Insurance market woes

"You can't look at the state of the private insurance market in Florida and say it's good. It's an extremely fragile market that we have. A significant storm, or a series of storms will cause real problems."

Charles Nyce

Expert on insurance and risk management at Florida State University

TALLAHASSEE – On the eve of hurricane season, Florida lawmakers are returning to the Capitol to try to stabilize a troubled property insurance market plagued by skyrocketing rates and a parade of companies dropping policies or going out of business.

Gov. Ron DeSantis says "we're not going to accept anything less than a very significant package" of changes from lawmakers, who will gather Monday for a special session scheduled through Friday.

On the table could be higher costs for homeowners through a new deductible for roof-damage claims; changes to how much lawyers can collect in fees when fighting insurers; and a reworking of Citizens Property Insurance, the state-backed insurer of last resort for 850,000 Floridians, and whose numbers are expected to top 1 million soon.

Whatever comes out of the special session, homeowners are almost certain to keep seeing rate hikes for months, because the Florida insurance market is already so battered. Rising building costs, gas prices and inflation add to the woes, experts say.

"You can't look at the state of the private insurance market in Florida and say it's good," said Charles Nyce, an expert on insurance and risk management at Florida State University. "It's an extremely fragile market that we have. A significant storm, or a series of storms will cause real problems."

The June 1 start of hurricane season is a worry.

But for DeSantis and state lawmakers, the November elections also are a concern as they look to quiet a voting public with their actions while hinting that someday — maybe — property insurance will get cheaper.

What's wrong?

Florida's tumultuous property insurance market is the product of a perfect storm.

Lawmakers and business leaders blame the volatility on several factors – fraudulent claims, frivolous lawsuits, rising reinsurance costs and the frequency of severe weather in the Southeast – among other things.

Whatever the reason, one thing is clear: Floridians are experiencing higher-than-average premiums, sweeping cancellations and witnessing the swift exodus of private property insurance providers.

The market's tailspin, though, didn't happen overnight. In fact, many accuse lawmakers of kicking the can down the road despite ample warning.

"How high will rates for Floridians have to go before the Legislature acts," asked state Sen. Jeff Brandes in May on Twitter.

The signs of a growing storm were plenty. At least six companies offering property insurance vacated Florida in the last five years while rates ballooned among the highest in the nation.

Meanwhile, more than 400,000 homeowners in less than two years flocked to Citizens Property Insurance, a state-run entity created by lawmakers in 2002 as the "insurer of last resort." Without intervention, prognosticators fear Citizens may instead become Florida's last-standing insurer.

DeSantis in May forecasted that Citizens may soon provide a million-plus policies by the year's end, a situation that threatens the stability of Citizens and its ability to payout claims after a major disaster.

Citizens is well on its way, adding roughly 6,000 new policies a week since March. More than half of their policies are in South Florida, a region mostly spared by major hurricanes in recent years.

Meanwhile, FedNat Insurance Company — once among the largest providers in Florida — announced plans this month to cancel more than 68,000 policies leading into the 2022 Atlantic hurricane season.

They, like others, in recent years suffered significant losses ($103.1 million in 2021) due in part to various Southeast weather conditions. According to S&P Global Market Intelligence, residential property insures suffered a $1 billion net loss in 2021. FedNat Insurance Company's downgrade is intended to boost profitability and reduce the company's exposure.

Will homeowners pay even more?

Things may get worse before they get better.

Few analysts foresee state leaders dramatically revitalizing the market within a week-long special session.

Put simply, there isn't a magic bullet and the impacts of legislation are often realized over the course of years, rather than days.

Some issues, too, are simply out of Tallahassee's control. Inflation is a prime example. The rising costs of labor and building materials are exacerbating the price of home repair. Construction material costs are at a 50-year high, according to the US Census Bureau.

"I just don't think that in (five) days the Florida Legislature is going to be able to in a special session come up with a real solution," said Nancy Dominguez, managing director of the Florida Association of Public Insurance Adjusters. "Fingers crossed. I hope they do."

