March 8, 2021 • Vol. 99 No. 5
Contents
News & Markets
News & Markets
News & Markets
Citizens Immune from Bad Faith, Not Liable for Non-Contractual Damages: Court
Florida Legislation to Watch: 2021
9
Stakeholders Make the Case for Florida Property Insurance Reform
Demotech: Investor Interest in Florida Insurers Unlikely Without Legislative Reform
6
Florida Legislature Weighs Options to Address Rising Homeowners Insurance Costs
Departments 4 People
2 | INSURANCE JOURNAL | FLORIDA MARCH 8, 2021
10 12
17
16 Fraud Roundup
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People Florida
Roger L. Desjadon
Roger L. Desjadon has officially retired as CEO of the
Edison Insurance Co., since inception. For the past 15 years, he has helped grow the company from a wind-only home insurer to a multiperil and flood company insuring more than 140,000 homes throughout Florida.
Florida Peninsula Insurance
family of companies. Desjadon is a co-founder of Florida Peninsula Insurance Co. and has served as CEO since its inception in 2005. During the first quarter of 2021, Desjadon began his transition from his role as CEO but remains with the company as a consultant and member of the board of directors as well as continuing to lead legislative affairs for the company. Desjadon will also continue to serve as president of the Florida Property & Casualty Association, an industry trade group comprised of Floridabased homeowners insurance companies. Prior to joining Florida Peninsula, he served in executive leadership positions with Aetna Life and Casualty, The Travelers Companies and Prudential Financial.
Paul M. Adkins
Paul M. Adkins assumed the responsibilities of the CEO for Florida Peninsula upon Desjadon’s retirement. Adkins is a co-founder and has served as chairman of Florida Peninsula and its wholly owned subsidiary,
Mindy King
Florida Peninsula has also hired Mindy King as the company’s director of Customer Experience. This is a new role at Florida Peninsula, which will be focused on building customer experience programs across the entire enterprise. King has spent the past two decades working with service industry brand leaders providing customer programs targeting customer relationships. Prior to joining Florida Peninsula, she was the director of Customer Experience for Thyssenkrupp Elevator as well as the director of Voice of the Customer/Customer Insights & Market Intelligence at Tyco Integrated Security.
Michele Centeno
Lockton Companies has hired Michele Centeno as a senior vice president in its Fort Lauderdale, Fla., office. In her role, Centeno will further expand Lockton’s client service options in the professional and financial
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services industry. Centeno has 30 years of experience as a broker and underwriter in the insurance industry. She joins Lockton from Gallagher, where she led a team delivering risk transfer services to Fortune 500 to 1000 companies. She has experience with large complex risks and specializes in directors and officers (D&O) liability, reps and warranty and tax liability policies. She began her brokerage career at Marsh, where she served as Southeast practice leader for FINPRO. Hiram Marrero, president and global growth officer, said Centeno will be part of further expanding the company’s professional and financial lines sector. Kathy Cody has been appointed as president of
Orchid Underwriters Agency LLC (Orchid Insurance), a spe-
cialty underwriter of catastrophe-exposed property insurance. Brad Emmons, CEO at Orchid, said Cody, who joined Orchid Insurance in 2019 as chief operating officer, has worked to modernize the company’s business platform and acquire new talent to help the company grow. Cody came to Orchid from Farmers Insurance Group, where she served as the chief operating officer of its Personal Lines division. Cody has more than 30 years of experience in the insurance industry. During her 10 years at Farmers, Cody led personal lines underwriting, finance, analytics, operations and strategy execution teams, and served as chief financial officer for the life
business. Based in Vero Beach, Fla., Orchid Insurance provides specialty insurance products for homeowners and businesses throughout the United States, the Bahamas and the Caribbean. In 2018, private equity group TowerBrook Capital Partners made a majority investment in Orchid. Brown & Brown Inc. has appointed Gray Nester as chief information officer for Brown & Brown, effective immediately. Nester has more than 20 years of experience in insurance technology leadership. Since December 2019, he has served as the chief information officer for Brown & Brown’s Retail Division, where he led a team to improve business alignment in technology. Prior to that, he was with BB&T as senior vice president and business information officer of the Insurance Division. J. Powell Brown, president and CEO, said Nester was initially brought in because of his experience in leading technology initiatives and will work to continue driving the company’s technology strategies forward in retail and across its platform. Nester will be based in the Brown & Brown corporate headquarters located in Daytona Beach, Fla. Over time, he will transition his duties as Retail Division CIO. Brown & Brown Inc. is an insurance brokerage firm, providing risk management services to individuals and businesses. INSURANCEJOURNAL.COM
RULES & REGULATION FSLSO
WE ARE
www.fslso.com
Florida Surplus Lines Service Office
News & Markets Citizens Immune from Bad Faith, Not Liable for Non-Contractual Damages: Court By Amy O’Connor
T
he Florida Supreme Court has resolved a 14-year-old lawsuit against Citizens Property Insurance Corp. in favor of the insurer in a ruling that was expected but still has far-reaching effects on the state’s property market. The court issued the unanimous ruling in Citizens Property Insurance Corp. vs Manor House, LLC. The case involved a first-party breach of contract claim where the insured, Manor House, sought to recover extra-contractual, consequential damages for lost rental income totaling approximately $2.5 million from Citizens. At issue in the case, which originated back in 2007, was if Florida law allows insureds to recover extra-contractual consequential damages in a first-party breach of insurance contract action by an insured against its insurer. Citizens called the ruling “significant” and said it will protect policyholders. “Citizens welcomes this much-anticipated Florida Supreme Court ruling,”
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said Michael Peltier, Citizens spokesman. “The unanimous opinion benefits policyholders who would have been on the hook for higher premiums had the high court not reviewed this case and issued this decision.”
