Commercial property owners in Florida are facing significant difficulties with the insurance industry. Many are seeing high premiums, stricter underwriting standards and limited coverage options. Some property owners are having difficulties renewing policies or finding affordable coverage, especially in high-risk areas prone to events like floods and hurricanes. Additionally, the complexity of claim processes and lengthy dispute resolutions are adding frustration, further complicating their efforts to protect their investments.
The state’s lawmakers have been stepping in to address these problems. Over the past couple of years, there have been a series of legislative reforms aimed at curbing rising costs while keeping the insurance market steady.
Reforms in 2022
One significant reform came in the form of Senate Bill 2A, passed in late 2022. This bill brought sweeping changes, not just for residential but also for commercial property insurance. One of the notable changes was eliminating the one-way attorney fees statute, which had led to a surge in litigation. Under the old law, policyholders could recover attorney fees if they won a dispute, which encouraged more lawsuits and, ultimately, higher premiums. By getting rid of this provision, the goal was to cut down on excessive litigation, which had been driving insurance rates through the roof.
Another big move in Senate Bill 2A was the creation of a reinsurance fund. This fund was designed to help property insurers manage hurricane risks more effectively by giving them a more affordable way to purchase reinsurance coverage. This is especially critical in Florida given the state’s vulnerability to storms. These changes, along with shorter timelines for processing claims and stricter rules on reporting, were all aimed at keeping premiums in check.
Controlling costs
The work didn’t stop there. Throughout 2023 and into 2024, the Florida legislature continued to hold special sessions, focusing on ways to control rising insurance costs. The goal was to implement controls while striking a balance between the needs of property owners and insurance companies. Some of these reforms targeted the assignment of benefits (AOB), which had been abused by some contractors and service providers to inflate repair costs.
AOB is a legal agreement that allows policyholders to transfer their claim rights directly to a third party, such as a contractor, who then deals with the insurance company on behalf of the insured. This means the contractor can file claims, receive payments and handle negotiations with the insurer without the policyholder being involved.
In Florida, some contractors have exploited AOB by inflating repair costs. Others have submitted fraudulent claims and performed unnecessary work. Since they have control over the insurance claim, they often pursue excessive litigation if the insurance company disputes the claim. This abuse has led to increased insurance premiums for homeowners, as insurers face mounting legal costs and payouts. To combat this, Florida has introduced reforms to limit AOB misuse and reduce the strain on the insurance system.
Additionally, there’s been a push by lawmakers to stabilize Citizens Property Insurance Corp., which has become the go-to insurer for many commercial properties that can’t find coverage elsewhere.
Bills in 2024
In 2024, the Florida Legislature has continued to make commercial property insurance a priority. Two noteworthy bills, House Bill 625 and Senate Bill 802, were introduced as part of this ongoing effort. House Bill 625 sought to cap rate increases for certain commercial properties, with a focus on wind-only insurance – policies that cover damage due to windstorms, especially hurricanes and tropical storms. Condominium associations have seen some of the most significant wind-only premium hikes. The bill also proposed standardizing inspections for both residential and commercial structures to streamline the insurance process. Despite its intentions, the bill didn’t make it past the Commerce Committee.
On the other hand, Senate Bill 802 introduced a pilot program allowing condominium associations to purchase coverage based on the actual cash value of roofs, instead of the pricier replacement cost. This bill was designed to help reduce insurance premiums for condo associations, which have been particularly hard hit by the rising costs of commercial property insurance.
Stabilizing the market
All these legislative efforts are part of a broader strategy to stabilize Florida’s insurance market, especially after the state has endured substantial losses from natural disasters and market volatility. While there has been some forward movement, the situation remains a work in progress. Florida lawmakers continue to explore solutions that will make insurance more affordable for property owners while maintaining a sustainable insurance industry.