As Property Insurance Costs Skyrocket, Florida Lawmakers Consider Options

As Florida homeowners recover from shocking cost increases for their next year of insurance coverage, pressure is mounting on state lawmakers to step in and stem the bleeding.

Property owners have been waking up to premium hikes as high as 30% to 40% for their upcoming policy terms. Insurance insiders hope their anger will force the Florida Legislature to adopt reforms aimed at quelling runaway litigation costs during the 2021 legislative session that begins March 1.

“We support legislative changes to address the litigation environment in Florida. That’s the single greatest cost driver we face,” said Michael Carlson, president of the Personal Insurance Federation of Florida, a lobbying organization that represents major property insurers in the state.

Among the areas that could be addressed:

Abuse of coverage to repair or replace roofs.","type":"text

Long deadlines to file hurricane and non-weather claims.","type":"text

Public adjusters and “loss consultants” who inflate claims costs.","type":"text

Insurers will be working with allies in the legislature. The question is, will they have enough votes to override legislators loyal to plaintiffs attorneys who want to maintain the status quo? Lawmakers who support stabilizing the insurance market are confident.

Insurers will be working with allies in the legislature. The question is, will they have enough votes to override legislators loyal to plaintiffs attorneys who want to maintain the status quo? Lawmakers who support stabilizing the insurance market are confident.

“Prospects for meaningful enactment are good because we’re at a critical condition,” said state Sen. Jeff Brandes, a Republican from St. Petersburg and leader of previous efforts to curb fraudulent claims and reduce costs for homeowners.

Attorneys fees

Costs for consumers have been rising for years. Insurers blame skyrocketing litigation by attorneys who know they can reap far more money for legal fees, they say, than what their clients ultimately get to repair their damages.

Increasingly frequent hurricanes and tropical storms also bear much of the blame, as those trigger claims and drive up prices for reinsurance -- insurance that insurers have to buy to ensure they can pay all claims after a catastrophe. Insurers pass all of those increased costs to consumers.

Plaintiffs attorneys counter that most of the industry’s proposals would erode coverage for policyholders.

Legislation would be unnecessary if insurers would properly pay out claims, they say. Litigation would be unnecessary if insurers held up their end of insurance contracts instead of refusing to cover claims, low-balling customers on claims they agree to cover, or reflexively fighting customers who enlist help from public adjusters or attorneys, said Amy Boggs, chair of the property insurance committee for the Florida Justice Association, a trade group for plaintiffs attorneys.

It’s insurers that drive up costs of legitimate claims by forcing them into the court system, Boggs said. “They think the cost driver is the attorney’s fee. We think it’s unnecessary litigation over claims that should be paid. When [insurers] underpay by $30,000, $40,000 or $50,000, where is the homeowner supposed to get that money from? When carriers have to pay exorbitant legal fees, it’s because they lost the case.”

While the justice association acknowledges the existence of crooked contractors and law firms operating as litigation mills, the state should avoid eroding consumers’ insurance coverage and instead enforce existing laws broken by fraudsters, Boggs said.

Exploding litigation

Regardless of which side bears the largest share of blame, it’s undeniable that litigation against insurers has exploded over the past several years. According to a state database, the number of lawsuits filed against insurers of every type in Florida -- including auto, health and homeowners -- more than doubled from 131,667 between Jan. 1 and Nov. 13 of 2015 to 336,029 over the same period this year.

Brandes, the state senator, expects insurance costs for consumers to double over the next two to three years if the legislature fails to act. Even if lawmakers enact substantial reforms, he said, costs will likely rise another 30% next year before stabilizing. That’s because it typically takes 18 months for effects of new laws to be reflected in customers' policies and, as a result, how much they pay for coverage.

Boggs argues that insurers should hold off on major new reforms until they get a clearer idea of the effects of 2019 legislation that restricts what attorneys can earn when representing contractors who persuaded homeowners to sign over benefits of their insurance claims.

Data complied so far indicates those reforms cut so-called “assignment of benefits” lawsuits roughly in half, but insurers contend that attorneys have simply switched their focus to representing policyholders directly.

Policy costs and roof repair

Some proposed changes outlined by Brandes would lower costs for customers while making their policies less attractive to plaintiffs attorneys. But those customers would also have to accept reduced coverage.

For instance, consumers could lower their costs by opting to be insured for the depreciated value of their roofs rather than the full replacement value. Too many consumers have been able to get free roofs from their insurers by allowing their repair contractor to find damage and blame it on a recent hurricane or hail storm, when actually the roof is at the end of its life and should be replaced at the homeowner’s expense, he said.

“People have to recognize that insurance is there not for home maintenance but for protection against catastrophic loss,” he said.

Boggs said the proposal would leave homeowners without substantial savings and unable to replace roofs destroyed by hurricanes. “They need to know if their roof is ripped off, they’re not going to be compensated for that.”