Case Background
Manor House filed a claim with Citizens for nine apartment buildings damaged by Hurricane Frances in 2004 that Citizens later paid more than $1.9 million after inspection. Two years later, Manor House’s public adjuster asked Citizens to reopen the claim and then filed another claim for $10 million. Citizens made additional payments in September 2006 totaling $345,192 and later informally estimated the actual cash value of the loss at nearly $5.5 million and the replacement cost value of the loss at $6.4 million. Meanwhile, Manor House’s public adjuster estimated the replacement cost value at just more than $10 million. In March 2007, Manor House’s new owner and litigation agent made an effort
to resolve the suit costs by requesting Citizens pay the “undisputed” amount of $6.4 million – the field adjustor’s informal estimate of replacement costs – and demanded an appraisal. Manor House filed suit later that year for prompt payment of what it claimed was an undisputed amount of $6.4 million and asked the court to compel Citizens to engage in appraisal procedures stipulated under the policy. In 2009, the trial court demanded the parties go forward with the appraisal process through which the appraisal panel awarded Manor House nearly $8.7 million in replacement cost value and more than $8.3 million in actual cash value. Citizens later paid an additional $5.5 million to Manor House in 2010. Manor House later sued Citizens for breach of contract and fraud, saying that Citizens failed to property adjust the loss, pay the undisputed amount after estimates, honor its demand for appraisal, failed to provide documents needed to adjust the loss and to timely pay the
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appraisal award. Manor House sought extra-contractual damages related to rental income that it said it lost because of the delays in repairing the complex caused by “Citizens procrastination in adjusting and paying the Manor House claims,” the court documents said. The trial court then granted Citizens’ motion for partial summary judgment regarding the breach of contract claim for rental income, saying “nothing in the insurance contract provides coverage for lost rents,” and “there is no coverage as a matter of law” for the damages Manor House sought.
Fifth District Ruling
Manor House appealed the trial court’s motion that kept it from pursuing a claim for extra-contractual consequential damages and the Fifth District reversed the trial court’s decision. The Fifth District claimed the trial court had ignored a general proposition that an injured party is entitled to monetary damages that would put it in the same position it would have been if the contract had not been breached by another party. “In granting summary judgment, the trial court denied Manor House the opportunity to prove whether the parties contemplated that Manor House, an apartment complex, would suffer consequential damages in the form of lost rental income if Citizens breached its contractual duties to timely adjust and pay covered damages, which in this case allegedly resulted in a significant delay in completing repairs so that units could once again be rented,” the Fifth District opinion said. It further noted that while Citizens is immune from bad faith claims because it is a government entity the “conse8 | INSURANCE JOURNAL | FLORIDA MARCH 8, 2021
quential damages Manor House seeks are based squarely on breach of contract claims requiring no allegation or proof that Citizens acted in bad faith.” It concluded Citizens was not in fact statutorily immune from that aspect of Manor House’s claim.
Florida Supreme Court Weighs In
The Florida Supreme Court quashed the Fifth District’s finding, saying extra-contractual, consequential damages are not available in a first-party breach of insurance contract action because “the contractual amount due to the insured is the amount owed pursuant to the express terms and conditions of the policy.” While extra-contractual damages are available in a separate bad faith action, they are not recoverable in this action against Citizens because the insurer is statutorily immune from first-party bad faith claims, the court said. The high court said the trial court and the Fifth District had acknowledged that the policy did not include coverage for lost rental income, but the Fifth District ruled the trial court had denied Manor House its opportunity to prove it would suffer consequential damages from lost rental income if Citizens breached its contractual duties to timely adjust and pay covered damages. The Fifth District’s conclusion, the court said, is based on the premise that parties can “contemplate” remedies outside the insurance policy’s express terms. “However, as the trial court properly concluded, the parties must rely on what they actually have pursuant to the express terms and conditions of the insurance policy,” the court stated. The court ultimately concluded that extra-consequential damages are not available in a first-party breach of insurance contract action because the contractual amount due to the insured is the
amount owed per the terms and conditions of the insurance policy. Additionally, “Extra-contractual damages are available in a separate bad faith action … but are not recoverable in this action against Citizens because Citizens is statutorily immune from first-party bad faith claims,” the opinion stated.
Impact on Industry
Florida attorney Derek Goldsmith of firm Kelley Kronenberg in Fort Lauderdale said the ruling was not a surprise, but was still important because the Florida Supreme Court’s holding that the consequential damages Manor House sought are not permitted in a breach of contract first party action was so broad that it also applies to private carriers in these circumstances. Goldsmith said the plaintiffs tried to allege they were entitled to the consequential damages, but in a breach of contract action for first party claims, trial courts only have to determine if there is coverage under the policy and the extent of the coverage. “The allegations that Manor House set forth are reserved solely for actions related to bad faith, which are prescribed by Florida Statutes,” he said. “They were trying to put the cart before the horse because bad faith is not ripe until full liability is found against a carrier.” But since Citizens is immune from bad faith suits, it was not liable here. Goldsmith said had the Florida Supreme Court ruled differently, “the flood gates would have been open” for homeowners lawsuits seeking an array of extra contractual damages that are prescribed solely for bad faith suits, not contractual damages. “It really is a decision that should be of no surprise because the framework has already been laid for what’s appropriate in a breach of contract for first party property action, and what’s appropriate in a bad faith action,” he said. “And if you’re seeking consequential damages because the insurance company failed to adjust the claim in an appropriate way, those are reserved solely for bad faith and not for the underlying breach of contract.” INSURANCEJOURNAL.COM
News & Markets Florida Legislature Weighs Options to Address Rising Homeowners Insurance Costs
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hree bills currently working their way through the Florida Legislature are designed to tackle the rising costs of homeBy Corey Setterlund owner roof claims, the costs of attorney fees in homeowner’s claims and issues surrounding notice to insurance carriers. The proposed legislations come less than two years after Florida enacted an assignment of benefits law for homeowners’ property claims. But these latest efforts are meant to address the increasing costs of homeowners insurance due to market forces that were not addressed by the 2019 AOB bill. While these bills are preliminary and not law yet, it shows a shift in the legislature to reel in the liberal rules of lawsuits relating to property insurance claims. Among the bills currently being considered is Senate Bill 76, which amends Florida statute (627.428) to award attorney’s fees for claims arising under the lodestar fee. Deviation from this method would be reserved for only rare and exceptional circumstances that competent counsel could not be retained in a reasonable manner. The lodestar method determines what a reasonable fee for an attorney would be and requires the following determinations: • The number of hours reasonably worked on the case • A reasonable hourly rate to apply to the related hours • The reasonable amount of hours would be multiplied by the reasonable hourly rate creating the lodestar number Further, SB 76 would allow insurance carriers to limit coverage on roof claims. Under the provision, a carrier can include a roof surface reimbursement schedule endorsement to the insurance policy, which allows for reimbursement for INSURANCEJOURNAL.COM
