Insurers agree: Reforms sparked ‘phenomenal’ improvement in Florida market

Recent legislative reforms are driving down lawsuits — the wildcard of risk modeling — and enticing more reinsurance capital and new insurance companies into the state, many said.

Ultimately, insurance leaders said, the reforms will make insurance risks more predictable and property insurance rates should stabilize.

Policyholders might not be ready to declare victory, particularly after enduring multiple years of rate hikes that sent Florida’s average premium to three times the national average. Some have said the reforms tilted the playing field too far in insurers’ direction.

But summit participants say what they’re seeing is a good start. Without the reforms, investors weren’t willing to fund reinsurance coverage necessary to keep the market alive, they said.

Views and actions of high-level executives of reinsurance providers are closely monitored throughout the industry. Reinsurers provide insurance that insurance companies must buy each year to ensure they can pay claims after catastrophic weather events.

And in recent years, uncertainty about increasing numbers of claims and lawsuits in Florida have triggered concerns among reinsurers about the wisdom of investing in the state, several speakers said on Thursday. Reinsurance prices increased as a result, and insurers have been forced to recover those additional costs by hiking premiums charged to homeowners.

The past couple of years have also brought uncertainty over whether enough reinsurance capacity would be available at the beginning of hurricane seasons to cover all Florida-based insurers.

In a session on reinsurance rates and availability, Justin O’Keefe, chief underwriting officer for RenaissanceRe, Florida’s largest provider of catastrophe reinsurance, rattled off numerous developments that are enticing reinsurance capital back into the state:

A year after the one-way attorney fee statute was reformed during a special legislative session in December 2022, several insurers said they were beginning to see fewer lawsuits filed against them, reported Mike Yaworksy, the state’s insurance commissioner.

New cases against Citizens declined 17% during the first 10 months of 2023, according to a new report released by the James Madison Institute on Thursday. “This reduction is noteworthy,” the report said, “given Hurricane Ian’s impact in September 2022, which would normally trigger a spike in new litigation over the next year.”

“A lot of that stuff, from a reinsurance perspective, gives us more certainty, more credibility,” O’Keefe said, “of how to price the risk in Florida.”

John Seo, co-founder and managing director of Fermat Capital Management LLC, called the turn “amazing” and “phenomenal.”

“I’ve been spreading the message worldwide to a global investor base that really is breathing a great sigh of relief.”

Later, he said, “You’ve now opened up the runway for tens of billions of dollars of fresh capital to flow into Florida over the next three to five years.”

Bryon Ehrhart, global head of growth and strategic development at AON, a reinsurance brokerage, said the reforms made it possible for the company to continue placing reinsurance in Florida.

“I think we’ve gotten it back to an insurance market rather than a fraud market,” Ehrhart said. “That’s what we hope to see continuing.”

Predicting payouts after storms, known as risk modeling, had become impossible prior to the reforms because of the high levels of claims litigation in the state, Ehrhart said.

O’Keefe said that his firm ended up paying $500 million more than it projected after 2017’s Hurricane Irma. None went to rebuilding communities or increasing insurers’ surpluses, he said.

“We all probably have an assumption of where that half a billion dollars went to and I won’t go into the details,” he said.

Seo said Citizens and the Florida Hurricane Catastrophe (CAT) Fund provided a backstop that prevented Florida’s insurance market from collapse prior to enactment of the legal reforms.

Citizens is the insurer of last resort that covers homeowners unable to find affordable coverage elsewhere. The Florida CAT Fund provides reinsurance coverage that can be accessed before insurers must turn to their private reinsurance coverage.

“In the absence of Citizens and the CAT Fund, I think Florida could be in free fall,” Seo said. He added that now, “Everything’s all coming together in a really, really nice way.”

Still, speakers also noted potential problems that the market could face as it waits for further declines in litigation.

Ehrhart noted that many Florida insurers are still undercapitalized and over-reliant on the state’s ability to impose surcharges on all auto and home policyholders to cover claim-paying shortfalls. He asked what could happen after three to five years of consecutive busy storm seasons.

Florida has the ability to levy surcharges of up 90% of policyholders’ existing premiums, he said. “Everyone knows those economics will not work.”

And reinsurance costs likely won’t fall this year, despite the downward claims trend, because of updates to risk modeling that take into account increased frequency and severity of severe, non-hurricane, weather events.

But even those issues could not quell the jubilant attitude at the summit, which prompted Yaworksy to declare, “It feels very good that we have stopped the bleeding in the market.”

Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071, on Twitter @ronhurtibise or by email at rhurtibise@sunsentinel.com.

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