB 1243 by Rep. Boyd.

    "True" Consumer Choice

    PROBLEM—To use the words of Insurance Commissioner Kevin McCarty, financial reports on Florida's property insurance market are..."dire." Over the last two years, Consumer Choice bills deregulating residential property insurance rates have tried to solve the problem. In 2009, for example, 85 percent of lawmakers voted for HB 1171, but, because it was vetoed by Charlie Crist, the "dire" reports have only gotten worse. For example: 

    • Many of Florida’s domestic carriers are struggling, and, in the last two years, five have become insolvent despite the fact that Florida hasn’t had a storm in five years!
    •  During the five years companies should have been building surplus for storms, more than half have lost money, many with serious surplus depletions.
    • Rates continue to rise at an alarming rate. In 2010, the OIR "approved" 132 rate increases; some were for large amounts such as 27.2 percent while others clustered at the public hearing threshold of 14.9 percent.
    • More rate increases are on the way in 2011. One, still pending from December, was for 41.4 percent. Sixteen more were requested in January alone. In February, State Farm requested 27 percent.
    • Florida has suffered more insolvencies and more rate increases after five years without a single hurricane than it did after two seasons with eight storms.
    • Under the current system, consumers have only the choice between a weak private market with spiraling rates or Citizens with assessments that burden all Floridians.
    • A few carriers filed for rate decreases in 2010. Others wanted to do so, but did not for fear they could not quickly adjust under the current regulatory system.
    • Private market solvency concerns have been heightened by OIR's recent relaxation of the standard 100-year storm requirement.

    SOLUTION—HB 885 by Rep. Wood and SB 1330 by Sen. Hays offer consumers a choice—pay a deregulated rate to a company that can meet its 100-year storm PML OR buy from a company that offers a rate regulated by the Office of Insurance Regulation (OIR). Failing that, those who qualify can still buy a policy from Citizens. Bill specifics include:

    • Beginning January 1, 2012, for residential policies covering wind, qualifying carriers can charge up to 15 percent more than their currently approved rate and increase up to 15 percent per year after that without approval. Such increases may not cause any individual to pay more than twice the amount filed or a maximum of 30 percent.
    • The OIR still regulates for inadequacy and discriminatory pricing.
    • Despite the OIR's relaxation of the 100-year PML, insurers qualifying for a deregulated rate must be able to cover 100-year probable maximum loss with surplus, reinsurance, and the Cat Fund. If not, they must start charging the "approved" rate and return to policyholders any overcharge.
    • Rate deregulated carriers cannot rely on the Cat Fund's TICL coverage.
    • Complete policyholder disclosure:
      1. Policyholders of Citizens sign an acknowledgement explaining their assessments.
      2. Policyholders of carriers with deregulated rates sign an acknowledgement,explaining how to obtain a "regulated" rate from Citizens or the private market.
      3.  Policyholders seeking an "unregulated" rate are provided a comparison with Citizens’ rates.

    SUMMARY—This year's Consumer Choice bills, HB 885 by Rep. Wood and SB 1330 by Sen. Hays, regulate for discriminatory pricing and insolvency and require complete consumer disclosure regarding private and public options. This allows rate adjustments (with a cap), including decreases, while giving consumers a "real" choice for a change. Instead of financially struggling private carriers, consumers can choose between solvent private carriers, a discounted state-owned company, or regulated private rates for substantially the same coverage. Over time, this approach will decrease the level of assessments on non-Citizens policyholders, attract new capital to Florida, increase competition, and provide homeowners with true Consumer Choice!

    ACTION—Vote “YES” on SB 1330 by Sen. Hays and HB 885 by Rep. Wood.

    Public Adjusters


    PROBLEM— Residential property insurance losses in Florida continue to rise, despite not having a hurricane hit our shores in the last five years. Many believe that a large part of this increase is due to the actions of some public adjusters.

    BACKGROUND— Public adjusters (PA) are persons, other than attorneys, who, for compensation, file insurance claims on behalf of an insured. They are paid by the insured on a contingency basis out of the proceeds of the claim settlement. They are licensed by the state and, by statute, they are restricted on how much they can charge and are prohibited from contacting the insured until 48 hours after the event that triggered a claim. However, after the First DCA struck down the 48-hour requirement, and fueled by aggressive marketing with some PAs filing claims many years after the event, the actions of public adjusters are becoming a major cost driver in both hurricane claims and those relating to sinkholes. Last year, legislation was passed addressing public adjusters, as well as other major cost drivers. Unfortunately, it was vetoed by then-Governor Charlie Crist. Senate Bill 408 by Sen. Richter and HB 803 by Rep. Wood address the problem in a comprehensive manner.

