Property Bill Brings Uncertain Impact
Governor Ron DeSantis signed SB 76 into law and it takes effect July 1, 2021. The new law reflects a series of compromises reached by the Florida legislature during the 2021 session. Despite the compromises, bill sponsors believe the reforms will have a favorable effect on Florida’s residential property insurance market. Other legislators have been less sure, with one key participant saying the final bill is about “40%” of what it needed to be.
The Governor’s comments when signing the bill reflect a middle approach. He commented that the bill might be a good start, but it’s also possible policymakers will need to pass additional reforms in the future. Speaking about problems in the property insurance market, the Governor said “the Legislature did, by and large, a pretty good job on addressing it. But we’re probably going to have to do more going forward.”
The compromise nature of the final bill suggests we won’t know for several years how helpful some of the reforms will be, if at all. It’s not possible at this early stage to accurately predict how some of the reforms will play out. Some of them simply will become the subject of end-runs and work-arounds. Others might just prompt abuses to migrate to other areas. Nonetheless, we can make an early assessment of some of the factors that will affect the impact of some of the new law’s key provisions.
Increase in Allowable Citizens Property Insurance Corporation Rate Changes— Prior law capped Citizens’ rate increases at 10% per policyholder. When applied to Citizens’ overall rate filings, this often means Citizens’ statewide average rate increases are several percentage points lower than 10%, such as 4% or 6%. When rates are increasing by well over ten percent on average in the admitted market, Citizens’ rates can quickly fall behind. Repeating this over several years can produce Citizens rates that are significantly lower than those in place for admitted insurers such that Citizens can’t “catch up” for several years even after the market begins to stabilize.
The new law increases the cap on Citizens’ rate increases to 15%, but only over a five-year period. On a positive note, this will help reduce the disparity between admitted market rates and Citizens’ rates in the future. Unfortunately, the disparity already exists, will only grow this year, and likely will continue to grow over the next year or two. The law change might help with the next market crisis but provides a negligible benefit in the current one.
Attorneys’ Fee Recovery Percentages— Florida’s one-way attorneys’ fee statute at 627.428 has been at the center of most public policy discussions over the last 20 years, whether related to mold, sinkholes, assignments of benefits, roof claims or other abuses. Legislative reforms tend to treat the symptoms but not really address the cause. Citizens’ chief executive officer Barry Gilway illustrated the point during the 2021 session when he said that under current law, there’s no reason not to sue an insurer– there’s not really a downside due to the one-way nature of the statute.
On a positive note, SB 76 partially addresses this by adopting a scale that ties attorneys’ fees to the outcomes of cases. However, it’s not clear how effective this version of the reform will be. Unlike the 2019 AOB reform bill, policyholders’ attorneys still do not face any risk of paying the insurers’ fees even when the insurers’ positions are entirely validated. Also, most cases settle, so while inflated or non-meritorious claims create a theoretical risk of reduced attorneys’ fees, it is unclear whether this will provide enough of a deterrent in relation to the high percentage of represented and litigated claims that now characterize the Florida market.
This year’s property insurance reforms don’t present certain solutions to the market’s current problems. Hopefully they at least will create a stabilizing effect that creates time to further evaluate ways the market can be improved.