Will Florida’s New Property Insurance Reforms Bring Rates Down For Homeowners?

May 31-- May 31--Uh, think again. Insurers say there's a new reason they can't lower rates.

Last week, Gov. Ron DeSantis signed a package of property insurance reforms intended to reduce the number of lawsuits by repair contractors that convince homeowners to sign over benefits of their insurance claims, including the rights to invoice and sue their insurers.

The lawsuits added untold millions of dollars to insurers' cost of doing business, which the insurers passed along to its customers, mostly in South Florida, as steep annual rate hikes.

The reforms, passed after six years of legislative gridlock, make it more difficult for contractors and their attorneys to collect legal fees from insurers that settle claims. The reforms also require insurers to offer -- for lower rates -- homeowner policies that prohibit claims assignments without insurers' consent.

Homeowners were told the reforms were necessary to prevent property insurance from becoming unaffordable in Florida.

But now insurers are saying they can't know when, or if, your rates will come down. And they're pointing to looming reinsurance price hikes as likely to impede any possible rate relief in the near future.

Here are some answers to your questions about the expected effects of the property insurance reforms:

It's over, right? Reforms are approved. Costs are slashed. My rates are going down, right?

You knew this was coming: Sorry, it's never that simple. And here's a bummer: Rates for many, if not most, homeowners are more likely to increase over the next year or two.

That is a bummer. Why are my rates likely to rise?

Well, now that excessive lawsuits and "assignment of benefits" have been neutralized as cost drivers, another bogeyman has risen in its place that insurers say will likely prevent them from lowering rates in the near future.

Who are the bad guys now?

It's the reinsurers -- the companies that sell insurance to insurance companies to ensure they can pay off all claims in case of a catastrophe. No single insurance company can amass enough money to be able to pay all claims resulting from a catastrophe with a 1-in-130-year probability of occurrence. So state regulators and agencies that certify insurers' financial stability require companies to buy reinsurance coverage every year, just as homeowners have to renew their insurance policies each year.

What are the reinsurers doing to my rate savings?

They are eating your rate savings by taking a hard line on cost increases prior to the June 1 start of the next coverage term. Analysts say most reinsurers are demanding rate increases from insurance companies ranging from 10 percent to 30 percent. "Reinsurance costs are going up a lot," said Locke Burt, chairman and president of Ormond Beach-based Security First Insurance. The hikes "are going to dwarf any savings from [the reforms]."

That's a lot. And we know who will pay for that in the end. Why are reinsurers raising their rates?

They say they suffered steep losses in Florida from hurricanes over the past three years and are entitled to recover those losses.

Prior to Hurricane Matthew's costly brush with the state in 2016, reinsurers were lulled by a hurricane-free decade into "taking an overly optimistic view in regards to the expected loss from a hurricane in their rate setting," Jonathan Ball, assistant underwriter for U.S. Property Reinsurance at AXA XL in Bermuda wrote on AXA XL's website in April. "Inaccurate Loss Adjustment Expenses assumptions, understated litigation costs, unanticipated trends in Assignment of Benefits and unverified modeling data are just some of the examples where the [re]insurance industry fell short. Hurricanes Irma and Michael exposed weaknesses in the industry's approach and thinking when it comes to view of risk."

But South Florida dodged a bullet and escaped impact from any hurricane last year. What changed?

Hurricane Michael, its Category 5 winds, and the swath of destruction it left in the Panhandle last October was a blast of cold water in the faces of reinsurers who entered October thinking Florida dodged a bullet. After the storm, insured-loss estimates kept mounting -- from $2.9 billion in Florida a month after the storm to $6.4 billion as of April 26, according to the Florida Office of Insurance Regulation.

And in February, reinsurers and industry analysts noted a continued "creep" of Irma-related losses -- not just the cost to repair damaged property, but related costs such as fees to hire attorneys, adjusters, claims processors and private investigators.

Because many insurers had already reached their predetermined pay-out thresholds -- comparable to a deductible for individual policyholders -- Irma-related costs incurred since then "are all borne by the reinsurers," said Jeff Grady, president and CEO of the Florida Association of Insurance Agents.

