Florida Insurance Market on the Mend

Almost one year ago, on May 31, 2023, Florida Gov. Ron DeSantis signed sweeping insurance reform legislation into law. At that time, the Florida insurance market was on life support. Homeowners’ insurance companies, stung by massive losses, were leaving the state. Several became insolvent. The state-run “insurer of last resort,” Citizens Property Insurance Company (Citizens), became the insurer of first resort. Private insurers raised rates to nosebleed levels to keep up with policyholder claims. Reinsurance protection was getting prohibitively expensive and less available. That was then. The situation now is much better. New capital is entering the market, Citizens is shrinking, and the Florida homeowners’ insurance market turned a modest profit after seven years of red ink.  

Reform legislation took direct aim at the cause of Florida insurance market travails—mountains of unmerited litigation brought by billboard lawyers working in cahoots with unscrupulous contractors shaking down insurance companies. The numbers tell the story: At the peak of its crisis Florida was home to 9 percent of the country’s homeowners’ insurance policies and homeowners’ property losses, yet it had 79 percent of the entire country’s homeowner insurance lawsuits.  

HB 837 introduced several measures designed to stifle frivolous litigation. The law took aim at how attorneys calculate their fees—fee multipliers—and one-way attorney fees. It trimmed the statute of limitations from four years to two years, and changed pure comparative negligence to modified comparative negligence.

Let’s See the Numbers

Year-end 2023 Florida insurance market financial statistics show signs of improving health:

• Expenditure on legal defense costs, expressed as a percent of premium, fell from 8.4 percent in 2022 to 3.1 percent in 2023. This is still much higher than 1.2 percent for the overall industry, but a significant drop from the year prior.

• The (direct incurred) loss ratio, a measure of insurance underwriting profitability, was 40 percent in 2023, down from 125 percent in 2022 and 56 percent in 2021.  

• In 2023, the Florida homeowners’ insurance market turned a slight profit. It lost $191 million on underwriting, but the $346 million gained in investment income more than offset the underwriting loss, generating a positive bottom line. The last time the Florida insurance market had an operating profit was 2016.  

• Several new insurers entered the Florida property insurance market in the past two years. The most recent is Sypher. Other new entrants include Slide Insurance, Orange Insurance Exchange, Condo Owners Reciprocal Exchange, Tailrow Insurance, Mainsail Insurance Solutions, and Trusted Resource Underwriters Exchange. Yet another, Patriot Select P&C (formerly Anchor P&C), is currently fundraising to secure capital commitments. The fact that private investors are even willing to commit capital to the Florida insurance market is a vote of confidence in the changed environment.

• The Florida Office of Insurance Regulation reports homeowner insurance lawsuit volumes are coming down.

• The number of policies issued by Citizens fell from an all-time high of 1.4 million (Sept. 30, 2023) to 1.17 million (Feb. 29, 2024). Citizens was created in 2002 to make property insurance available to eligible Florida property owners unable to find insurance coverage in the private market. It was intended to “depopulate”—send policyholders back to private insurers when the market stabilized—because Citizens was supposed to be a stopgap measure. The recent reduction in Citizens’ portfolio shows that depopulation is happening. Slide is the private insurer that has picked up the most of Citizens’ policies. In its most recent financial report, Citizens forecasts a 2024 loss ratio of 37.7 percent, down from 42.8 percent in 2023. Whereas Citizens cannot predict the weather and 2024 storm losses, it can manage its expense ratio, which is at a healthy low level. The 2024 expense ratio is budgeted at 13.9 percent, down from 14.1 percent in 2023.

2023 Net Income for top 10 Florida Homeowner Insurers

Encouraging Signs

Prior to passage of Florida tort reform, the tone of Florida insurance market discussions was all gloom and doom. Fast forward to today, rates are stabilizing, new companies with fresh capital are entering the market, Citizens is shrinking, and insurers are reporting a mild profit. At a March 2024 Bermuda Risk Summit panel that included Florida Insurance Commissioner Mike Yaworsky, the tone of the discussion was positive, suggesting the market has finally turned the corner since “recent legislative changes in Florida … are beginning to heal a fractured residential property insurance market…”

Another sign of recovering health in Florida’s broader insurance market is continuing rate reductions for workers’ compensation insurance. For seven years running, workers’ compensation insurance rates have been declining, as a result of improved work safety conditions. Commissioner Yaworsky approved a 15.1 percent statewide rate decrease for 2024, lowering employers’ insurance costs.

The durability of Florida’s improving insurance will be tested by how the response to elevated hurricane activity. With its 20 named storms, the 2023 Atlantic hurricane season was the fourth-most active ever, but only one hurricane made landfall in Florida—Hurricane Idalia. The year’s most catastrophic storms were not Florida-focused, with Hilary hitting California and Otis striking Mexico. The next test of the market’s mettle will be the June 1 reinsurance renewals, just prior to the historically active third quarter. Scientists will be studying sea temperatures and the El Niño effect, but it won’t hurt for Floridians and Florida insurance underwriters to knock on wood or cross fingers for a mild hurricane season.