Terms to know ahead of Florida’s special session

TALLAHASSEE, Fla. – State lawmakers will reconvene in Tallahassee 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 spotlighted homeowners seeing their premiums jump, others having their policies dropped and insurance companies leaving the state altogether.

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After failing to pass any legislation during the state’s regular 60-day session, calls from lawmakers to address what some considered a “collapsed market” and “dire situation” prompted Gov. Ron DeSantis to issue a proclamation on a special session.

Here are 4 takeaways from the proclamation:

1. Florida’s insurance industry is being overwhelmed by litigation. Citing the Office of Insurance Regulation, the proclamation states Florida accounted for 79% of the nation’s homeowners insurance lawsuits filed, while making up only 9% of the nation’s homeowners insurance claims. In turn, Florida residents are feeling the pinch of the litigation in their rising premiums.

2. Florida’s insurance industry saw two straight years of net underwriting losses exceeding $1 billion each year.

3. The governor’s proclamation, published in April, states in the three months prior, three insurance companies’ writing coverage in Florida have gone insolvent and are either in liquidation or rehabilitation, which translates to thousands of policyholders seeking new coverage with limited options.

4. With so many policies getting dropped, homeowners are turning to Citizens Property Insurance. Citizens Insurance is state-backed and is supposed to be the insurer of last resort. The proclamation states Citizen’s has seen an increase of nearly 400,000 policies since the start of 2020 and is expected to surpass 1 million policies by the end of the year.

Despite millions of Floridians owning a home, many people may not fully understand the inner workings of property insurance and how insurance-related terms and trends impact them as policyholders.

“I speak with consumers daily,” Florida’s Insurance Consumer Advocate Tasha Carter explained. “For the typical consumer, they are not familiar with insurance. It’s a very complex subject matter for them to wrap their heads around.”

Carter, appointed by the state’s chief financial officer, her role is to determine key insurance issues consumers face and propose solutions.

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We asked Carter to help further explain some of the key terms we may hear during the special session and how it impacts you.

Premiums:

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 are having to pay more for the insurance policy than they had to pay previously.

Underwriting loss:

This is a situation where the insurance company has paid out more in claims than what they collected in premiums during a certain timeframe.

Insolvent:

When an insurance company becomes insolvent, this means a company is no longer able to pay their financial obligations. The next term coincides with this topic.

Liquidation:

According to Carter, there has to be a court order issued that deems a company insolvent and orders that company into receivership or liquidation. When that happens, the Department of Financial Service (DFS) steps in and takes over the insurance company. Carter explained how the DFS basically receives the assets and liquidates those assets to try and pay off any of the company’s debt. In addition, the Florida Insurance Guaranty Association also gets involved.

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Florida Insurance Guaranty Association (FIGA):

This organization was created to be a safety net for policyholders whose insurance companies go insolvent, Carter explained. She said once a company is deemed to be insolvent and is placed in receivership or liquidation via a court order, the Department of Financial Services steps in and takes over the company and transfers all claim-related information to FIGA. FIGA reviews the claims and determines what those claims will be settled for based on the funds available.

“At that point, FIGA would then step in and essentially stand in the shoes of the insurance companies and make payment to those policyholders,” Carter said.

Litigation:

Litigation is the process of taking legal action. So, why are we hearing so much about litigation when it comes to property insurance? There appear to be several factors. In some instances, Carter explained insurance companies are not paying claims fairly to homeowners and homeowners feel their only option is to initiate litigation.

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Carter also noted the increase in insurance fraud, which can include companies soliciting homeowners to file a claim.

“Many of those claims filed are inclusive of inflated invoices or exaggerated repair estimates,” Carter said. “What is happening when those types of claims are presented to the insurance companies, the insurance company is either in a situation they have to try to negotiate and settle those claims or the insurance companies take the claimant to court in order to be able to protect themselves from having to pay this exaggerated or inflated or frivolous claim.”

Carter explained they are also seeing professionals use a certain tactic to take control of the claim which leads us to the next term.

Assignment of Benefit (AOB):

This is a legal contract that allows a policyholder to transfer their policy rights to a third party. Carter explained it is often used for health insurance. When you have a medical appointment, you pay a copay, have your check-up and leave.

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“The reason you’re not having to file a claim with your health insurance company is because at some point you signed an AOB that allowed or authorized your medical provider to file a claim directly with your health insurance company and receive payment directly from your health insurance company without your involvement,” Carter shared.

Under that scenario, an Assignment of Benefits works well and allows the patient not have to go through the process of filing a claim to get a payment. But, in the case of property insurance, Carter explained some unscrupulous companies have begun misusing and abusing the legal tool to take control of the claim.

Bundling of AOBs:

Carter referred to this as a more recent practice. It happens when a homeowner signs an Assignment of Benefits to one professional but then that professional transfers it to another third party without signing a new AOB.

Insurance Fraud:

There are specific types of actions that are considered insurance fraud. One example is someone filing a claim for damage that does not exist or for more damage than exists. There are criminal and civil penalties involved.

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Deductibles:

A deductible is the amount of money the policyholder is responsible for paying before insurance companies will pay out the claim. A deductible only comes into play after a claim is filed. If the claim amount exceeds your deductible, the insurance company writes a check.

Reinsurance:

Reinsurance is insurance that insurance companies buy to help protect them to ensure they can pay claims in the aftermath of a catastrophe. Carter explained that over the last year there has been, on average, a 54% increase in reinsurance rates. According to Carter, when the reinsurance rate increases, insurance companies often transfer the additional costs to policyholders.

Insurance rate:

We keep hearing about rate increases but what does that mean? Carter said rates can be similar based on certain territories of the state. For example, your zip code may have a certain rate that goes with it. So, location plays a role but also certain characteristics of your home. Carter says that’s when underwriting comes into play. You provide the information relevant to your home, they plug in all the factors and an algorithm is created.

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“The rate can be directly correlated to the amount of risk an insurance company believes insuring your home puts on them,” Carter said.

The special session is happening just days before the start of the 2022 Atlantic Hurricane Season.

Here is a look at what legislative action may be considered.