repairs, replacement and installation based on the annual age of a roof surface type, unless the roof is less than 10 years old. The schedule also would provide reimbursement amounts of no less than 70% for metal roofs, 40% for concrete, clay tile, wood shaker, and shingle roofs, and 25% for any remaining roof types. SB 76 also extends certain statutes to cover all property insurance claims instead of just a windstorm or hurricane claim, which would bar property claims if the insurer is not provided notice of claim or supplemental claim within two years of the date of the loss. The bill, if passed, would add a statute (627.70152), which would affect all property insurance policy lawsuits. Specifically, the statute would require any claimant(s) to provide at least 60 days’ notice of their intention of initiating litigation against their insurance carrier prior to filing the lawsuit. The notice must include: • The alleged acts or omissions of the insurer • The insured’s demand • Reasonable and necessary attorney’s fees incurred by claimants via calculation of the lodestar fee The new provision would give carriers the ability to inspect and evaluate the demand and allow the carrier to abate any lawsuit if said notice was not provided in compliance with the proposed statute. Attorney fees under this statute would provide a similar sliding scale structure as the assignee of an assignment of benefits related to property insurance claims and would be based on a demand to judgment quotient. SB 76 was approved by the
Senate Banking and Insurance Committee and is awaiting a hearing by the Judiciary Committee as of press time. The Florida House of Representatives’ companion bill to SB 76 – House Bill 305 – would amend the same statutes as SB 76, except it does not involve adding the claimant’s requirement to provide notice of intent to initiate litigation proposed in SB76. This bill was awaiting a hearing by the House Banking and Insurance Subcommittee as of press time. The Florida Senate also introduced Senate Bill 212 as a standalone bill addressing just the attorney fee issue of reasonableness and multipliers. SB 212 would only entail adopting the lodestar fee for property insurance policy lawsuits. SB 212 was currently awaiting a hearing by the Florida Senate Banking and Insurance Subcommittee as of press time. Each of these bills would provide insurers the ability to address the growing number of roof claims that were either not damaged by wind or hail or could be repaired yet face litigation due to insureds, or their representatives, demanding full replacement. Further, SB 76 would force claimants to provide notice to a carrier of their intent to file their lawsuit, giving the carrier an opportunity to re-evaluate the claim. All three of these bills would go into effect on July 1, 2021 if passed and signed by Governor Ron DeSantis. Corey K. Setterlund is an associate attorney in the Jacksonville, Fla., office of Marshall Dennehey Warner Coleman & Goggin. A member of the firm’s Professional Liability department, she focuses her practice on representing and defending insurance companies in insurance coverage disputes and first-party property litigation. She can be reached at (904-358-4215) or cksetterlund@mdwcg.com.
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News & Markets Florida Legislation to Watch: 2021 By Amy O’Connor
T
he Florida insurance industry will be fighting hard for property insurance reforms in the 60-day legislative session that began March 2, but there are also several other insurance-related bills to watch. Read on for a breakdown of the bills being considered by Florida lawmakers in the 2021 Florida Legislative Session:
Senate Bill 1066: Insurance Consumer Advocate
Authorizes the Insurance Consumer Advocate to collect certain information from the entities issued a certificate of authority by the Office of Insurance Regulation. Aggregate information may include information asserted as trade secret information unless the trade secret information can be individually taken out.
SB 514/House Bill 315: Resiliency
Establishes a Statewide Office of Resiliency with the office of the governor that is headed by a chief resilience officer. Creates a statewide sea-level rise task force adjunct to the Office of Resiliency, to recommend projections of anticipated sea level rise and flooding impacts along coastline.
SB 168: Hurricane Loss Mitigation
Extends until June 30, 2031 the Hurricane Loss Mitigation Program, which funds programs designed to improve the wind resistance of residences and public hurricane shelters. The fund and its associated $10 million appropriation from the Hurricane Catastrophe Fund are currently set to expire on June 30, 2021.
HB 237: Demand Letters for Personal Injury Protection Benefits
Requires written notice of intent to initiate litigation for relief related to personal injury protection benefits; revises requirements for demand letter for personal injury protection benefits; prohibits actions and prosecutions on behalf of claimants unless certain requirements are met.
SB 76/HB 305: Residential Property
Uses a lodestar fee (billable hours x reasonable hourly rate) for awarding attorney fees except in “rare and exceptional” circumstances. The bill would also allow an insurer to offer homeowners insurance policies that adjust claims on roofs 10 years or older on the basis of a roof surface reimbursement schedule. Requires notice of intent to initiate litigation and make a presuit demand. Authorizes an insurer to request to inspect, photograph, or evaluate certain property. HB 305 would not add the claimant’s requirement to provide notice of intent to initiate litigation proposed.
SB 212: Contingency Risk Multipliers Provides that for certain attorney fees
awarded for claims arising under property insurance policies, a strong presumption is created that a lodestar fee is sufficient and reasonable and except only under certain circumstances, specifically “in a rare and exceptional circumstance with evidence that competent counsel could not be retained in a reasonable manner.”
SB 630: Community Associations
Revises the regulation and governance of condominium, cooperative and homeowners associations. Prohibits a unit owner’s insurance policy from including rights of subrogation against the association if the association’s policy does not provide subrogation rights against the unit owner. This bill is backed by the Florida Association of Insurance Agents.
SB 686: Offers of Judgment
Revises and expands the statute that governs settlement offers in civil litigation. Authorizes parties to serve offers of judgment that make certain stipulations relating to attorney fees and costs. The bill permits a party to make an offer of judgment that compensates someone solely for their harm or loss. It does not include an offer to compensate for awarding attorney fees and costs. Requires a party served with a settlement offer to notify the party
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making the offer, within 30 days, of any grounds for challenging the validity of the offer.
HB 717/SB 1598: Consumer Protection Prohibits unlicensed activity by adjust-
ing firms and prohibits someone from providing claims adjusting services unless they meet specified requirements. Prohibits licensed contractors and subcontractors from engaging in certain activities unless licensed and compliant as public adjusters; provides disclosure requirement that insurance coverage must meet before being eligible for export under Surplus Lines Law; prohibits foreign venue clauses in property insurance policies.
