Saturday, April 23, 2011

Legislator for a day- How would you fight fraud and find fiscal balance in Florida's property insurance industry?

Florida’s insurers claim current rates do not adequately cover the risk in Florida. At the same time, the state has the third highest unemployment rate in the nation and one of the highest foreclosure rates (1 in every 450 homes is in foreclosure). Needless to say, Florida homeowners and voters are not in favor of increased homeowner’s insurance premiums.

Legislators are grappling with how to balance these demands. Below are some of the insurance proposals still alive with less than two weeks of the regular legislative session remaining. Full, detailed summaries can be found on our Community Advocacy Network (CAN) website at

What would you do if you were a legislator for the day?

Fighting and preventing fraud is a primary goal of the current crop of insurance bills. Does Tallahassee get it right? If not, what would you do?

1) Currently homeowners have five years to file a claim after storm. Some legislators want to reduce this to as few as three years. This change is being pursued to presumably cut down on insurance fraud. Naturally, fraud is the first thing most insurance companies claim whenever confronted with a demand for payment from a policyholder. It shouldn't take an owner five years to determine if he or she had storm damage, right? However, in the association setting, it sometimes takes years (or new boards) to get it right. We saw communities filing claims up until the very day of the 5-year Wilma deadline because previous boards bungled the job. Imagine how many more communities would have suffered staggering losses had that Statute of Limitations been only three years rather than five.

2) Homeowners can choose an insurance policy that will reimburse them for the cost of replacing damaged structures. Legislators have proposed giving these homeowners a smaller amount up front, based on the depreciated value of the destroyed structure.

If association property is damaged, the association will get the rest of the funds when they sign a contract for repairs. In the meantime, insurance companies can require you to pay for “incidental expenses” related to mitigating further damage to the structure until repairs are complete. Insurance companies can choose to give you all the money up front, if they like. Most people need the insurance proceeds up front to make property damage repairs and would not be able to sign contracts in the absence of same.

Would your association be able to cover the new up-front costs imposed under this proposal? If the answer is no, you must make sure you read your policy very carefully before purchasing it. Of course, your policy purchasing decision should always be reviewed and discussed with your association attorney prior to signing on the dotted line to ensure that you understand what you are getting in terms of real costs, exclusions, deductibles and more.

3) Public adjusters (PA) are paid based on a percentage of the loss. PAs whose clients are homeowners with private insurance can charge 10% within a year of a hurricane, 20% after a year and no cap on the percentage of a re-opened or supplemental claim. Legislators have proposed to “delink” their compensation from losses.

The plan would allow PAs working on private insurance claims to still collect the fees at the current rates for initial claims and cap re-opened or supplemental claims at 20%.

PAs working on Citizen’s insurance claims would be allowed to charge “a reasonable” hourly rate. Additionally, they may not be paid on a contingency basis, if a new amount is offered, they may collect a maximum of 5% of the additional offer. Furthermore, they may not begin work until Citizen’s has issued its first offer.

These changes are being sought due to some abusive adjuster behavior that occurred during our tumultous hurricane seasons five and six years ago. Still, this wide-sweeping change would impact the entire industry. If you were a PA, which type of claim would you prefer to work on – a private claim or a Citizens’ claim?

If your association is covered by Citizens’, would you be able to engage a public adjuster under these conditions? Perhaps the better course of action would be educating Florida's consumers when and why to use a PA in the first place. Consumers of insurance products should know up front what a PA's full costs will be and how they get paid. These same consumers should know when a PA can help with a claim and when an attorney is needed. PA's often play a very useful role early in the claims process. However, when you are bumping up against resistance or a statute of limitations, you are better off utlizing an attorney to fight for your claim. These professionals have long worked together to ensure that Florida's policyholders receive what they are owed when a covered event occurs.

The second part of our Legislator for a Day blog series will focus on finding fiscal balance in Florida's property insurance industry. Stay tuned!

This work by Donna DiMaggio Berger, Esq. is licensed under a Creative Commons Attribution-NoDerivs 3.0 Generic License.

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