Joseph Petrelli, president of the financial stability ratings firm Demotech Inc., said he's surprised reinsurers didn't hike rates in 2018, when Irma's true costs were becoming apparent.

If it wasn't for reinsurance costs increasing, we'd be looking for lower rates real soon, right?

Mmm, afraid not. Tens of thousands of lawsuits filed under the old rules remain in the court system, where they will slowly wind their way to resolution. "Insurance rates are always one year behind [cost drivers]," said Paul Handerhan, senior vice president of public policy for the Fort Lauderdale-based Florida Association for Insurance Reform.

While DeSantis' signature will likely cause an immediate drop-off in the number of lawsuits filed against insurers -- providing some short-term relief -- Handerhan says existing suits will take up to three years to resolve.

Meanwhile, claims and lawsuits not filed with an assignment of benefits aren't going away, said Security First's Burt. Water-loss claims unrelated to hurricanes are continuing to increase, he said. "I don't expect anyone to file for rate reductions," he said.

Numerous insurers filed rate-increase proposals with the state Office of Insurance Regulation amid widespread expectations that reforms would be enacted this year, but before DeSantis signed the bill, according to a May 13 compilation of pending rate proposals obtained from the Florida Office of Insurance Regulation. They include AIG Property Casualty Co. (14.9 percent), Florida Family Insurance Co. (5.4 percent), Florida Specialty (10.8 percent), Centauri Specialty (10.1 percent), Tower Hill Select (4.8 percent), Omega (9.5 percent), Florida Peninsula (7 percent and 8.2 percent, depending on specific policies), American Integrity (7.2 percent), Olympus (8.2 percent), Heritage Property & Casualty (13.4 percent), and Castle Key (4.1 percent).

Universal Property & Casualty Insurance Co., the state's largest insurer with 637,500 policies at the end of 2018, was approved in April for an average 2.6 percent rate hike.

Please give me some good news.

Well, a couple of insurers are proposing to lower rates, State Farm Florida is proposing an average 14.4 percent reduction, following last year's 9.5 percent hike. The company, which stopped writing new business for several years after the costly hurricanes of 2004 and 2005, attributed the proposed reductions to "stable non-catastrophic loss trends, improving expenses and losses, along with [the company's] financial strength." The reductions would apply to about 300,000 customers.

People's Trust Insurance is proposing a 9.9 percent rate decrease for 117,000 policyholders. Both companies' proposals must still be approved by state regulators, who won't hesitate to require higher-than-requested rate increases if they don't trust a company's financial assumptions.

Meanwhile, the reform bill signed by DeSantis prohibits Citizens from implementing rate changes in 2019 for all-perils policies unless the rate filing reflects "projected rate savings" from the new law.

I'm a Citizens customer. Does that mean my rates are going down?

Not likely. It's not yet known whether the new law obligates state-run Citizens, which increased rates nearly 10 percent in South Florida in 2016 and 2017, to reduce rates at all for any of its customers, or to simply submit a rate plan with a lower average statewide rate increase than the company currently proposes.

Citizens CEO and president Barry Gilway hinted at this strategy in a statement released after the state House passed its version of the reform bill in April.

"While not providing immediate premium reductions to all Citizens policyholders, the legislation would go a long way toward stabilizing rates and shortening the time it takes for Citizens to provide rate reductions to its policyholders," Gilway said.

Citizens spokesman Michael Peltier said the new rate recommendations will be presented to the company's board of directors on June 18, followed by public hearings.

When is the soonest I will save money on homeowner insurance?

The new law allows insurance companies to sell policies prohibiting third-party claims assignments by policyholders as long as such policies are available at a lower cost than unrestricted policies. It's unclear at this point how many companies will choose that option, but a safe bet is it will be made available by companies that own or control their own networks of repair contractors, such as Citizens, Florida Peninsula, Heritage, and People's Trust. Count on one of those discount policies being made available before rates ever decrease.

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