Property Insurance, Rain Makers and Politicians

Thank you Florida Legislators. Thank you Governor Rick Scott.

That gratitude is undoubtedly spilling forth throughout the hallowed halls of every insurance company writing property insurance in the State of Florida.

The Florida legislature passed Senate Bill 408 after a similar bill had been previously vetoed by Governor Charlie Crist. With a super majority, the legislature wasted no time in pushing something through to make insurance companies and the Chamber of Commerce feel, well, real warm and fuzzy. On May 17, 2011, Governor Rick Scott quickly made it happen by signing the bill into law.

Senate Bill 408 does several things, but one of them stands to create a situation made famous in the novel by John Grisham titled, The Rainmaker. Having worked in the insurance companies at most of the levels and having run claims divisions, I feel confident in predicting where part of the bill is going.

The bill sets forth that if a policyholder submits a claim for sinkhole damage and the insurer denies coverage, the insured must pay 50% of the cost of sinkhole testing, up to $2500, after an insurance company denies the claim. The law does not provide for the insurer having any documented expert basis for denial of a claim.

So, here is how it is going to proceed in some insurance companies:

Mr. Smith has damage to his foundation that he first noticed on his concrete porch. Mr. Smith’s contractor comes out and takes a look at the damage. The contractor, a seasoned general contractor, excavates around the foundation and tells Mr. Smith he has suffered sinkhole damage. Mr. Smith submits a claim to ABC Insurance Company. An unwritten rule developed in the claims department of ABC soon after May 17, 2011, tells adjusters to deny coverage for every sinkhole claim. When Mr. Smith calls to ask about the denial of his claim, ABC’s adjuster may tell him that they will reexamine the damage, but only if Mr. Smith pays half of the first $5000 in costs of an engineer. Mr. Smith asks what the cost will be and the adjuster tells him it will be at least $5000. Mr. Smith needs to come up with $2500 for the costs.

What the insurance company knows is that of all the claims they simply deny, a large percentage of the people will be unwilling or unable to come up with the $2500 for the engineer to “appeal” the denial of their claim. So, the insurance company knows they will win without a fight in most cases and they can always retract their denial if things look like they are getting out of hand otherwise.

The bill also allows for insurance companies to increase premiums up to 15%, of course with approval of the state’s insurance regulator (wink, wink, nod, nod). Net result: expect your insurance premiums for homeowners’ coverage to increase by 15%.

So, from the bottom of the insurance industries’ “heart”: Thank you Mr. Governor, Mr. House Speaker and Mr. Senate President, and all the corporate lobbyists at the Chamber of Commerce for a job well done.

Now, let’s get to work so you can pay for those increases.