THE NEWS SERVICE OF FLORIDA: Florida Senate Begins Insurance Re-Write

This article was published by THE NEWS SERVICE OF FLORIDA on January 25, 2011:

Senate Begins Insurance Re-Write

By MICHAEL PELTIER
THE NEWS SERVICE OF FLORIDA
news@newsserviceflorida.com.

Saying sinkhole claims have cost more than hurricanes over the past several years, the Senate on Tuesday began work on a massive insurance rewrite that is expected to be one of the most watched bills of the 2011 session.

In a room packed with lobbyists for insurers, underwriters, reinsurers, state regulators and consumer advocates, the Senate Banking and Insurance Committee began work on SB 408, the chamber’s latest attempt to make changes that the property insurance industry says it needs to shore up a market that is struggling despite the absence of hurricane activity.

Unable to make their way through a series of amendments, lawmakers postponed a vote on the bill until the panel’s next meeting.

Sen. Garrett Richter, R-Naples, committee chairman and sponsor of the bill, said the proposal still will undergo changes. But the sinkhole issue, not part of the property insurance rewrite last year, is seen as a must-have for insurance companies, who say that there aren’t more sinkholes opening up – but rather there are more lawyers trying to get people to claim damage is caused by sinkholes when it’s not.

The bill largely mirrors a measure passed last year by lawmakers but vetoed by Gov. Charlie Crist, who said it was unacceptable in part because it allowed insurers to raise rates by as much as 10 percent annually without a formal rate hearing. That provision is not in the new bill, at least for now, but Richter said he expects many changes to the sweeping proposal in the weeks ahead as groups weigh in.

“We’re here to strike a starting line and hopefully that starting line will be as close to the finish line as possible,” Richter said. “But we are going to work on it until we get it right.”

On the sinkhole issue, arguably the most contentious provision would allow insurers to no longer offer sinkhole coverage at all. Companies would have to pay for catastrophic ground collapse and pay up if it renders a home uninhabitable, but more comprehensive coverage for less dramatic damage would not be required. Richter cited a Senate staff report that showed sinkhole payouts in a handful of counties have far outstripped the premiums paid by policyholders.

Between 2006 and 2009, the rate of claims paid more than doubled for Citizens Property Insurance Corp, which in 2009 collected $19 million in premiums and paid out $84 million in claims. In Hernando, Pasco, and Hillsborough counties, the so called “Sinkhole Alley,” claims jumped 375 percent, 187 percent and 384 percent respectively.

Though acknowledging that changes are needed, Sen. Mike Fasano, R-New Port Richey, said allowing insurers to simply opt out of sinkhole coverage altogether would leave many homeowners in sinkhole prone region with properties they won’t be able to sell.

“What insurance company is going to offer sinkhole insurance if they don’t have to?” Fasano asked.

Fasano was also critical of another amendment that would require policyholders to pay for sinkhole tests after being denied by their insurance company. Under the current statute, insurers are responsible for paying for an additional test, which runs about $9,500. The bill would require policyholders to pay a portion of the test, up to the greater of $2,500 or the policyholder’s deductible, if it proves to uphold the insurer’s initial finding.

“It’s an incentive for insurance companies to deny every sinkhole claim,” Fasano complained.

Richter said policyholders have no incentive not to order an inspection if they are denied a sinkhole claim, which has led many to request for the tests when they aren’t needed.

“They need to have more skin in the game,” Richter said.

Other provisions of the bill include requiring insurers to pay actual cash value of property up front and to pay more generous replacement costs after repairs or replacement has been made. It also would reduce from 180 days to 90 days the length of time an insurer must give policyholders after notifying them their policy is not being renewed.

Business groups have targeted the insurance issue as one of their top priorities. Despite the absence of hurricane damage over the past several years, some insurers have gone out of business, a combination of lackluster investment returns and higher non-hurricane losses.

“This important legislation not only addresses the primary cost-drivers within Florida’s insurance market, it will bring security and market predictability, and go a long way toward establishing much needed financial stability,” said Adam Babington, Vice President of Government Affairs for the Florida Chamber of Commerce, in a statement.