Insurance market woes – InsuranceNewsNet

“You cannot look at the state of the private insurance market by Florida and say it’s good. It’s an extremely fragile market that we have. A major storm, or series of storms, will cause real problems.”

Charles Nyce

Expert in insurance and risk management at Florida State University

TALAHASSEE – On the eve of hurricane season, Florida legislators return to Capitol to try to stabilize a struggling property insurance market plagued by skyrocketing rates and a parade of companies dropping policies or going bankrupt.

Govt. Ron DeSantis said “we won’t accept anything less than a very significant package” of changes from lawmakers, who will meet on Monday for a special session scheduled to run through Friday.

On the table, there could be higher costs for homeowners thanks to a new deductible for roof damage claims; changes to the amount lawyers can collect in fees when fighting insurers; and a redesign of Citizen Property Insurancethe state-backed insurer of last resort for 850,000 Floridians, and whose number is expected to soon exceed one million.

Regardless of the outcome of the special session, owners are almost certain to continue to see rate hikes for months to come, as the Florida the insurance market is already so battered. Rising construction costs, gas prices and inflation are adding to the woes, experts say.

“You cannot look at the state of the private insurance market by Florida and say it’s good,” said Charles Nyceinsurance and risk management expert at Florida State University. “It’s an extremely fragile market that we have. A major storm, or a series of storms, will cause real problems.”

the June 1 the start of hurricane season is cause for concern.

But for DeSantis and state lawmakers, the November election is also a concern as they seek to placate an electoral public with their actions while hinting that one day — perhaps — property insurance will become cheaper.

What’s wrong?

florida the turbulent property insurance market is the product of a perfect storm.

Lawmakers and business leaders attribute the volatility to several factors — fraudulent claims, frivolous lawsuits, rising reinsurance costs and the frequency of severe weather in the Southeast — among others.

Whatever the reason, one thing is clear: Floridians are experiencing above-average premiums, mass cancellations and witnessing the rapid exodus of private property insurers.

The market tumble, however, did not happen overnight. In fact, many lawmakers accuse lawmakers of kicking the streets despite numerous warnings.

“How high do Floridian rates have to go before the laws pass,” the state senator asked. Jeff Brandes in May on Twitter.

There were many signs of a growing storm. At least six companies offering home insurance have been released Florida over the past five years, while rates have soared to some of the highest in the country.

Meanwhile, more than 400,000 homeowners in less than two years have flocked to Citizen Property Insurance, a state-run entity created by lawmakers in 2002 as an “insurer of last resort”. Without intervention, forecasters fear that citizens will instead become florida last insurer.

DeSantis in May projected that Citizens could soon supply more than a million policies by the end of the year, a situation that threatens Citizens’ stability and its ability to pay out claims after a major disaster.

Citizens is on track, adding around 6,000 new policies a week since March. More than half of their fonts are in South Floridaa region largely spared by the major hurricanes of recent years.

Meanwhile, FedNat insurance company — once among the largest suppliers of Florida – this month announced plans to cancel more than 68,000 policies through 2022 Atlantic hurricane season.

They, like others, have suffered significant losses in recent years ($103.1 million in 2021) in part due to various Southeast weather conditions. According to S&P Global Market Intelligencehome insurance suffered a $1 billion net loss in 2021. FedNat insurance company Downgrading aims to increase profitability and reduce corporate exposure.

Will owners pay even more?

Things can get worse before they get better.

Few analysts expect heads of state to significantly revitalize the market during a special week-long session.

Simply put, there is no quick fix and the impacts of legislation often unfold over years rather than days.

Some problems, too, are simply irrelevant Tallahassee’s control. Inflation is a perfect example. Rising costs for labor and building materials are exacerbating the price of home repairs. Building material costs are at their highest level in 50 years, according to United States Census Bureau.

“I just don’t think that in (five) days the Florida Legislature will be able, during a special session, to propose a real solution,” said Nancy Dominguezgeneral manager of the Florida Association of Public Insurance Adjusters. “Fingers crossed. Hope they do.”

