Two Miami-Dade County lawmakers are pushing for legislation to expand the way businesses that offer lender-placed property insurance can operate in the Sunshine State to include additional protections.
Sen. Ileana Garcia and Rep. Juan Fernandez-Barquin, both Republicans, introduced bills (SB 410, HB 793) that would further regulate collateral insurance. Both are awaiting hearings in their respective chambers.
In a statement, Fernandez-Barquin stressed the need to strengthen the financial structures they rely on to protect homeowners from misfortune, including the insurers that mortgage lenders turn to when they need property insurance.
“Owning your own home is probably the biggest investment you can make in your life,” he said. “Homeowners insurance is considered essential to protecting the interests of a financial institution, (and) HB 793 will implement best practices for lending insurance and provide Florida homeowners with protection in the event of a loss.”
Collateral protection insurance, also known as CPI, is a type of insurance that protects a lender’s interest in a security, typically a car or home, in the event the borrower does not have the necessary insurance coverage.
Basically, when someone takes out a loan to buy a car or home, the lender wants to make sure that the car or home is protected in the event of an accident or natural disaster. To this end, lenders often require borrowers, including mortgage holders, to have insurance coverage for the car or home.
If a mortgage holder does not maintain the required insurance coverage, the lender can purchase CPI to protect their interest in the security. CPI can be more expensive than regular insurance and is usually added to the mortgage balance, meaning homeowners have to pay interest on it.
SB 410 and HB 793, which would become effective July 1, would include terms and calculations of CPI coverage and premiums, prohibit certain practices, and establish filing requirements similar to those of the National Association of Insurance Commissioners.
The legislation would limit CPI coverage only to the time a property owner does not have regular insurance. Any CPI coverage and premiums would have to be based on the replacement cost of the property as determined by the last known coverage amount or the unpaid principal balance of the mortgage loan.
In the event of a covered loss – property damage for which the insurer is financially liable – the replacement costs paid by the insurer over and above the unpaid principal of the mortgage loan would go to the lender.
The bills would also prohibit insurance companies and agents from engaging in several unscrupulous practices, including insuring property they or an affiliate owns, making payments to a lender, insurer, investor or service provider for the purpose of securing further CPI business and the provision of free or lower-cost outsourced services to any such party.
In addition, the bills would require all insurers writing CPI to have separate rates for CPI and voluntary insurance and set out requirements for demonstrating CPI in an individual policy or certificate of insurance.
By April 1 of each year, Florida insurance companies with at least $100,000 in direct written premiums for CPI for the prior year are required to report their actual claims ratio, earned premiums, itemized expenses, paid claims, and claims reserves to the Florida Office of Insurance Regulation (OIR ).
Except in flood events, if an insurer has an annual claims ratio of less than 35% for two consecutive years, the insurer must submit an application to the OIR either adjusting its rates or supporting their continuation.
Garcia and Fernandez-Barquin’s bills come less than two months after DeSantis signed a sweeping property insurance bill aimed at stabilizing a turbulent market while limiting the ways in which claimants can seek compensation.
DeSantis, who last week appointed Florida Gaming Control vice president Michael Yaworsky to head the OIR, said the “historic reforms in the bill … create an environment that aligns Florida with best practices statewide, bringing much-needed stability to the Florida market.” , which encourages competition and choice.”
The bill, which the legislature passed along the party line, drew rejection from Democrats who complained that it gave too much to insurance companies without mandatory rate cuts or consumer protections.
SB 410, which Garcia filed Jan. 26, was referred to the Senate committees on Banking and Insurance, Fiscal Policy and Agriculture, Environment and General Government Appropriations.
HB 793, filed by Fernandez-Barquin Tuesday, is awaiting committee orders from House Speaker Paul Renner.
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