Three separate private property insurance companies, meanwhile, want to raise rates. Florida Farm Bureau is seeking the largest hike, asking the Florida Office of Insurance Regulation this week to approve a nearly 49% increase. First Floridian Auto and Home requested a 23% increase while KIN Interinsurance Network is seeking a 25% hike.

Why did lawmakers wait?

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

The Florida Hurricane Catastrophe Fund, a reinsurance pool that helps insurers, was created in 1993, not long after Hurricane Andrew caused an exodus of companies.

Citizens Property Insurance, the state-backed insurer, came along a decade later to help Floridians struggling to find affordable insurance in a private market rife with undercapitalized companies, with many folding to avoid paying claims or because of mismanagement.

Every few years, a swirl of storms or some industry upheaval seem to prompt more action.

So, here we go again.

Lawmakers adopted some industry-friendly changes in 2019 and then last year took further steps that limited attorneys' fees, affected rates and eligibility for policyholders joining Citizens, and put new requirements on roofing contractors.

House Speaker Chris Sprowls, R-Palm Harbor, cited the need for giving these revisions time to work as a reason for the House's failure to approve another insurance package OK'd in March by the Senate. That one included a new deductible for homeowners needing to replace roofs, a concept which may come back in special session.

But as lawmakers return to Tallahassee, it's likely that more efforts to blunt lawsuits against insurance companies will emerge as a top priority for DeSantis and leading Republicans. Sprowls, an attorney viewed as close to the Florida Justice Association, the leading trial lawyers' organization, will be under enormous pressure this time to go along with the drive to blunt costly litigation.

Will lawsuits be limited?

A favorite statistic promoted by those calling for lawsuit limits is that Florida accounts for 8% of the nation's homeowner property insurance claims in 2019, but 76% of lawsuits. This year is supposed to be worse, critics say.

Insurers also have lost around $1.5 billion in the state each of few years, with no end in sight.

The Florida Justice Association, the trial lawyers' organization, is viewed as a Democratic ally, so DeSantis and most leading Republicans have long sided with efforts by the Florida Chamber of Commerce and other business groups that want to reduce legal exposure for insurers.

DeSantis has targeted the spate of lawsuits.

"That is causing these premiums to escalate," DeSantis said of homeowner costs. "And so we have to address that. It's something that is very important."

Lawsuits usually are prompted when a homeowner is dissatisfied with his insurance company's response to a claim. But few steps are expected to be taken this special session to heighten the accountability of insurers.

Instead, DeSantis and lawmakers may push to adopt a measure similar to a Texas law that allows for "reasonable and necessary" attorney fees, based on a prescribed formula, rather than the current system, where fees often outstrip the cost of a claim.

The change also would probably include requiring lawyers for homeowners to notify insurers 60-days notice before a lawsuit is filed, a hurdle which could reduce court filings. Limiting fees and the ease of filing a lawsuit would give insurers more command, or at least encourage more arbitration between customers and their insurance companies, an exchange which doesn't always work out best for the homeowner, critics say.

The fee restructuring also could further discourage assignment of benefits, where property owners in need of work sign over insurance benefits to contractors, who then grapple with insurance companies.

Insurers say this practice, which lawmakers tried to reduce in 2019, has become riddled with fraud and lawsuits, although plaintiffs' attorneys and some consumer groups say it helps make sure claims are properly paid.

CAT Fund and Citizens?

Citizens is going to keep growing, with more customers going into the state-backed insurer for better rates when the private market is unaffordable.

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

Just like the effort to get lawyers out of insurance disputes, the Florida Hurricane Catastrophe Fund also may become a central focus of the special session.

"You can't look at the state of the private insurance market in Florida and say it's good. It's an extremely fragile market that we have. A significant storm, or a series of storms will cause real problems."

Charles Nyce

Expert on insurance and risk management at Florida State University