Meanwhile, three separate private property insurance companies want to raise rates. Florida Agricultural Bureau seeks the greatest hike, asking the Florida Bureau of Insurance Regulations this week to approve an increase of almost 49%. First Floridian Auto and Home has asked for a 23% increase while KIN Interinsurance Network is asking for a 25% increase.

Why did lawmakers wait?

With its history of devastating storms, Florida also has a long tradition of insurance crises.

The Florida Hurricane Catastrophe Funda reinsurance pool that helps insurers was created in 1993, shortly after Hurricane Andrew caused a corporate exodus.

Citizen Property Insurancethe state-backed insurer, arrived a decade later to help Floridians struggling to find affordable insurance in a private market plagued by undercapitalized companies, many of whom were hunkering down to avoid paying claims or due to poor management.

Every few years, a whirlwind of storms or industry upheaval seems to prompt more action.

So here we go again.

Lawmakers passed industry-friendly changes in 2019, then last year took other steps that capped attorney fees, affected rates and eligibility for policyholders joining citizens, and imposed new requirements for roofing contractors.

house tenant Chris SprowsR-palm portcited the need to give these reviews time to work as the reason for the House’s failure to approve another assurance package approved in March by the Senate. This included a new deductible for owners needing roofs replaced, a concept that may return in special session.

But as lawmakers return to Tallahasseemore efforts to blunt lawsuits against insurance companies are likely to become a top priority for DeSantis and major Republicans. Sprows, a lawyer considered close to the Florida Justice Associationthe leading litigators’ organization, will come under enormous pressure this time to follow the trend of blunting costly litigation.

Will the lawsuits be limited?

A favorite statistic promoted by those who call for prosecution limits is that Florida accounts for 8% of homeowners’ home insurance claims nationwide in 2019, but 76% of lawsuits. This year is supposed to be worse, critics say.

Insurers also lost approximately $1.5 billion in the state every few years, with no end in sight.

The Florida Justice Associationthe trial attorney organization, is seen as a Democratic ally, so DeSantis and most major Republicans have long supported the efforts of Florida Chamber of Commerce and other trade groups who wish to reduce the legal exposure of insurers.

DeSantis targeted the flurry of lawsuits.

“It drives those premiums up,” DeSantis said of homeowner costs. “And so we have to fix that. It’s something very important.”

Lawsuits are usually triggered when a homeowner is unhappy with their insurance company’s response to a claim. But few measures should be taken during this extraordinary session to strengthen the liability of insurers.

Instead, DeSantis and lawmakers could push to pass a similar measure to a Texas a law that allows for “reasonable and necessary” attorneys’ fees, based on a prescribed formula, rather than the current system, where fees often exceed the cost of a claim.

The change would also likely include requiring homeowners’ attorneys to give insurers 60 days’ notice before a lawsuit is filed, a hurdle that could reduce court filings. Limiting fees and making it easier to take legal action would give insurers more control, or at least encourage more arbitration between customers and their insurance companies, an exchange that doesn’t always work out better for the owner. , say the critics.

Fee restructuring could also further discourage benefit awarding, where homeowners in need of work cede insurance benefits to contractors, who then wrestle with insurance companies.

Insurers say the practice, which lawmakers tried to curb in 2019, has become riddled with fraud and lawsuits, though plaintiffs’ attorneys and some consumer groups say it helps ensure claims are met. properly paid.

CAT funds and Citizens?

Citizens will continue to grow, with more customers turning to the state-backed insurer for better rates when the private market is unaffordable.

But lawmakers could push for higher rates for citizens during the special session, at least for new customers or those in more vulnerable coastal regions. They could also limit citizens’ coverage to primary residences, barring the beach houses and condos of the wealthy from being eligible for coverage by a fund supported by all. Florida taxpayers.

Like the effort to get lawyers out of insurance disputes, the Florida Hurricane Disaster Fund can also become a central feature of the special session.

“You cannot look at the state of the private insurance market by Florida and say it’s good. It’s an extremely fragile market that we have. A major storm, or a series of storms, will cause real problems.”

Charles Nyce

Expert in insurance and risk management at Florida State University