Bill before Crist eases rate hikes, curbs payouts
By Julie Patel
Sun-Sentinel Staff Writer
Updated: 10:16 p.m. Monday, May 10, 2010
Posted: 10:15 p.m. Monday, May 10, 2010
A bill that could raise some insurance premiums for property owners and reduce the costs of processing claims for insurance companies is waiting for Gov. Charlie Crist’s signature or veto.
What’s unclear is what Crist – now an independent U.S. Senate candidate – will do.
Here’s a look at how the law affects policyholders and what’s at stake for Florida’s insurance industry.
Will rates increase under the measure?
The bill has several parts that make it easier for insurers to raise rates. Last year, lawmakers approved a bill allowing insurers to raise premiums without full oversight from regulators by up to 10 percent a year for certain backup coverage costs. The bill this year allows insurers using that provision to include other fixed costs, such as inflation, in that premium increase.
Separately, insurers can pass to customers the costs of recruiting policyholders, including advertising and agent commission costs, without checking off with regulators.
Since last year, the Office of Insurance Regulation approved about 100 statewide residential property insurance rate increases ranging from 0.2 percent to 27.9 percent and rejected about 15 ranging from 0.7 percent to 14.9 percent.
The bill also would extend a law, set to expire this year, that requires an insurer to have a rate hike approved by regulators before implementing it – instead of having to provide refunds later if regulators reject the request.
What happens with the discounts homeowners get for fortifying their homes?
The bill would allow insurers to raise rates if they can show the discounts they provided homeowners for fortifying their homes were too high.
A few years ago, the state required insurers to increase certain discounts for homeowners who fortified their homes against hurricanes.
Discounts for hurricane impact windows and other features helped Steve Stout, a firefighter in Lauderhill, save money after State Farm nearly doubled his premium a few years ago. But last year, regulators allowed State Farm to raise rates and eliminate certain voluntary discounts. Stout said his premium increased by $644, more than 40 percent, this year.
How would the legislation affect insurance claims?
The bill would require home-owners to file a windstorm claim within three years after a hurricane, down from five years.
But the changes could create problems for some homeowners. Some damage, such as mold, may not appear immediately after a hurricane. Some home-owners reopened claims several years after Hurricane Wilma because they did not know they could challenge their insurers or they didn’t know that the small fixes their insurer paid for after the hurricane would not hold up.
Will the bill limit how policyholders use claims payouts?
Yes. Florida does not require homeowners to spend their claims payouts on repairs.
The pending bill would allow insurers to pay only the actual value – an estimate that factors in depreciation – of damaged parts of a home until the homeowner has a contract to make repairs and “as the work is performed.” That is when the insurer would pay the “replacement cost” – the full cost of replacing or rebuilding the damaged parts. The provision does not affect homes that are destroyed.
The idea is to ensure home-owners use claims payments to make repairs so companies – and ultimately their customers – don’t end up double paying for the same damage a few years later.
Steve Geller, a former legislator whose law firm represents businesses and insurance policyholders, said the provision is “the single worst” part of the bill. He said some homeowners won’t be able to make repairs under the provision because they would have to front too much of their own money for repairs when including the high deductibles in South Florida. He said it would prevent policyholders from hiring a public adjuster or attorney if needed because in order to receive the claim payment their insurer agrees to, they would have to sign off beforehand on handing all the money to a contractor.
Are there new financial guidelines for insurers?
Yes. The bill would require some insurers to file detailed financial information about their affiliates. It triples the minimum insurers must have in claims-paying reserves to $15 million by 2020.
The information is intended to answer questions about how Florida companies pay their affiliates – including parent companies – for some products and services. Regulators raised questions in recent months because some insurers reported losses last year but sent money to their affiliates.
What about consumer protections?
The legislation would require the Office of Insurance Regulation to develop a website to help consumers shop for insurance and compare rates. It is expected to help regulators update and expand the state’s Shop and Compare Rates website.
It also creates a 2012 deadline for the Insurance Consumer Advocate to develop a grading system for insurers.