Fixing Florida property insurance mess a slow process
From Miami Today:
After the two bills aimed at fixing the property insurance crisis in Florida, experts are hopeful the new measures are a step in the right direction, but the effects will still take time.
Gov. Ron DeSantis signed senate bill 4-A and senate bill 2-A from the special session in December. The first bill provides $750 million for disaster relief to Floridians affected by Hurricane Ian and Hurricane Nicole in the form of tax relief. The second bill is a property insurance reform that is aimed at stabilizing the market by increasing competition and strengthening consumer protections.
SB 2-A eliminates one-way attorney fees for property insurance claims, in efforts to disincentivize lawsuits and reduce excessive litigation, which is meant to reduce premiums for homeowners. The bill would also enhance the Office of Insurance Regulation’s ability to conduct market examinations of property insurers to prevent abuse of the appraisal process. It would reduce timeless for insurers to get payments to policyholders.
The main issue responsible for the Florida insurance industry long being in a perilous state is excessive litigation, said Jerry Theodorou, director of finance, insurance and trade policy for the R Street Institute. “They are good measures,” he said of the bills, “mainly because they aim at the abuses of the legal system, which has been responsible for the artificial inflation of claims, which has led to the increases in premium.”
Unfortunately, these measures will take time to go through the system, he added, “and there is opposition from some of the law firms and the contractors that have benefited from taking advantage of those things, but in the long run, that’s what needed to be done.”
The Florida home insurance market had a difficult 2022, said Jennifer Gimbel, home insurance expert at Policygenius. Florida filed more than 535,000 claims since Hurricane Ian, totaling an estimated $5.9 billion in insured losses, as of last October. The average cost of property insurance rose 39% higher than the national average, said a Policygenios analysis, which predicted the market to continue to rise.
“Expensive natural disasters, fraudulent roof damage lawsuits, and company bankruptcies have led the market to the brink of collapse,” said Ms. Gimbel. “Homeowners are dealing with record-high insurance rates and limited insurance options outside of Citizens Property Insurance.”
Less choice for Florida homeowners will push them to seek coverage from Citizens Property Insurance Corporation, the state-run insurance company, Florida’s source of last-resort insurance. “So, the market is going to be under pressure,” said Mr. Theodorou.
Another factor contributing to the pressure is reinsurance, he said. Reinsurance is the insurance that insurance companies buy “to protect their balance sheets. And it has gotten a lot more expensive, so those costs are going to be passed down to the policyholder, and some of the smaller insurance companies may not be able to afford to buy adequate insurance, setting some of them to go out of business. So, it’s a shrinking market.”
Since 2020, 15 insurance companies have declared insolvency in Florida, including FedNat Insurance, Southern Fidelity, Lighthouse, Avatar Property and Casualty, St. Johns and Weston Property and Casualty. Florida filed 75% of all the nation’s property claims lawsuits in the past two years, according to the Insurance Information Institute.
Fortunately, continued Mr. Theodorou, Citizens Insurance is in good shape with its expense ratio – the company’s total expenses divided by the premiums – at about 14% or 15%, compared to other insurance companies, whose expense ratio is at an average of 30%.
“Because insurance companies [need to] protect their balance sheet, they limit the amount of what they can lose in one event,” he said. “If another Hurricane Ian hits, it will mean that more of those small companies will fail.”
In an analysis of Florida-only companies by Mr. Theodorou, they retain only about 35% of the coverage risk and 65% is given to reinsurance companies. “So, if the price of reinsurance goes up 25% or 35%, it makes it very expensive for them and it strains their financials. If they’re hit by another massive hurricane, it could mean an existential threat of going out of business.”
Nonetheless, Florida homeowners are not likely to see a decrease in home insurance rates yet this year, said Ms. Gimbel, but due to the new laws put in effect late last year, “we could start seeing more insurance companies entering the market.”
Another draw for insurance companies to return to Florida is the newly created Florida Optional Reinsurance Assistance Program, she added, which established a $1 billion fund to bail out insurers after a major hurricane or natural disaster.
“The more home insurance companies willing to write policies in the state, the more likely homeowners will be able to find a policy with competitive rates and coverages and stop having to rely on Citizens,” she said.
Previously, the Florida Legislature passed SB 2-D in May, with $2 billion in reinsurance relief, which required insurance companies to file a supplemental rate filing once enrolled in the program to provide relief to policyholders. It prohibited insurance companies from denying coverage based on the age of a roof if the roof is less than 15 years old or if the roof is determined to have at least five years of useful life remaining, according to Florida legislation. It also required companies to provide reasonable explanation if they were to deny a claim, created a new standard for application of attorney fee multipliers, and limited the assignment of attorney’s fees in cases.
Another bill passed in May, HB 7065, aimed at the insurance assignment agreements, setting “requirements for the execution, validity and effect of such agreements, and creating a formula that will determine which party, if any, receives an award of attorney fees should litigation related to an assignment agreement result in a judgment,” according to a press release by the state.
The new series of laws also requires Citizens policyholders who qualify for a private policy to drop the Citizens policy and go with a private insurer.
“So, in essence,” said Ms. Gimbel, “homeowners could be forced to purchase a more expensive private policy this year, and for homeowners who stay with Citizens, they will be required to purchase flood insurance, in addition to their home insurance policy, regardless of their home’s flood risk. This requirement will be phased in over the next four years, starting April.”