Another idea, Brandes said, would be to offer discounts to consumers who agree to pay any deductible upfront. Typically insurers send a check for what their adjusters estimate the damage will cost to fix -- minus the deductible.

Claims deadlines

Brandes also proposes allowing homeowners to reduce policy costs by agreeing to shorter deadlines for filing claims after hurricanes or breaches, such as a pipe breaks or appliance ruptures, that caused the covered loss. One reason reinsurance costs have increased so much is that claims stemming from 2017u2032s Hurricane Irma -- mostly for roof repairs -- continued to be filed at unexpected levels up to the three-year deadline in September, Brandes said.

Current laws allow non-weather water loss claims up to five years after the incident that caused the damage. “As the years go by, you get more fraudulent claims,” he said.

The Florida Chamber of Commerce, which has lobbied the legislature for several years for reforms aimed at reducing costs driven by fraudulent contractors and greedy attorneys, favors reducing the deadline for filing claims after hurricanes or other catastrophic events from three years to one year.

“To say that you don’t know after a year that you have hurricane damage is a little crazy,” said Carolyn Johnson, the chamber’s director of business economic development and innovation policy.

Boggs, from Florida Justice Association, said that would hurt homeowners who don’t discover hidden hurricane damage for years after storms, or who ignore damage because they don’t think the claim would exceed their steep hurricane deductible.

“Sometimes people with a little bit of damage might not realize it’s significant,” she said. Roof damage, she said, is often hidden and unknown to homeowners until it creates problems.

Johnson said that Brandes' ideas to allow homeowners to build their own policies u00e0 la carte style would need to be studied.

“Whenever there are options, it’s probably a good thing,” Johnson said. “Of course, we would also want homeowners to be protected and understand what they are paying for.”

Fee multipliers

A industry proposal that died in the Senate last year would limit the ability of plaintiffs attorneys to secure up to three times the legal fees they bill insurers for work on cases they win. Under current law, judges can multiply an attorney’s fee if convinced that the case was particularly challenging or that the plaintiff would have been unable to obtain competent counsel if the possibility of multiplied legal fees didn’t exist.

Insurers say judges are too generous in awarding multiplied fees in cases that end in settlements. “I’ve seen policyholders get $40,000 for their claim while their attorneys get $700,000,” Brandes said. Who ultimately pays the $700,000? Customers do, in the form of higher rates, he said.

Insurers want the law to allow multiplied fees only in “rare” and “exceptional” cases “as it is in 49 other states,” Brandes said.

But arguing against the proposal in the 2020 session, opponents in the legislature said multipliers aren’t awarded as often as insurers claim. Plus, the threat of a multiplier helps persuade insurers to continue working toward resolving claims disputes rather than endlessly delaying them, they said.

Brandes said he expects the proposal to succeed next year because several senators who helped kill it in 2020 are no longer in the Senate.

‘Loss consultants’

Michael Carlson, of the Personal Insurance Federation of Florida, says his organization would like to see Florida enact a reform modeled after a 2017 Texas law that addressed hailstorm abuse. That law requires notification to insurers before lawsuits can be filed so insurers have an opportunity to address claims issues. Failure to provide notice could make homeowners' attorneys ineligible to collect legal fees.

The federation also favors tightening restrictions on public adjusters, who are independent agents hired by policyholders to represent their interests in negotiations over damage costs. State law caps compensation for public adjusters at 10% of claims paid for hurricane damage and 20% of claims paid for non-catastrophe damage. That creates an incentive for adjusters to overestimate the value of damage, insurers say.

The federation favors paying public adjusters based on whatever additional money is secured beyond what insurers initially offer. For example, if an insurer offers $100 and a public adjuster persuades the insurer to pay $150, then the public adjuster should be paid a percentage of only the additional $50, Carlson said.

Both the federation and chamber say some public adjusters have found a way to circumvent restrictions on their activities by calling themselves “loss consultants.” They sidestep laws barring kickbacks from contractors and preventing collusion with plaintiffs attorneys, Johnson said. The organizations would like to see loss consultants regulated in the same manner as public adjusters.

Public adjusters are already among the most regulated professionals in the state, says Nancy Dominguez, managing director of the Florida Association of Public Insurance Adjusters. They are also “a policyholder’s first line of defense against big insurance denials and underpayments when they have a claim.”

She called on authorities to step up prosecution of what she called “the real problem affecting insurance rates in Florida” -- unlicensed loss consultants and contractors who illegally solicit business, even offering financial incentives to policyholders. “Public adjusters don’t and legally can’t do that,” she said, adding, “Additional regulations without enforcement is not the answer.”

Legislators will begin filing 2021 bills at some point after the House and Senate convene their organizing session and begin scheduling workshops and hearings. The 2021 legislative session begins on March 1.

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