TALLAHASSEE — In an attempt to protect Floridians from an economic disaster in the wake of a major hurricane, the Florida Senate on Thursday passed a massive overhaul of the state’s property insurance laws.
Sen. Garrett Richter, a Naples Republican, designed his omnibus Senate Bill 408 to create an environment in Florida where insurance companies can better compete and thrive, in part by weeding out fraud.
Most controversially, the bill would allow property insurance companies to stop offering sinkhole coverage at a time when claims are skyrocketing, particularly in West Central Florida.
The bill passed 25 to 12 after about an hour of debate. A companion bill in the House passed through the Economic Affairs Committee last week, and is on its way to the House floor for a final vote.
“This whole bill, the entire intent of this bill, is to address cost drivers, so that the citizens of Florida can rely on their insurance policies, and the insurance companies will be solvent when claims are paid,” Richter said. “The entire intent of this bill is to address cost drivers.”
Opponents of the legislation, many of them Richter’s fellow Republicans, described it as one of the most anti-consumer bills in the Legislature, and an economic disaster waiting to happen.
If insurance companies aren’t required to offer sinkhole insurance, they won’t, said Sen. Mike Fasano, R-New Port Richey, the bill’s leading critic.
“You are going to have tens of thousands, and possibly millions of people in this state that will not be able to get sinkhole coverage because the insurance company won’t offer it,” Fasano said.
It’s not the government’s role to mandate what products private companies provide, and then mandate below-market prices for those products, Richter countered. He said he is confident that insurance companies will, in fact, write sinkhole policies if they’re allowed to do so at market prices.
If they don’t, the backup plan for sinkhole coverage, according to the bill, is Citizen’s Property Insurance Corp., the taxpayer-funded nonprofit that currently provides property insurance to more than a million Floridians.
At the same time, lawmakers are trying to move people out of Citizens, which has become the state’s largest insurance provider.
“If private companies don’t offer full sinkhole coverage, where are those people going to go?” Fasano asked. “Where are those homeowners, those condo owners, those business owners, those manufactured mobile home owners going to go to get full sink hole coverage? They’re going to go into Citizens.”
The bill would still require insurers cover catastrophic ground collapse – when a home or building is swallowed by the earth.
“When anyone suggests that we already have sinkhole coverage with catastrophic ground cover collapse, yeah, that means Mr. and Mrs. Smith, that your home has to be in a hole, in a complete hole, before they’ll cover it,” Fasano said.
“There are sinkholes, legitimate sinkholes in this state, and the home is not in a hole, but it needs to be fixed.”
Fasano said the House version of the bill would still require insurers provide sinkhole coverage, and he is hopeful House leaders will defend that provision.
Among its many other provisions, Richter’s bill would increase minimum surplus – cash-on-hand – requirements for insurance companies from $5 million to $15 million, narrow the window in which most claims can be brought from five years to two or three, and increase regulations on public adjusters who have been accused of ginning up specious sinkhole claims.
It also reduces the time-frame insurers can cancel a policy to 90 days.
Richter called the bill “sincerely consumer-friendly,” because it attacks fraud and promotes competition, which could ultimately lead to lower premiums.
“If a hurricane hits Florida, we better have an insurance company that we can rely on, that is solvent, that can pay claims,” Richter said.
That’s not currently the case, in spite of the fact Florida hasn’t been hit by a major hurricane in over five years, supporters of the bill said.
Allstate began scaling back in Florida in 2005, while State Farm stopped writing new policies last year. Insurance companies say they’re losing millions in non-hurricane losses, including fraudulent sinkhole claims.
“We have been artificially suppressing rates here for some time,” said Sen. J.D. Alexander, R-Lake Wales. “As a consequence, a lot of the private market has left, restricting our options to buy private insurance, and making it, in my view, structurally more expensive.
“A competitive market ultimately will deliver the most cost-effective goods and services in the world.”
Critics of the bill argue that insurance companies are making plenty of money in Florida, but are hiding their profits in unregulated “managing general agents” – subsidiaries set up to manage their day-to-day operations – and in offshore re-insurance companies run by their parent companies.
“They say ‘We’re broke. All of these insurance expenses are eating us alive,’” said Sen. Ronda Storms, R-Brandon. “The reality is, they’ve just taken that money, it’s a shell game, and moved it over here and enjoyed all of those profits.”
Sen. Lizbeth Benaquisto, R-Wellington, whose district stretches into Lee County, voted against Richter’s bill.
The Legislature a passed similar bill last year – albeit without much of the sinkhole language – but then-Gov. Charlie Crist vetoed it due to concerns that it could lead to increased premiums.
“In my opinion, the Governor (Crist) was more concerned with rates than he was with fiscal responsibility,” Richter said. “He didn’t care about what was fiscally responsible for the state of Florida. We have new leadership in the Governor’s Office now.
“This property reform is a priority to get Florida on sound footing.”