Florida Senate Amends, Approves Comprehensive Property Insurance Package CS/CS/CS/SB 408

 

Earlier this morning, April 28, 2011, the Florida Senate considered CS/CS/CS/SB 408 by Senator Richter relating to Property and Casualty Insurance.  As amended, the bill passed by a vote of 25 to 12.

Before being presented for a vote, two amendments to the bill were considered and adopted.

Amendment 885590 by Senator Richter provides that, if a covered building suffers a sinkhole loss or a catastrophic ground cover collapse, the insured must repair such damage or loss in accordance with the insurer’s professional engineer’s recommended repairs.  However, if the insurer’s professional engineer determines that the repair cannot be completed within the policy limits, the insurer must pay to complete the repairs recommended by the insurer’s professional engineer or tender the policy limits to the policyholder.

Senator Storms questioned whether the insurer’s or the insured’s professional engineer report would be used to determine the required repair, and if this provided an opportunity for the insured to “get hosed,” since the professional engineer hired by the insurer is typically opining that a sinkhole does not exist and an inadequate repair may be provided.  In response, Senator Fasano indicated that this provision presumes that the parties have agreed that a sinkhole loss or catastrophic ground cover collapse has occurred.  The amendment was ADOPTED without further discussion.

Amendment 793532 by Senator Smith was presented to clarify a technical issue with respect to an amendment to SB 408 that passed during yesterday’s second reading.  After the bill was engrossed, certain sections referred to in Senator Smith’s amendment were changed, resulting in the need for this amendment.  The amendment was ADOPTED without objection.

Once the amendments were approved, the following debate on the bill occurred:

Senator Fasano announced that, while the original bill was, in his opinion, the worst consumer bill before the Senate this year, the current version of SB 408 was now the third-worst.  Senator Fasano claimed that the provisions of the bill providing that private market insurers would not be required to offer sinkhole coverage was an economic disaster waiting to happen.  Senator Fasano read correspondence from two banking  institutions indicating that full sinkhole coverage was required in connection with a mortgage, and that Fannie Mae, Freddie Mac and the FHA also required full sinkhole coverage.  Senator Fasano opined that, as more coverage exclusions are created, Florida will become a less desirable place to live.  He continued that people will not be able to sell their homes if buyers cannot obtain sinkhole coverage and said he does not believe that the private market will offer sinkhole coverage when it is not obligated to do so.  Senator Fasano concluded by questioning the insurance industry’s claims of losses, citing statistics indicating that the private property and casualty insurance market realized a $34.7 billion profit in 2010.

Senator Bennett spoke in support of the bill, indicating that it was not appropriate to require companies to offer a product that they cannot make money on.  Senator Bennett stated consumers will have options to purchase sinkhole coverage, either through Citizens, as the insurer of last resort, or in the surplus lines market.  Given the ability to price the product accordingly, Senator Bennett believes insurers will offer sinkhole coverage.

Senator Oelrich also spoke in support of the bill, stating that prior sinkhole legislation included definitions of sinkhole damage that were too broad in nature.  This has led to abuses in the system and has created a cottage industry of unscrupulous adjusters and attorneys.

Senator Storms spoke in opposition to the bill, first citing the impact of increased premiums on the elderly.  While Senator Storms acknowledged insurer’s right to make a profit, she has a problem with insurers “making a killing.”  She queried how insurance companies could claim that they are losing money when there have not been any storms for several years.  Senator Storms then alleged that insurers shift money to affiliated reinsurers and managing general agents in order to create artificial expenses and create losses.  Senator Storms further alleged that property insurance does not represent a free market, since people are required to purchase insurance in order to have a home.

Senator Montford spoke on the options available to consumers to obtain sinkhole coverage and opined that the citizens of Florida should not be required to subsidize questionable sinkhole claims.

Senator Alexander stated that, in all his years in the Legislature, no issue has been more politicized than property insurance.  The more the Legislature tries to fix the problems, the worse they seem to get.  The regulation efforts have created distortion in the market that is difficult to sort out, and has significant consequences.  The market is severely out of balance.  Acknowledging that an effort to completely re-balance the market would have too extreme of an effect on Floridians, Senator Alexander applauded the bill’s “modest” efforts to correct some pressing issues.  Addressing the sinkhole issue, Senator Alexander stated that if you go deep enough underground, there are likely sinkholes everywhere.  The current situation presents a moral hazard and the avenue for the filing of illegitimate claims.  If insurers continue to suffer too many losses, rates will continue to increase, or insurers will leave the state.

Following debate, Senator Richter closed on his bill.  He disputed Senator Fasano’s contention that banks require full sinkhole coverage as a condition to maintaining a mortgage as “flat out wrong.”  According to Senator Richter, Fannie Mae does not require sinkhole coverage, nor does Bank of America, SunTrust or Wells Fargo.  Further, Senator Richter stated that Regions Bank (one of the banks cited by Senator Fasano), does not have an official position on the issue.  Senator Richter did acknowledge that Freddie Mac requires sinkhole coverage.

Senator Richter advised that Citizens will be a back-up for consumers who cannot obtain sinkhole coverage from the private market.

Senator Richter concluded by stating that his bill was sincerely pro-consumer, and that its objectives were to attack cost drivers and fraud, while promoting increased competition in the market.  Lowering costs, reducing fraud and increasing competition all have the effect of reducing premiums, he explained.

Senator Richter also pointed out the provisions in the bill providing for increased capital and surplus requirements.  Lastly, he noted that the most expensive insurance policy you can buy is a policy from a company that cannot afford to pay your claim.

As amended, the bill passed by a vote of 25 to 12.

 

Should you have any comments or questions, please contact Colodny Fass.

 

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