Big Day for Property Insurance Proposals
Major property insurance bills are scheduled to be heard today in both the Senate and the House of Representatives. Both chambers are considering substantial property insurance reforms aimed at curing some of the so-called “cost drivers” of insurance rates in the Florida property market. The term cost-drivers has been used to generically refer to several factors said to be prompting rate increases even as Florida has not had significant storm activity over the last five years.
Perhaps the most widely discussed of the cost-drivers is sinkhole insurance. Losses attributable to the sinkhole peril have greatly outpaced the associated premiums, particularly in certain areas of the state. Unfortunately, most of the claims payments are not even being used to repair properties, and municipalities are suffering in their tax bases. Proposed reforms would attempt to better define the scope of coverage and ensure that claims proceeds are used for repairs. The legislature continues its effort to develop reforms that will be viable for consumers and yet strong enough to keep insurers from continuing to reduce capacity in the ever-increasing areas of the state subject to sinkhole claims.
Another key issue being considered is the operation of replacement cost policies. Throughout the country, including in Florida prior to the 2004 and 2005 storms, replacement cost policies entail an insurer’s paying the actual cash value of damaged property until repairs or replacements are made, at which time the replacement cost balance is paid. The process ensures that policyholders are reimbursed commensurate with their actual losses while deterring fraudulent or inflated claims. In Florida, however, insurers recently have been required to pay the full replacement cost without regard to whether policyholders repair or replace property. This had led to a series of problems that increase insurers’ losses, ultimately resulting in those costs being passed on to all Floridians. The legislature continues to search for ways that policyholders will be made whole through prompt claims payments while discouraging the questionable claims that have grown in recent years.
Today’s committee meetings will provide valuable insight into these and other areas affecting Florida’s property insurance market.