SB 7014: Office of Insurance Regulation
Adds the Office of Insurance Consumer Advocate to the list of entities to which the Office of Insurance Regulation may disclose confidential and exempt information. Would also remove the scheduled repeal of an exemption from public records requirements for certain proprietary business information and information that is confidential and held by the Office of Insurance Regulation, including reports submitted by insurers, and others.
SB 742/HB 815: Omnibus Bill
Redefines the term “covered policy” under the Florida Hurricane Catastrophe Fund in relation to certain collateral protection insurance policies. Specifies when service of process is valid and binding INSURANCEJOURNAL.COM
upon insurers. Specifies which entities must receive requests for loss run statements. Authorizes rather than requires rate filings for certain residential property insurance to include certain rate factors. Also authorizes insurers to file insurance rating plans based on windstorm mitigation construction standards and authorizes insurers to require policyholders to provide evidence of compliance with mitigation standards under certain conditions. Additionally, authorizes use of specified modeling indications for rate filings for residential property insurance; provides additional factors to be used in determination and fixing of rates for workers’ compensation and employer’s liability insurance; authorizes residential property insurers to file rating plans that provide certain windstorm mitigation premium discounts, credits and rate differentials; authorizes surplus lines agents to export flood coverage contracts or endorsements to surplus lines insurers without making certain diligent efforts; redefines the term “assignment agreement” to include scopes of service & property inspection.
SB 1408/HB 1209 – Department of Financial Services
Makes it a felony crime for a person to knowingly aid and abet the unlicensed transaction of insurance; and clarifies current Florida law to designate the Division of Public Assistance Fraud (PAF) as a criminal justice agency to bolster fraud fighting efforts. Also, revises continuing education requirements for certain persons licensed to solicit, sell, or adjust insurance. Amends requiring submissions of renewal appointments of certain insurance representatives within a certain timeframe; requires the department to notify certain insurers or employers regarding inadvertent failures to appoint; requires insurers and employers to pay certain fees and taxes within a certain timeframe. Requires the department to suspend an insurer’s INSURANCEJOURNAL.COM
or employer’s authority to appoint licensees under certain circumstances. Deletes requirement for agents to advise insureds that certain coverage may be available for personal residential property risks to be eligible for export under the Surplus Lines Law. Provides an exemption from a diligent effort requirement for surplus lines agents exporting contracts or endorsements providing flood coverage.
SB 906: Motor Vehicle Glass
Prohibits motor vehicle repair shops and their employees from offering anything of value to a customer in exchange for making an insurance claim for motor vehicle glass replacement or repair, including offers made through certain persons. Also provides requirements that must be met for an assignment agreement to be valid; requires an assignee to hold harmless an assignor when certain requirements aren't satisfied; requires that an assignment agreement be provided to an insurer at a specified time; requires insurers to respond to a notice within a specified timeframe; requiring insurers to have certain procedures relating to disputes.
SB 54/HB719: Motor Vehicle Insurance
Repeals provisions that comprise the Florida Motor Vehicle No-Fault Law; revises the motor vehicle insurance coverages that an applicant must show to register certain vehicles with the Department of Highway Safety and Motor Vehicles; provides alternative minimum liability insurance coverage requirements for certain motor vehicle owners or operators; revising financial responsibility requirements for owners or lessees of for-hire passenger transportation vehicles; prohibits certain practices by motor vehicle repair shops or motor vehicle glass repair facilities with respect to the replacement or repair of motor vehicle windshields.
SB 1230/HB 1039: Insurance
Requires the Florida Department of Highway Safety and Motor Vehicles to establish the Uninsured Vehicle Enforcement Program. The department, in coordination with the Department of Transportation, will install and operate
automatic license plate reader systems on infrastructure and would be responsible for developing and maintaining a system for matching a vehicle identified by an automatic license plate reader system with insurance data held by the department for registered vehicles. Prohibits data collected or retained from being used for purposes other than traffic safety & traffic monitoring; prohibits law enforcement agencies & certain other agencies from selling license plate data or sharing such data.
SB 1574: Citizens Property Insurance Corp. Revises the method for determining
the amounts of potential surcharges to be levied against policyholders under certain circumstances. Also, specifies a limit for agent commission rates and provides that eligible surplus lines insurers may participate, in the same manner and on the same terms as an authorized insurer, in depopulation, take-out, or keep-out programs. Authorizes information from underwriting files and confidential claims files to be released by the corporation to specified entities considering writing or underwriting risks insured by the corporation under certain circumstances.
SB 72/HB 7: Civil Liability for Damages Relating to COVID-19
Provides requirements for civil action based on COVID-19 related claim. Offers general liability protection for businesses schools, nonprofits and religious institutions that make a good-faith effort to follow established federal, state and local guidelines. Liability protections would apply retroactively to any newly filed lawsuit.
SB 74: COVID-19-Related Claims Against Health Care Providers Provides preliminary procedures for civil actions based on COVID-19-related claims; provides the standard of proof required at trial for such claims and provides immunity from liability for COVID19-related claims under certain circumstances. Require COVID-19-related claims to be filed within a specified timeframe.
