Bill lets insurers delay payouts to homeowner

The following article was published in the Palm Beach Post on May 11, 2011:

Bill lets insurers delay payouts to homeowner

By Laura Green

If Florida homeowners fall victim to a hurricane this summer, they may end up paying for some repairs out of pocket, under provisions in a property insurance bill that landed on Gov. Rick Scott’s desk Wednesday.

The bill (SB 408) allows insurance companies to withhold payment for full replacement value until a homeowner submits receipts from a contractor.

Homeowners initially would receive a lump sum based on the home’s actual value. But as anyone who has seen his home’s value slide in recent years knows, there can be tens of thousands of dollars’ difference between market price and the cost to rebuild or repair a home.

Once receipts are filed, there is no timely payment requirement, which has some advocates worrying that homeowners will have to dig into their own bank accounts to keep a contractor on the job. Or worse, if homeowners don’t have that kind of cash on hand, they may not be able to repair the damage.

The insurance companies’ move away from paying the full cost upfront is intended to address the problem of homeowners taking the money without making the necessary repairs.

Homeowners will be able to get full replacement value upfront if they buy a special policy that offers it.

The bill was championed by the insurance industry as a way to get to the root causes driving up rates. One key change is shortening the window to submit a hurricane claim from five years to three years. The bill also strives to rein in rising sinkhole claims, which many carriers believe include flat-out fraudulent claims as well as simple structural cracks being submitted as sinkhole damage.

Between 2006 through 2010, sinkhole claims cost Florida property insurers $1.4 billion, according to a state report.

Former Gov. Charlie Crist vetoed similar legislation in 2010, but Scott is expected to sign the bill. He has until May 26.

Critics of the legislation acknowledge that there is some fraud but say the bill balances the rising costs on the backs of policy owners.

Sen. Mike Fasano, R-New Port Richey, called the bill “some of most anti-consumer legislation ever filed in my 17 years in the legislature.”

Brian Samberg, president of the Professional Insurance Association of Florida and an agent of 26 years based in Boca Raton, said something had to be done to create more competition.

“We’re on the cusp of hurricane season, and consumers have so few options,” Samberg said.

Carriers are reluctant to enter the market without reforms, he said. He hopes the shorter time frame for homeowners to file hurricane or sinkhole claims will entice new carriers. That way, insurers will know sooner what they will have to pay out in claims.

Although there were no major storms in 2010, insurers received an influx of claims because the five-year deadline to file a claim from Hurricane Wilma closed in October, Samberg said.

The bill also would allow Citizens Property Insurance Corp., the state’s insurer of last resort, to raise rates beyond its current 10 percent cap for sinkhole coverage. By driving up Citizens’ sinkhole rates, other insurance companies will be able to compete with it, Samberg said.

Other provisions in the bill allow insurers to pass on the cost of reinsurance, up to a 15 percent hike, on top of any approved rate increases. Also, carriers will not have to submit to a public hearing or go before the state Office of Insurance Regulation before tacking on that fee.

“What’s even more laughable or even disgraceful,” Fasano said, is that some insurers, including State Farm, have a history of buying their reinsurance from companies affiliated with them. That means the affiliated company makes money when State Farm buys the insurance, yet State Farm can pass on some of the cost to policyholders, Fasano said.

Rep. Rick Kriseman, D-St. Petersburg, said the bill obviously was written by the insurance industry.

Kriseman was particularly concerned about part of the bill that allows insurers to offer only catastrophic sinkhole insurance; only a small percentage of sinkholes are the type that swallow a home.

Insurers also can choose to restrict coverage to the home, so if a pool or garage or outdoor kitchen is damaged by a sinkhole, it would not be covered.

The bill also limits objections that homeowners can make to supposedly neutral parties insurers hire to determine whether a sinkhole caused damage, Kriseman said.

And if a claim is rejected without any testing to back it up, a homeowner can be required to pay up to $2,500 to have an inspection done.

Whether dealing with a sinkhole or a hurricane, Kriseman said, homeowners have lost some protections.

“People who suffer a loss are going to be in for a surprise when they make their claims,” he said.

Staff researcher Michelle Quigley contributed to this story.

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