Legislation reforms claims process

The following article was published in the Daytona News-Journal on February 27, 2011:

Legislation reforms claims process

By Tom Knox 

Florida property insurers might soon have fewer justifications for frequent rate increases.

Legislation similar to a bill vetoed last year by then-Gov. Charlie Crist will be debated during this year’s legislative session, which convenes next month. The bill has a good chance of being signed into law — Gov. Rick Scott has talked of the need for reform and is much more of an ally to business than Crist.

Senate Bill 408’s goal is to reduce the main cost-drivers that insurers say lead to escalating costs for policyholders.

Key provisions of the bill, sponsored by state Sen. Garrett Richter, R-Naples, would reform payback methods, sinkhole coverage and public insurance adjusters.

Insurers tout the bill as a first step in creating more competition among private insurers and reducing regulatory pressure on those companies.

“It’s a good start,” said Melissa Burt, general counsel for Ormond Beach-based home insurer Security First. “I wouldn’t say it’s a win for any particular group, but it represents a lot of things talked about in the last couple of years.”

 PAYBACK

 The current law says that if a loss is insured for replacement cost, the insurer should pay the costs upfront. The insured person doesn’t need to prove they fixed the problem. Insurers complain people are spending money on new TVs, not a crumbling roof. New provisions would allow insurers to withhold full payment for most claims until policyholders enter into a contract and repairs are made.

“It’s been a huge problem in the state,” said Dick Brown, president and CEO of Daytona-based insurance agency Hayward Brown. “People can collect the replacement-value amount of coverage and just put money in their pocket or just go buy a car. That’s crazy.”

People who aren’t insurers think the current system is sane, of course. Ray Altieri, the incoming president of the National Association of Public Insurance Adjusters who works in Tampa, said a policyholder is free to choose to leave their home in disrepair. Most people who would do that would suffer with a declining home price, but it should be their choice.

“If they want to live in a burned out shell, they can,” he said. “If they choose to make alternative repairs or no repairs, it is of no concern to the insurance company. Their only responsibility is to make sure they’re paid for the damage so people can get their life back.”

 SINKHOLES

 The growing claims of sinkholes have been one of Florida’s hottest topics the last five years, and their inclusion in this year’s bill is, perhaps, the most controversial. Sinkholes weren’t addressed in last year’s bill so it would have a better chance of being signed into law. Sinkhole claims have tripled from 2006 to 2010, and insurers say they pay much more in claims than they take in on premiums. This year’s bill no longer requires an insurer to offer sinkhole coverage, although coverage for the house-swallowing holes would still be offered.

State Farm earlier this month cited sinkhole losses as the reason for its rate-increase proposal of almost 30 percent.

“Why do you think that bill magically came up before this legislation?” said K.C. Williams, an attorney at Williams Law Association in Tampa, a firm that represents policyholders. “They’re trying to create a quote unquote ‘crisis.’ “

Mark Nation, an attorney in Longwood who represents policyholders, is worried about the option to no longer offer coverage. If given a choice, no insurer is going to take that risk, he said, and a homeowner’s problem is confounded by language that redefines what constitutes structural damage.

“The definition of structural damage would be so difficult that it requires, basically, that the house is condemned before they have to pay anything,” he said.

PUBLIC INSURANCE ADJUSTERS

Public adjusters are the human version of sinkholes: They take a huge brunt of the blame from insurers. Adjusters nationally and locally agree something needs to be done about unscrupulous adjusters. The bill would cap adjusters’ fees for reopened claims to 20 percent and restrict advertising that, sometimes, makes it seem like filing a claim is akin to winning the lottery.

“There are loads of public adjusters down there, and, quite frankly, there is a varying degree of skill and ethics,” said Brian Goodman, general counsel for NAPIA, the adjusters’ group.

The number of adjusters in Florida swelled five years ago when requirements to become licensed were loosened to help with fallout from hurricanes. Now, a three-day course is needed instead of a test that took months to study for, Altieri said. David Beasley, president of the Florida Association of Public Insurance Adjusters, supports the bill but had complaints similar to Nation’s about the “anti-consumerism” of the sinkhole proposals. Policyholders, generally, don’t understand the magnitude of which public adjusters, sinkholes and everything else play into insurance costs, said Chantelle Thompson, personal-lines manager at Mitchell Noel Insurance Agency in Ormond Beach.

“They’re shocked — they’re simply shocked,” she said. “A lot of people have a bad taste in their mouth and they see premiums going up, but they’re not making any more money — or lost their job — and premiums still went up.”

Another important provision in the bill includes increasing the claims-paying reserves new-home insurers are required to have from $5 million now to $15 million starting next year.

Citizens Property Insurance, the state’s much-maligned public insurer, will likely be addressed in other legislation.

Senate Bill 408 has many allies, including the Florida Chamber of Commerce and the state Office of Insurance Regulation. But regular policyholders in Volusia and Flagler counties, who are far away from the heart of the sinkhole problem and share in everyone’s else’s rampant rate increases want to know: Will the bill eventually lower my rates?

Perry Cone, former general counsel for Citizens who now does private work in Tallahassee, said it’s too early to tell what kind of impact it will have.

“What the legislation looks to do is to make certain that rates aren’t too out of proportion,” he said.

State Farm, fresh off its big rate proposal, said it wasn’t sure either. It’s too soon, and there are too many factors, the company said.

“I’d lie to you if I said I am able to predict the future,” State Farm spokesman Chris Neal said. “A lot of the rates here in Florida are generated by hurricanes. I can’t tell you what’s going to happen in the future; however, you’ll get no argument from us that costs of insurance have gotten too great for a lot of people in Florida.”

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