MARCH 8, 2021 INSURANCE JOURNAL | FLORIDA | 11
News & Markets
Stakeholders Make the Case for Florida Property Insurance Reform By Amy O’Connor
I
t’s the start of another Florida Legislative Session with a familiar theme — insurers pushing for reforms they say are needed to help the state’s distressed insurance market. Only this year the need is more urgent than ever, according to industry experts and stakeholders, as consumers face unprecedent rate increases and constrictions in coverage availability. “We’re advocating that the legislature take a good look at some of the issues that are plaguing the Florida property insurance market right now to see if we can make some reforms to stabilize not only the performance of the carriers, but also the impact that has on the consumers,” said Florida Insurance Commissioner David Altmaier in an interview with Insurance Journal. “One of the major — if not the major focal point for our office … is working on this very challenging time.” Altamier is one of many sounding the alarm about the Florida insurance market
that has been described as in a state of crisis. Consumer advocates, insurance agents, insurers and realtor groups are all urging Florida lawmakers to enact reforms that stem excessive litigation and insurance costs now hitting the pockets of Florida consumers. In January hearings before the start of the 2021 session, Altmaier told lawmakers that Florida’s domestic marketplace had lost $1 billion during the first three quarters of 2020, more than double its underwriting losses in 2019. That has translated into steep rate increases for policyholders and there appears to be no sign of relief. The Floirda Office of Insurance Regulation has approved 105 rate changes, 90 of which were for rate increases, over the last year, Altmaier said, with 55 of those for rate increases of more than 10%. “Clearly, these losses have negative outcomes for our consumers,” he said. The deteriorating financial condition of Florida’s domestic companies is blamed on several factors: excessive litigation, contractor schemes, several years in a row
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of major catastrophes and the increasing cost of reinsurance. Barry Gilway, president and CEO of Citizens Property Insurance Corp., which is seeing an increase of about 3,000 new policies per week as private market conditions tighten, said litigated cases for insurance companies increased from 27,000 in 2013 to 85,000 in 2020. “That is the primary driver of unprofitability,” Gilway told lawmakers at a Florida House of Representatives committee hearing in January. The industry is supporting several bills that they say will help stem the abuse, but these bills are competing for attention in an unusual legislative session thanks to a lingering pandemic. Stakeholders also acknowledge that it will be tough to convince some lawmakers to enact legislation after insurers won a seven-year battle for assignment of benefits insurance reform in 2019. Those reforms were meant to help the insurance market decrease costs, and recent OIR data shows the law is having a positive INSURANCEJOURNAL.COM
impact on reducing litigation associated with AOBs. Gilway said Citizens’ AOB litigation has decreased by 48% since 2019 and overall litigation has decreased 20%. For all other carriers, AOB litigation has decreased 37% and overall litigation increased by a little less than 1%. Attorney and contractor workarounds to the AOB law has exacerbated other litigation. “AOB reform helped significantly,” Gilway told lawmakers. “[But] the reality is, while AOB is going down, first party litigation is going up. The increase in first party litigation is really overshadowing any benefits we have got from AOB — it’s shifting from third party over to first party.” Litigation costs have helped fuel adverse loss development for companies of $418 million in 2018 and $682 million in 2019, Altmaier told lawmakers. While there is compelling evidence that shows the AOB law has been effective in curbing the use of AOBs, “we also think that there is compelling evidence that demonstrates first party litigation continues to increase, and we have equally compelling information that shows ... the disparity in cost of claims between a litigated claim and a non-litigated claim, and so I think that it’s a critical conversation for us to be having," Altmaier said. He added, “I can certainly understand how after working on AOB for several sessions in a row and finally getting some reform it can be frustrating when the very next session people come back and say, ‘litigation is still a problem.’ So that really underscores [OIR’s] role in being very data-driven.” Stakeholders outside the industry are also coming out in support of reforms. “Consumers are being faced with dire circumstances and options centered around homeowners insurance coverage,” said Insurance Consumer Advocate Tasha Carter, who noted she hears daily from policyholders receiving large rate increases or who are unable to find coverage at all. Most consumers are not aware of why their rates are going up and are particularly frustrated because they have never filed a claim. Carter said she explains the issues INSURANCEJOURNAL.COM
in the market and “they have a better understanding of what’s happening, but ultimately they’re still looking at it from a personal and individual perspective and how these things will ultimately affect them,” she said. Groups like Florida Realtors and the Florida Chamber of Commerce have urged the legislature to act this year as the insurance market’s problems trickle into other industries. “Florida’s economy is the envy of the nation, but we must address persistent home and auto insurance fraud and abuse that hurts consumers and threatens our state’s overall competitiveness,” said Mark Wilson, president of the Florida Chamber. Trey Goldman, legislative counsel for Florida Realtors, a real estate association in the state representing 200,000 realtors, said he’s heard many concerns from members about rates, availability and underwriting guidelines and how real estate transactions could be affected. “We sell property, and we can’t sell property without property insurance,” he said. “Many members are reaching out … insurance is not important until it’s very, very important.”
Proposed Legislation
The main bill supported by the insurance industry is Senate Bill 76, introduced by Senator Jim Boyd, chair of the Florida Senate Committee on Banking and Insurance and an insurance broker. SB 76 seeks to tackle roofing claims abuse and attorney fee multipliers, and would shorten the current deadline for new, supplemental and reopened property claims from three years to two. The bill would allow property insurers to offer homeowners policies that adjust roof claims at actual cash value if the roof is older than 10 years old. Further, it requires a 60-day notice of a property insurance claim before a suit can be filed against an insurer and gives insurers 30 days to inspect the property. The bill would mandate that attorney fees in property lawsuits be awarded based on how successful the insured was in recovering the amount demanded in the lawsuit rather than using the curren-
fee multiplier. Boyd said the legislation would benefit both parties by encouraging insurers not to underpay valid claims while also encouraging claimants to make reasonable demands and would provide “fair access and reasonable guidelines” for both insurers and insureds during the claims process. The changes to roofing policies would prevent the abuse of claims by predatory attorneys and contractors, he told the Senate Committee on Banking and Insurance at its Feb. 2 meeting. “Property insurance rates are going up and this is driven in large part by an extraordinary number of roofing claims in Florida,” he said. Florida is facing a litigation crisis, he said, noting that from October 2020 to December 2020 there were almost 21,000 lawsuits reported to the Department of Financial Services. Thirty-four attorneys filed more than 100 cases, with one attorney filing 1,234 cases in that 90-day period. “That’s 13.4 claims a day, including holidays and weekends,” he said. Claims data shows that just 8% of damages are paid to insureds in property suits and 21% goes to defense costs, while plaintiff attorneys receive about 71% of the pot. “We are not saying attorneys can’t be paid but they should be paid fairly, and the claimants should be the main ones that receive the compensation in the event of a claim,” Boyd said. Attorney and adjuster groups disagree about the bill's fairness, however, saying it would make it harder for policyholders to sue their insurer and gives more power to carriers. “If this bill passes, this will substantially restrict policyholders' and homeowners' access to the courts,” Attorney Matthew Collett told lawmakers at the Feb. 2 Senate Committee on Banking and Insurance hearing. Florida Association of Insurance Agents President Kyle Ulrich disagreed with that assessment. “Nothing in this legislation would prohibit any homeowner from filing suit against their company in the event of a
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News & Markets continued from page 13
dispute,” he said. Insurance Consumer Advocate Carter said she supports the reduction of the claims filing deadline in the bill but only as it relates to new claims, not the limitations on limiting supplemental and reopened claims. She is still reviewing data on the attorney fee provisions.
