In the aftermath of the 2008 housing crisis, many homeowners in Florida and across the nation found themselves facing a new threat – predatory practices in the insurance industry. The use of force-placed insurance, also known as collateral protection insurance (CPI) or lender-placed insurance (LPI), became widespread as a result of the mortgage crisis. Unfortunately, many borrowers found themselves paying exorbitant prices for insurance due to kickback schemes and other factors driving up the costs. The predatory practices came to light in a Floirda-based class action lawsuit. Many federal and state investigations followed, and nearly a decade later, the National Association of Insurance Commissioners (NAIC) wrote the Lender-Placed Insurance (LPI) Model Act for states to implement.

Today marks a significant victory for Floridians as the Florida Legislature passes the NAIC model act. Filed by Miami-Dade legislators Senator Ileana Garcia and Representative Juan Fernandez-Barquin, this legislation codifies the National Association of Insurance Commissioners (NAIC) Lender-Placed Insurance (LPI) Model Act. It is a crucial step in protecting consumers while ensuring a thriving insurance market. This victory strengthens the rights and interests of homeowners in Florida.

The Problem with Force-Placed Insurance

It is well-known that force-placed insurance is often more expensive and provides less coverage than standard homeowner’s insurance. When a homeowner cannot provide proof of insurance or does not qualify for insurance, often due to an open insurance claim, the mortgage servicer will trigger force-placed insurance coverage on the property. The force-placed policy is meant to only protect the lender’s interest in the property and does not protect any of the borrower’s interest. Many homeowners in Florida are currently dealing with force-placed insurance after Hurricane Ian. We have spoken to several who have open insurance claims with property insurers who have gone insolvent. These homeowners could not find an insurer who would write them a policy. Legislators recently changed Citizens Insurance underwriting guidelines to accept these homeowners.

In the past, the insurance industry has gotten away with predatory practices due to a lack of regulation. But the legislation passed this year puts an end to that. 

A Victory for Floridian Homeowners

Both bills passed unanimously through both the Senate and House chambers without a single nay vote cast, showcasing the broad consensus among lawmakers regarding the need for stronger regulations on collateral protection insurance.

Key Provisions of Senate Bill 410 and House Bill 793

The pair of matching bills set the stage for greater Florida oversight and regulation of the force-placed insurance industry. The legislation includes several important provisions aimed at curbing predatory practices and promoting fair treatment of borrowers:

  1. Compliance and Regulation: Prohibit insurance companies and agents from engaging in several unscrupulous practices, including insuring property they or an affiliate owns, making payments for a lender, insurer, investor, or servicer for the purpose of securing more CPI business, and providing free or below-cost outsourced services to any of those parties.
  2. Rate review and approval: Rates for force-placed insurance are subject to review and approval by the Florida Office of Insurance Regulation (OIR). Insurers with over $100,000 CPI premiums must report paid losses, earned premiums, and actual loss ratio. This oversight ensures that rates are reasonable and fair, protecting consumers from being exploited by the insurance industry. 
  3. Mandatory rate refiling: Under the new legislation, force-placed insurance carriers must refile their rates at least once every four years. Additionally, carriers must refile their rates more frequently if they experience an annual loss ratio of less than 35% in any program for two consecutive years. This provision ensures continuous oversight and prevents consumers from being taken advantage of by exorbitant rates.

Senator Garcia and Representative Fernandez-Barquin’s collaborative efforts send a powerful message: the rights and interests of Floridian homeowners must be safeguarded. Their dedication and determination have taken a crucial step toward creating a more just and equitable society. As we celebrate this victory, let us continue to work together to ensure that all citizens are protected from predatory practices and can thrive in a safe and secure housing environment.