    DISCUSSION—Senate Bill 408 and HB 803 are 100-plus page comprehensive reform packages. They address the problems relating to public adjusters in several ways:

    • Limiting the PA’s compensation for claims for residential property insurance or condo claims paid within one year of the emergency to 10 percent; for reopened or supplemental claims payment made after one year, the maximum is 20 percent.
    • Basing the PA’s compensation only on the payments or settlements obtained through the PA’s work after contracting with the insured.
    • Making specific abuses committed by a PA unfair and deceptive insurance trade practices. Those practices include: inviting a policyholder to make a claim when there is no covered damage, offering the policyholder monetary inducement to file a claim, inducing the policyholder to file a claim by telling him that there is “no risk” in doing so, and representing that the PA’s solicitation is made or sanctioned by a governmental entity.
    • Requiring certain specific printed disclosures on PA advertisements.
    • Giving the insurer’s adjuster time to make an investigation
    • Regulating the contents of PA contracts with policyholder.
    • Requiring claims for hurricane losses to be made within three years of a hurricane first making landfall, or a windstorm causing the covered damage.

    Taken together, these should help eliminate the potential for cost-driving abuse by public adjusters.

    SOLUTION—Support the public adjuster reforms contained in SB 408 by Sen. Richter and HB 803 by Rep. Wood.


    Replacement Cost Insurance Coverage

    PROBLEM—Over the years, there has been a great deal of debate on the subject of actual cash value insurance coverage versus replacement cost insurance coverage. That debate has led to a great deal of litigation, driving up the cost of residential property insurance in Florida.

    BACKGROUND—There are two basic ways that property insurance losses can be adjusted: replacement cost value (RCV) or actual cash value (ACV). Actual cash value is the depreciated value of the property being replaced or repaired. Under Florida law, insurers writing residential property coverage must offer the policyholder the option of purchasing replacement cost coverage. If the homeowner chooses RCV and there is a loss, the insurer must pay replacement costs without any holdback for depreciation. Prior to 2005, an RCV option would result in a payment of the actual depreciated cost of the dwelling or property, with the remainder being paid when the property was actually replaced or repaired. After the 2005 legislative change, the insurer must now pay replacement cost, even if the homeowner doesn’t actually replace or repair. Many experts contend that this leads to inflated or even fraudulent claims. Additionally, long after the hurricanes in 2004 and 2005, policyholders were reopening claims that insurers believed to be settled. This was driven in part by public adjusters convincing the insured that they could get additional money from the insurance company at no risk to themselves. Most of those claims were difficult to disprove due to the passage of time and, in some cases, were outright fraudulent.

    DISCUSSION—Senate Bill 408 and HB 803 address the replacement cost coverage problem in three ways.

    • First, for losses to the dwelling itself, the insurer must initially pay the actual cash value of the insured loss minus the deductible. The insured must then contract for the building’s replacement or repair with the insurer being required to pay for the contracted work as it is performed. To protect against the insured having insufficient funds for a contractor to start the job, the law would prohibit the insurer, contractor, or subcontractor from requiring the insured to advance payment for the repairs.
    • Secondly, for loss of personal property under a RCV policy, the insurer may limit its initial payment to actual cash value. When the insured provides a receipt for the purchase of some of the replaced property financed by the initial payment, the insurer will be required to pay the balance. In addition, the insurer may not require the insured to advance payment for any of the replaced property.
    • Finally, to limit the problem of re-opened claims being very difficult to adjust, the bill provides that notice of new, re-opened, or supplemental claims must be provided within three years of the hurricane first making landfall or the windstorm causing the covered damage.

    These reasonable changes should go a long way in settling the RCV abuses of current law, without being unfair to those with legitimate claims

    CONCLUSION—Support the replacement cost provisions of SB 408 by Sen. Richter and HB 803 by Rep. Wood.


    PROBLEM—Florida’s residential property insurance system is in crisis. Losses are increasing at an alarming rate, but political pressures in the past have kept rates suppressed. In order to address the problem, Florida needs to address the underlying factors driving those increases. Sinkhole losses are one of the major cost drivers.