Pandemic Priorities
There is concern from the industry that reforms may be hard to accomplish during a session that is overshadowed by the pandemic and Florida’s budget, which the
legislature is required to pass. More than 2,500 bills have reportedly been filed so far and passing COVID-19 liability reforms for businesses and healthcare organizations is a clear priority by top lawmakers, including Governor Ron DeSantis. But stakeholders say reform cannot wait another year. “I think it’s beyond just urgent, it’s desperate, frankly,” said Florida Property Casualty Association President Roger Desjadon. “If you were to look at the rate increases that have been going in for the industry, there’s a reason for that. And
Florida Market Financial Losses
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recent report, “Florida’s P&C Insurance Market: Spiraling Towards Collapse,” authored by Guy Fraker of Cre8tfutures Innovation System & Consultancy and the James Madison Institute was presented to the Florida Legislature this year as evidence of the need for property insurance reforms. Among its findings: • Litigation frequency and severity represents an additional expense load of 17% (and rising) on all earned premiums for insurers in Florida compared with other catastrophe-prone states. • The fees paid to attorneys by Florida carriers far exceed the damages paid to the insureds. • In 2019 alone, Florida insurers paid almost $3 billion in lawsuit costs that translated into higher premiums for insureds. • Although the volume of claims after storms is a factor in costs, claims unrelated to catastrophes account for approximately 60% of all litigation. • Florida consumers are paying a “hidden tax” to fund the litigation that averaged about $680 per family in 2020. The report says four Florida laws passed between 2011 and 2019 have helped foster the litigation crisis. They are statutes governing assignment agreements, mandatory replacement cost coverage for residential roofs, multi-year statute of limitations to file a first notice
of loss and the one-way attorney fee. Also, two state Supreme Court rulings have exacerbated matters — Joyce vs. FedNat (2017), which found a contingency fee multiplier does not need to be reserved for rare and exceptional circumstances; and Sebo vs. American Home Assurance (2016), where the court shifted to using the Concurrent Causation Doctrine. This litigation environment has carriers steadily hemorrhaging capital and surplus. Fraker’s report says the roughly 6% of homeowners insurance claims being litigated are equal to the cost of a “good solid Cat 3 hurricane” every 12 months. In 2019 alone, Florida insureds paid between $2 billion and $2.7 billion in costs allocated to suits in the form of increased premiums. Fraker said just 8% of damages are paid to insureds while plaintiff attorneys receive about 71% of the insurance litigation cash flow “because they are allowed to, not because plaintiff attorneys are motivated to do harm.” Insurer defense costs range from 237% to 307% of damages, or 21% of total litigation. “This market is at a critical inflection point. The longer and broader these trends continue, the more likely the state will face a recovery measured in generational time horizons,” the report warns. “The time for hoping some theoretical break point doesn’t materialize is over.”
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that reason is because all of these cases, the lawsuits, the overinflation of claims have gotten totally out of hand. So, the rates have to reflect that, and the rates that you see are rates that are reflecting that.” Without a change, Desjadon said rates will continue to escalate, reinsurers will become more reluctant to write Florida companies and provide aggregate coverages, which means companies are going to have to take more losses on their surplus. “It’s a vicious cycle and I think it’s gotten to a point now where if something isn’t done, I think you’re going to see a contraction of the market. You’re going to see Citizens grow a lot, and you’re going to see rates going up dramatically,” he said. “Time is of the essence,” Gilway agreed. “Because you can’t wait for another year or two years. You are going to have more and more companies that just decide that Florida is not an economic reality for them, and they can apply their capital elsewhere.” Legislative reform is critical to helping consumers, ICA Carter said. She also supports legislation that would clarify and prohibit unlicensed adjusting, protects consumers when they sign a contract with a public adjuster, and would improve company communications with policyholders going through the claims process. She said targeted legislative changes could have a “significant and positive impact on the market.” “I am very concerned about the affordability and availability as it relates to homeowners insurance in the state,” she said. “I anticipate that if legislation is not passed this session … we’re going to see the situation for policyholders continue to deteriorate and to become more dire, and that’s my biggest concern.” Commissioner Altmaier said that though there are a variety of stakeholders with different viewpoints, OIR plans to tell the story of what is happening through data and that ensures the consumer is top of mind. “I think if we can continue to do that, we can make some meaningful progress this session,” he said. INSURANCEJOURNAL.COM
What Stakeholders Are Saying... “I am very concerned about the affordability and availability as it relates to homeowners insurance in the state. I think that policyholders are currently experiencing the effects of what’s happening right now in the marketplace, and I anticipate that if legislation is not passed this session that helps to address some of the factors … then we’re going to see the situation for policyholders continue to deteriorate and to become more dire.” — Florida Insurance Consumer Advocate Tasha Carter
“Anyone who has been working in insurance and been in this industry for a while is not surprised at what is happening. For all of us local agents, our clients are our community members, our friends. We have been in business for 40-something years and we insure people’s children and grandchildren. It is very upsetting to talk to clients and tell them it’s a hard market and there’s not a lot of options out there — and it doesn’t change the fact they may not be able to afford the premium, especially seniors or fixed income individuals. It really hits them very hard.” — Agent Mary Katharine Lawler, Doug Croley Insurance Services, Tallahassee, Fla.
“Affordability has been and continues to be a real issue in our state for both auto and property and we’ve seen a pretty strong trend over the past year of insurance companies having to file for rate increases. All sectors of Florida’s business economy are paying property insurance, so it affects all consumers, both the individual homeowner like me or the business that has property insurance on their company’s buildings. It impacts all of us.” — David Hart, executive director Florida Chamber of Commerce, Florida
Consumer Protection Coalition
“I think it’s beyond just urgent, it’s desperate, frankly. If you were to look at the rate increases that have been going in for the industry, there’s a reason for that and that reason is because all of these cases — the lawsuits, the overinflation of claims have gotten totally out of hand. And so, the rates have to reflect that and the rates that you see are rates that are reflecting that. If there’s no change, I think you’re going to see rates continue to escalate.” — Roger Desjadon, president of Florida Property
Casualty Association
of Insurance Agents
“We are struggling as much as anyone else when it comes to our carriers. We normally get calls from less then 5% of our customers each month on the residential side, now its probably upwards of 30% of customers at renewal time – it’s painful. Carriers are also cutting commission so its not just affecting clients.” — Agent Reid Rushing, Beck Partners in Pensacola,
Fla.
