Terms to know before the Florida Special Session
TALLAHASSEE, Florida. – State lawmakers will meet again in Tallahassee on Monday for a special session aimed at reforming the state’s insurance industry, which has faced a series of issues impacting the bottom line of many Floridians.
For months, News 6 has shed light on homeowners seeing their premiums go up, others seeing their policies dropped, and insurance companies leaving the state altogether.
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After failing to pass legislation during the state’s regular 60-day session, calls from lawmakers to remedy what some saw as a ‘collapsed market‘ and ‘disastrous situation’ prompted Governor Ron DeSantis to issue a proclamation on a special session.
Here are 4 takeaways from the proclamation:
The insurance industry in Florida is overwhelmed with litigation. Citing the Office of Insurance Regulation, the proclamation says Florida accounts for 79% of the nation’s home insurance lawsuits, while accounting for only 9% of the nation’s home insurance claims. In turn, Florida residents are feeling the pinch of litigation in their rising premiums.
The insurance industry in Florida has experienced two consecutive years of net underwriting losses exceeding $1 billion per year.
The governor’s proclamation, released in April, says that in the previous three months, three Florida insurance companies’ write coverage has become insolvent and is either in liquidation or in rehabilitation, translating to thousands of policyholders looking for new coverage with limited options.
With so many policies discontinued, homeowners are turning to citizens’ property insurance. Citizens Insurance is state-backed and is meant to be the insurer of last resort. The proclamation says Citizen’s has seen an increase of nearly 400,000 fonts since the start of 2020 and is expected to surpass one million fonts by the end of the year.
Although millions of Floridians own homes, many people may not fully understand the inner workings of property insurance and the impact of insurance-related conditions and trends on them as than insured.
“I speak with consumers daily,” explained Tasha Carter, Florida insurance consumer advocate. “For the typical consumer, he’s not familiar with insurance. It is a very complex subject for them.
Carter, appointed by the state’s chief financial officer, her role is to identify key insurance issues consumers face and suggest solutions.
We asked Carter to help us further explain some of the key terms we might hear during the special session and how it affects you.
This is the amount of money a policyholder pays to an insurance company to provide them with insurance coverage. When you hear the term “increased premium,” homeowners have to pay more for the insurance policy than they had to pay before.
This is a situation where the insurance company has paid more claims than it has collected in premiums for a certain period.
When an insurance company becomes insolvent, it means that it is no longer able to pay its financial obligations. The following term coincides with this topic.
According to Carter, there must be a court order that declares a company insolvent and orders that company to put it into receivership or liquidate it. When this happens, the Department of Financial Services (DFS) steps in and takes control of the insurance company. Carter explained how the DFS essentially receives the assets and liquidates those assets to try to pay off any debt the company has. Additionally, the Florida Insurance Guaranty Association is also getting involved.
Florida Insurance Guarantee Association (FIGA):
This organization was created to be a safety net for policyholders whose insurance companies become insolvent, Carter explained. She said that once a business is found to be insolvent and placed in receivership or liquidation by court order, the Department of Financial Services steps in and takes over the business and transfers all claims information to FIGA. FIGA reviews claims and determines what claims will be settled for based on available funds.
“At that point, FIGA would step in and basically step into the shoes of the insurance companies and make payment to those policyholders,” Carter said.
Litigation is the process of taking legal action. So why do we hear so much about home insurance disputes? There seem to be several factors. In some cases, Carter explained, insurance companies don’t pay claims fairly to homeowners, and homeowners feel their only option is to sue.
Carter also noted the increase in insurance fraud, which can include companies soliciting homeowners to file a claim.
“Many of these claims filed include inflated invoices or inflated repair estimates,” Carter said. “What happens when these types of claims are presented to the insurance companies, the insurance company is either in a situation where they have to try to negotiate and settle these claims, or the insurance companies translate the plaintiff in order to protect against having to pay this exaggerated, inflated or frivolous claim.
Carter explained that they also see professionals using a certain tactic to take control of the claim that leads us to the next term.
Assignment of Service (AOB):
It is a legal contract that allows a policyholder to transfer his insurance rights to a third party. Carter explained that it is often used for health insurance. When you have a doctor’s appointment, you pay a copayment, pass your check-up and leave.
“The reason you don’t have to file a claim with your health insurance company is because at some point you signed an AOB that allowed or authorized your health care provider to file a claim directly from your health insurance company and to receive payment directly from your health insurance company without your involvement,” explained Carter.
In this scenario, an assignment of benefits works well and allows the patient to skip the process of filing a claim to get paid. But, in the case of property insurance, Carter explained that some unscrupulous companies have begun to misuse and misuse the legal tool to take control of the claim.
Grouping of AOB:
Carter called this a more recent practice. This occurs when an owner signs an assignment of benefits to a professional but that professional transfers it to another third party without signing a new AOB.
There are specific types of actions that are considered insurance fraud. An example is someone filing a claim for damages that do not exist or for more damages than exist. Criminal and civil penalties are provided.
A deductible is the amount of money the policyholder is responsible for paying before insurance companies reimburse the claim. A deductible only comes into play after a claim has been filed. If the amount of the claim exceeds your deductible, the insurance company writes a check.
Reinsurance is insurance that insurance companies buy to protect them to ensure they can pay claims following a disaster. Carter explained that over the past year there has been, on average, a 54% increase in reinsurance rates. According to Carter, when the reinsurance rate increases, insurance companies often pass on the additional costs to policyholders.
We keep hearing about rate increases, but what does that mean? Carter said the rates can be similar depending on certain state territories. For example, your postal code may have a certain rate that goes with it. Thus, the location plays a role but also certain characteristics of your accommodation. Carter says that’s where underwriting comes in. You provide the information relevant to your home, they plug in all the factors, and an algorithm is created.
“The rate can be directly correlated to the amount of risk an insurance company feels insuring your home poses to them,” Carter said.
The special session takes place just days before the start of the 2022 Atlantic hurricane season.
Here is an overview of the legislative measures that can be considered.
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