Florida rescues it's insurance market

Governor DeSantis and Florida Republicans signed legislation to prevent the state's property insurance market from collapsing as more than a dozen insurers have failed in the last three years, while an alarming number are pulling back from the market because they can't get reinsurance. Since Louisiana is facing a similar crisis, it might do well for our state leaders to study Florida closely.

According to the Wall Street Journal, the Florida legislation "fixes a legal racket that has allowed a windfall of profits for trial lawyers that has caused homeowner insurance premiums to spike and caused numerous insurers to become insolvent and exit the market." The 'racket' worked something like this: Floridan policy holders were allowed to assign their claims to contractors who work with trial lawyers—the contractors would inflate their charges--the insurers would reject their charges--and the contractors' attorneys would file suit—and since Florida law requires insurers to pay the attorney's costs if they lose a case, many insurers settled and raised the premiums to cover legal costs and risks. As a result, Florida's property insurance premiums are the highest in the nation at $4,231 per year on average—nearly triple the U.S. average.

Homeowners have increasingly turned to state-backed Citizens Property Insurance Corp., which offers below-market premiums. Florida Citizens' number of insured properties has doubled since 2020, and it has become the number one property insurer in Florida. Louisiana Citizens' has had similar growth of insured properties. The problem is that one bad hurricane season could wipe out Citizens' reserves, requiring a taxpayer bailout.

In order to avoid a bailout, Governor DeSantis signed insurance reform legislation "that eliminates both the assignment of benefit and the requirement that insurers pay plaintiff attorney fees if they lose—and to also set up a $1 billion state reinsurance fund to backstop insurers, and a requirement that Homeowners with Citizens policies will be required to accept private coverage from an insurer that offers premiums within 20% of its rates." The Florida policy goal is to attract more private insurers back into the market and over time to eliminate any state insurance backstop.

Unfortunately, in Louisiana the plan has been to allow other weak insurers to come and to take over the risky policies from Louisiana Citizens'—which only propped up their business before they eventually become insolvent. This is just hiding the problem under the rug as Louisiana is expected to spend at least $874 million to cover claims from the insolvencies of 11 insurance companies, and the four companies that took over the largest number of Citizens polices all went broke.

Louisiana's approach to its property insurance market has been misguided. It is time for the Governor and Legislature to pass true insurance reform to avoid more taxpayer bailouts—and Florida has given them a good blueprint.

Steve Gardes is a Certified Public Accountant (CPA) and Certified Valuation Analyst (CVA) with over 40 years of public accounting experience.