“Florida Realtors is growing increasingly concerned about the cost drivers that are negatively impacting Florida’s insurance environment. Rising premiums, less availability and tightening underwriting guidelines jeopardize homeownership in the state and solutions are needed if we want to support Florida’s growing population. The 2021 legislative session presents a good opportunity for lawmakers to address these problems and we look forward to working with them to help present the realtor perspective on this issue.” — Cheryl Lambert, president of Florida Realtors
“We have seen admitted markets shut down in our area of South Florida (Broward County). The age of the home was a big criterion and now it’s lack of availability, which is really sad. Our customers are very upset about it and we are hoping we get some relief from the legislature.” — Agent Randy Iten, Iten Agency, Davie, Fla.
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“The biggest takeaway is that agents really, in my opinion, at this point can’t stand by and just hope that the market’s going to get better. It’s on all of us to work together, both as an association, and our members, but the industry as a whole, to try to make for a better day for Florida’s consumers.” — Kyle Ulrich, president of Florida Association
“We are all suffering from problems in trying to place coverage with all of the restrictions, guideline changes. We encourage our clients whenever we get a renewal to take it.” — Agent John Pisula, C&C Insurance, Pembroke Pines, Fla.
“We are seeing 30%+ rate increases across both personal lines and commercial lines. Needless to say, either we call our insureds or they will call us once they receive their renewal offers. … Florida needs real reform. We have been trying to get our elected officials to pass good legislation for years. We have been telling them that if they do nothing, that this will happen. Rates will rise, markets will leave. We want our clients to have options. We don’t want them to have to pay more for less coverage.” — Agent Alicia Rosier Stevens, Rosier Insurance, Southwest Florida
“Being an independent agent is supposed to be an advantage for us because we can shop options but now we can’t move clients because of these underwriting requirements. They are stuck with whatever carrier they have and get stuck with this massive rate increase.” — Agent Richard Sinclair, Wells Insurance Agency, Macclenny, Fla.
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Florida Fraud Roundup
Miami Business Owners Accused of Evading $300K in Workers’ Comp Premiums
An investigation by the Florida Department of Financial Services’ Division of Investigative and Forensic Services (DIFS), Bureau of Workers’ Compensation Fraud, has led to the arrest of two business owners for allegedly failing to pay more than $300,000 in workers’ compensation premiums. According to DFS, Jerson Geovanny Quiroz and Reyna Elizabeth Quiroz, owners of Quiroz Carpentry Corporate, were arrested for workers’ compensation premium fraud and grand theft for knowingly misrepresenting or concealing their payroll to avoid paying a higher workers’ compensation premium, investigators allege. Detectives discovered that Quiroz Carpentry Corporate had cashed more than $1.9 million in labor for carpentry work instead of the $55,500 they had originally reported when obtaining their policy. Quiroz Carpentry Corp should have paid a total of $307,636 in workers’ compensation premium, DFS said. At the time of arrest, the company’s insurer Norguard Insurance had only collected roughly $7,500 in premiums. Jerson Geovanny Quiroz and Reyna Elizabeth Quiroz were arrested on Feb. 17, 2021 and booked into the Turner Guilford Knight Correctional Center in Miami-Dade County. Both face charges of workers’ compensation premium fraud and grand theft. If convicted, they each face up to 20 years in prison. Those charged with a crime are presumed innocent until proven guilty.
Unlicensed Florida Agent Arrested Over Auto Insurance Fraud Scheme
A Florida woman allegedly acting as an insurance agent without a license was
arrested after an investigation by the Florida Department of Financial Services Bureau of Insurance Fraud. According to a statement from DFS, Ida Bernadette Newsome of St. Petersburg allegedly acted as an auto insurance agent without an active, valid Florida license. Newsome advertised herself on Facebook as a licensed insurance agent and quoted the victims a price of $350 for full coverage on any vehicle. Once the price was agreed upon, she would instruct the victims to text her their personal and vehicle information to her phone. After Newsome received their information, she directed them to send $350 to her Cash App via her cellphone number. Newsome was arrested on Jan. 27, 2021 and booked into the Pinellas County Jail. She is charged with acting as an insurance adjuster without a license and grand theft. If convicted, she faces up to 5 years in prison. Individuals charged with a crime are presumed innocent until proven guilty. DFS said anyone who has dealt with Newsome and suspects they are a victim of fraud can call the DFS Fraud Hotline at 1-800-378-0445.
Former School Bus Employee Arrested in $50K Florida Insurance Fraud Scheme
A former Miami-Dade County school bus driver was arrested for allegedly filing numerous fraudulent insurance claims and collecting approximately $50,000 from the alleged scheme, according to a statement from DFS. This case is part of an ongoing investigation in which 12 other Miami-Dade School bus employees were arrested in June 2019 for defrauding Aflac Insurance Co. of more than $426,000. Shawanna Latisha Aaron is accused of filing more than 10 fraudulent insurance claims along with supporting documents for cash payment reimbursement from Trustmark and Aflac Insurance Companies for approximately $50,290 after an investigation DFS’ Division of Investigative and Forensic Services, Bureau of Insurance Fraud detectives. The investigation revealed that from October 2016 to July 2018, Aaron submitted medical records as well as billing documents in support
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of the claims to show that she and her dependents were injured, obtained medical treatments and were billed for such treatments. During the investigation, it was determined that the claim documents were altered and fraudulent documents with no such treatments or billings. Aaron was confronted with the evidence and confessed to the fraud. Aaron self-surrendered to detectives on Feb. 9, 2021 and was booked into the Turner Guilford Knight (TGK) Correctional Center in Miami for false and fraudulent insurance claims, organized scheme to defraud, and grand theft. If convicted, she could face up to 40 years in prison. Individuals charged with a crime are presumed innocent until proven guilty.
