On insurance, we can’t lose sight of the policyholder | Jimmy Patronis [South Florida Sun-Sentinel]

Most people understand that insurance is just one of those things you have to deal with in life. What people can’t understand — justifiably — is how out-of-control insurance costs have been. The fact is, Florida’s homeowners insurance market has been unstable: Insurance companies have folded, we’ve experienced rate increases, we’ve gotten non-renewal forms in the mail, and in almost every Florida community, families have had to buy a new roof or risk losing coverage. No one’s immune from it, and the whole thing is frustrating.

While there’s a bunch of reasons why Florida’s insurance market has been bad, Florida’s legal environment was clearly a significant problem. The law allowed a bunch of questionable contractors and attorneys to make a lot of money, and the insurance companies were put into a lose-lose situation of settle and lose money, or fight, and lose more money. That’s why Florida represented 76% of lawsuits nationally, but only 7% of claims. Fortunately, on the legal front, those issues have been put to bed for the time being.

To stabilize the market, Gov. Ron DeSantis called two special sessions focused on insurance, and significant reforms were enacted to rein in abuses of the system that drove up premiums — and we can already see the benefits. I can’t begin to underscore how meaningful these reforms were. There were a lot of people who were operating in legally gray areas who were making a lot of money off of insurance — and those costs were passed down to policyholders for years. Fortunately, were seeing signs that activity is coming to an end.

The state’s insurer of last resort, Citizens Insurance, has already seen a roughly 17% decrease in lawsuits so far in 2023 for the same time frame last year and also expects more than $900 million in operational savings following these reforms. Recently, companies like State Farm and Kin Insurance have indicated they plan on staying in the Sunshine State. We also have new insurance companies taking hundreds of thousands of policies out of Citizens Insurance. Since the start of 2023, the Florida Office of Insurance Regulation has approved more than 280,000 policies to be moved into the private market, which brings more competition and competitive pricing to Florida, and that’s ultimately good for the consumer.

We knew that as the market stabilizes, we needed to take action to provide tools to policyholders to help rein in their premiums, so we worked with the Legislature to create the My Safe Florida Home program to provide free home inspections, and up to $10,000 in home hardening improvements, to reduce premiums. The Legislature provided $250 million for the program, and our records show the average policyholder has realized $1,000 in annual premium savings. The Legislature also created the Home Hardening tax cut, in which policyholders can buy impact-resistant doors, garage doors and windows — tax free — to reduce premiums. One analysis said the program would generate $460 million in tax savings.

Last session, the Legislature also passed the Insurer Accountability Bill, which allows the state to issue higher fines against carriers who don’t do right by their policyholders and prohibits officers of insurance companies from getting bonuses if their company’s on shaky financial footing. The law also requires that if a company realizes a savings from the reforms, then those savings have to be passed on to the consumer too, which could take the edge off of a premium hike.

I get asked all the time, “When will I see my premiums lowered?” and the honest answer is, we’ll know more after hurricane season. Companies aren’t going to bring in tons of new capital in the middle of storm season. There’s also the realities of inflation and interest rates. Over the past two years, the cumulative inflation rate has gone up by 16%, which is why everything is more expensive. That means whether you live in Florida or somewhere else, the price to repair your house has automatically increased, and the premium that you and I are paying doesn’t cover it.

Inflation also dries up cash that insurance companies need to operate. Insurance is made available because investors are willing to put up capital. With inflation driving up interest rates, investors want higher returns from the dollars they invest into Florida’s insurance market. With interest rates around 6%, companies can make a decent return by parking their capital in banks rather than trying to generate returns by investing in businesses, like insurance companies. Finally, it almost goes without saying, we’ve got to see how storm season goes. Insurance carriers have been paying out more in claims from storms than they expected, and over a two-year period, Florida insurance companies have lost over $1 billion each year.

It will take time for these reforms to be fully realized within Florida’s insurance market, and to some degree, Florida’s challenges with insurance may have been the canary in the coal mine for the rest of the United States. According to the Wall Street Journal, 31 states have had double digit rate increases since the beginning of 2022. Louisiana had a special session to deal with their insurance crisis, policyholders in Texas are facing huge premium hikes, and California’s got companies who are withdrawing or refusing to write new policies. As Florida’s changes take hold, the Legislature has to ensure we don’t lose sight of the policyholder. For next session, lawmakers should seriously consider extending the My Safe Florida Home program and the Home Hardening tax cut. These are popular programs that help rein in rates.

Jimmy Patronis is the chief financial officer of Florida.

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