Florida Reforms P&C Insurance Rates

Florida Gov. Rick Scott has signed into law legislation that seeks to lower costs for the state’s property insurers meeting with appreciation from insurers and agents alike.

This bill addresses in part a burgeoning sinkhole problem. While normally the publci thinks of hurricanes and flood when taking about insurance risk in Florida,sinkholes have become another major claims irritant.

According to the Insurance JournalGovernor Scott called it “a comprehensive property and casualty insurance package” that “strengthens Florida’s property insurance market by addressing cost drivers associated with burdensome regulations, and confronting the sinkhole crisis. It is a significant step forward," he concluded.

Legislation Summary

The new law includes provisions limiting sinkhole losses along with provisions changing the holdback provisions on dwelling and contents coverage, placing a statute-of-limitations on sinkhole and hurricane claims, capping public adjusters’ compensation, and repealing a provision that would have reduced the boundaries of state-backed insurer Citizens’ high-risk zones.

Much of the bill is aimed at reducing sinkhole costs, which have exploded in recent years. It restricts what constitutes a sinkhole loss to damage to the main building, excluding driveways, sidewalks, swimming pools, or separate structures. The bill also places a two-year statute of limitation on sinkhole claims, and a three-year statute of limitation on hurricane and windstorm claims.

Surplus Requirements

The bill raises the surplus requirements for insurers transacting residential property insurance that are not a wholly owned subsidiary of an insurer domiciled in another state. For a new insurer, the bill raises the surplus requirement from $5 million to $15 million.

Public Adjusters

The bill limits public adjuster fees related to reopened or supplemental claims to a maximum of 20 percent of the reopened or supplemental claim payment. The bill also limits public adjuster fees to 20 percent of an insurance claim payment made by the insurer.

Rate Standards

The bill requires property insurance rate filings to be submitted via the “file and use” method until May 1, 2012 at an iportant point whil the new law is implemented. In a “file and use” rate filing the insurer must receive approval from the Office of Insurance Regulation before implementing the insurer’s proposed rate.

Industry Reaction Positive

The Property Casualty Insurers Association of America (PCI) praised eactment of the bill. “This new law will address the concerns of consumers and policyholders about the cost of property insurance in Florida and help stabilize the state’s insurance marketplace,” said William Stander, assistant vice president and regional manager for PCI told the Insuranc Journal. “It is an excellent example of how government, industry and the people of Florida can work together.

Political Reaction

Senator Mike Fasano, a Republican, is a dissenting opinion saying, the bill “virtually guarantees” a 15 percent hike in premiums for many Floridians.

He called it a “backdoor tax and fee increase” that will hurt homeowners and small business owners.

Summary

Impoving an insurance sector that has many problems with an abundance of claims and stabalizing markets is never easy. Then consider the volatility of the P&C market in a state like Florida that incurs its share of natural disaster claims through hurricanes, windstorms, and flooding. Yes, it appears premium will rise, but an unstable market is a worser evil that must be tamed.