Miami Agent Arrested in Identity Theft Fraud Scheme
A Miami insurance agent was arrested for allegedly stealing personal account information to file false insurance applications and collect commissions from the insurance company, according to a statement from the Florida Department of Financial Services. An investigation conducted by detectives at the department’s Bureau of Insurance Fraud revealed that Daniela Chacon Labrador, a licensed life and health insurance agent from Hialeah, allegedly created and submitted applications for three accident/Illness insurance policies using falsified and fictitious information and the bank account information stolen from a client. As a result of the scheme, Labrador received approximately $1,789 in commissions from Combine Insurance Co. of America. Labrador surrendered on Feb. 12, 2021 and was booked into the Miami-Dade County Jail. She is charged with organized scheme to defraud, false and fraudulent insurance application, criminal usage of personal identifying information, and grand theft, all third degree felonies. If convicted, she faces up to 40 years in prison. Individuals charged with a crime are presumed innocent until proven guilty. In a separate action, DFS has revoked Labrador’s license. INSURANCEJOURNAL.COM
Idea Exchange: Florida Issues
Demotech: Investor Interest in Florida Insurers Unlikely Without Legislative Reform
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s the first insurer rating agency to review and rate independent, regional and specialty insurers, we have a By Joseph Petrelli unique understanding of niche markets and serve as a trusted resource to third parties seeking to utilize regional and specialty companies. The majority of these insurers focus on their niches in their communities. They utilize local agents, local claims adjusters, and their employees are from the area. Among the more than 400 insurers we INSURANCEJOURNAL.COM
rate are 42 carriers focused on residential property insurance in Florida. Demotech rated carriers operating in Florida collectively write approximately 66% of the residential property insurance market. These insurance companies that continue to protect Floridians while expanding their geographical footprint have encountered back-to-back record storm seasons in 2019 and 2020. Diversification to other catastrophe prone jurisdictions exacerbated rather than ameliorated recent operating results. The catastrophic events led to a marked increase in the number of claims to be evaluated, additional litigation and increases in the cost and availability of
reinsurance. Having seen the ebbs and flows of market conditions in Florida’s residential insurance marketplace since 1996, and after coordinating and participating in recent meetings with the companies we rate, it is our belief that future efforts to re-capitalize insurance companies impacted by numerous storm events will be challenging if those insurers’ investors and the reinsurers of those carriers do not believe that meaningful reforms have been instituted to enhance the likelihood of an operating profit. In response to the financial impact of
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Idea Exchange: Florida Issues continued from page 17
the increased cost of reinsurance, excessive levels of litigation associated with otherwise routine claims, and re-evaluations of the impact of claims associated with events in 2019 and 2020, Demotech provided direction to carriers during the first nine months of 2020 on the fortification of their balance sheets and policyholders’ surplus at levels commensurate with sustaining a Financial Stability Rating (FSR), and positioning themselves to have acceptable year-end 2020 financial metrics. Demotech rated insurers contributed $500 million in new capital to enhance policyholders surplus, whether from the impact of storms, increases in the claim costs of newly reported claims or to address adverse loss and loss adjustment expense development or otherwise sustain their FSR certification for year-end 2020. We will soon be evaluating whether or not this dollar amount was sufficient. In late January and early February 2021, we conducted a series of meetings to discuss anticipated year-end 2020 balance sheets, operating results, recapitalization plans, and any revisions to their business plan or model in anticipation of year-end financial statements that were due March 1, 2020. We discussed market conditions and financial results with more than 125 senior level executives, founders, shareholders, and other professionals protecting Floridians. The agenda we utilized was extensive and included information related to: • Anticipated Year-end 2020 Statutory Financial Results • Anticipated Year-end 2020 Loss and LAE Reserves • Anticipated Year-end 2020 Capital and Corporate Structure • Anticipated Year-end 2020 Business and Operational Plans • Anticipated Year-end 2020 Reinsurance Issues
The more than 100 C-suiters operating in Florida shared the following concerns with us: • It is common for a First Notice of Loss (FNOL) to be a notice of litigation, denying an insurance company an opportunity to resolve the claim without third party interference; • Expansion of the contemplated purpose of the one-way attorney fee statute; • An aggressive plaintiff’s bar that is confident of a high level of judicial support; • Significant increases in the cost of reinsurance purchased in the private sector; • Incremental reinsurance cost associated with the Florida Hurricane Catastrophe Fund’s cash build-up program, where the Cat Fund continues to collect a hefty “upcharge” despite it being in the strongest financial position in its history. Suspension or rescission of the cash build-up program would mean immediate savings for insurers; • Consumer and producer dissatisfaction with the premium levels necessary to secure adequate rates reflecting the current status of Florida’s property insurance marketplace.
meaningful legislative reforms such as those in SB 76 that are upheld by the judiciary, the primary response available to insurers is frequent rate increases. Re-underwriting books of business and identifying and canceling individual risks that exacerbate the cost of reinsurance are other tools that have been put in place. These activities tend to end up repopulating Citizens. Absent meaningful reform, insurers focused on the Florida property insurance marketplace will not be an investment of choice. If Florida-focused insurers are viewed as investments with limited opportunity for profitability, this will lead to the repopulation of Citizens, which exposes Floridians to a financial assessment should Citizens have a meaningful shortfall. Legislators and consumers should note that reforms will not translate into rate decreases. Rather, meaningful reforms are needed to moderate the rate of increase that consumers face at renewal. We reach this conclusion because the insurance companies who provide homeowners insurance are paying for repairs, and the cost of the materials is unlikely to be reduced in the future. Similarly, the hourly wages and cost of employee benefits of the skilled artisans who effect the repairs will increase over time, not be reduced. Likewise, the cost of reinsurance is unlikely to be meaningfully reduced anytime soon. The flip side of Florida’s glorious weather and attractive climate is its geographical position as a catastrophe prone jurisdiction. It has been called the most difficult property insurance marketplace in the world — well before the expansive litigation and judicial decisions that occurred under the previous administration. This said, meaningful reform will reduce the rate of increase in the premium being paid by consumers, attract investors to form insurance companies, and introduce a degree of competition that the residential insurance marketplace has not experienced in five to 10 years.
To varying degrees, the provisions of proposed Senate Bill 76 could bring relief to these concerns. However, absent
Petrelli is the president and co-founder of Demotech Inc., a Columbus, Ohio-based financial analysis and actuarial services firm. Visit Demotech.com for additional information.
As the results of any given calendar year reflect the activity of past years as well as the underwriting and claims activity of the current year, our discussions included prior period influences as well as thoughts about 2021 and beyond. While it appears the legislative reforms passed in 2019 related to assignment of benefits had somewhat of a positive impact, the 42 Floridafocused property insurers that Demotech reviews and rates have been impacted by many other negative factors.
“Legislators and consumers should note that reforms will not translate into rate decreases. Rather, meaningful reforms are needed to moderate the rate of increase”
C-Suite Concerns
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