    BACKGROUND—Legislation was passed last year specifically addressing increased cost drivers—among them, sinkhole losses. Unfortunately, it was vetoed by then-Governor Crist. Similar legislation has been introduced this year in the form of SB 408 by Sen. Richter and HB 803 by Rep. Wood.

    DISCUSSION—Senate Bill 408 and HB 803 are 100-plus page comprehensive reform packages. While they address a host of issues designed to strengthen the property insurance market, their reform of the sinkhole insurance system is among the most important. Because of Florida’s geological make-up, sinkholes and their related property damage occur on occasion. However, in the last few years, a combination of statutory changes and aggressive marketing practices by a few public adjusters and attorneys appears to have created a significant problem. According to a report released by the Office of Insurance Regulation (OIR), total sinkhole claims increased from 2,360 in 2006 to 7,245 in 2009. During that same time period, total sinkhole losses for both open and closed claims increased from $209 million in 2006 to $406 million in 2009, with total losses exceeding $1.4 billion in that four-year period. Senate Bill 408 and HB 803 address the problem in a number of ways.

    • Removes the requirement that property insurers must offer sinkhole coverage.
    • Excludes both catastrophic ground cover collapse and sinkhole loss coverage from commercial property insurance policies.
    • Provides a clearer definition of “structural damage.”
    • Tightens the standards for investigating sinkhole claim investigation and revises the process of neutral evaluation in those claims.
    • Requires sinkhole claims to be brought within two years.
    • Requires policyholders to refund to the insurer the amount of “kickbacks” from persons performing sinkhole repairs, and such kickbacks void coverage.

    Coupled with changes in the practices of public adjusters, these and other changes will go a long way towards bringing equity back into this area of insurance.

    SOLUTION— Support the sinkhole insurance reforms contained in SB 408 by Sen. Richter and HB 803 by Rep. Wood.

    Commercial Insurance Rate Regulation Modernization

    PROBLEM—Over-regulation of rates for commercial insurance stifles competition and leads to a dysfunctional marketplace.

    BACKGROUND—Florida has one of the most comprehensive systems of rate regulation in the entire nation. The Office of Insurance Regulation (OIR) regulates for solvency by stating rates cannot be inadequate. The OIR regulates to prohibit any insurer from having a rating system that unfairly discriminates on the basis of such criteria as race, religion, and age. Finally, to protect small, unsophisticated policyholders against unwarranted rate increases, the OIR also regulates against “excessive” rates. However, the argument for rate regulation, review, and approval breaks down when dealing with competitive markets, unique insurance products, and sophisticated “commercial” insureds. That is why during the 2010 session, the Florida Legislature passed a bill which excludes certain categories of commercial insurance from the OIR’s rate filing and approval process. The rates for these categories continue to be subject to the standards set forth in §627.062(1), F.S., which prohibits insurers from utilizing rates that are excessive, inadequate, and unfairly discriminatory, and to the provisions in §627.062(2), F.S., which define these standards. The insurers that develop rates for these categories must do so in accordance with the statutory rate standards, must notify the OIR of these rates, and must maintain supporting data for these rates subject to audit by the OIR. But the rates do not have to be filed with and approved by OIR. The following categories are exempted from the rate filing and review requirements under the current law:

    • excess or umbrella
    • surety and fidelity
    • boiler and machinery and leakage and fire extinguishing equipment
    • errors and omissions
    • directors and officers, employment practices, and management liability
    • intellectual property and patent infringement liability
    • advertising injury and Internet liability insurance
    • property risks rated under a highly protected risks rating plan
    • commercial auto covering a fleet of 20 or more

    SOLUTION—in an attempt to expand the commercial lines products that would be exempt from the OIR’s rate filing and review requirements. The rates for these categories would continue to be subject to the standards set forth in §627.062(1), F.S., which prohibits insurers from utilizing rates that are excessive, inadequate, and unfairly discriminatory, and to the provisions in §627.062(2), F.S., which define these standards.

    The bills add fiduciary liability, general liability, nonresidential property, nonresidential multiperil, excess property, and all commercial auto to the exempt categories.

    All of the designated categories are highly competitive, not subject to the violent market swings caused by catastrophic events such as hurricanes, and are purchased by sophisticated customers. The bills’ “free market” approach for these sophisticated risks will allow carriers to lower rates in order to compete or increase market share, without fear that they can’t ever increase rates in the future.

    CONCLUSION—Support SB 178 by Sen. Oelrich and HB 99 by Rep. Drake.