By Anita Byer, Setnor Byer Insurance & Risk
Florida’s property insurance market is in the midst of a crisis. According to the Insurance Information Institute, Florida’s domestic property insurers had net underwriting losses of more than $1 billion in both 2020 and 2021. In 2022, an unprecedented six insurance companies were forced into liquidation due to insolvency. Add to this the fact that a number of Florida’s property insurers are steadily reducing their exposure by writing fewer and more restrictive property insurance policies. To make matters worse, insurers are currently inundated with claims caused by Hurricane Ian, which is expected to be the costliest natural disaster in Florida’s history at a price tag of $50 billion, according to Corelogic. So, what does the future hold for the millions of Floridians who need property insurance? Fewer choices and higher premiums. We cannot continue down this path. Florida’s property insurance market must be fixed to prevent this crisis from becoming a catastrophe.
While the news may seem grim, and the future of the Florida insurance marketplace in question, it is possible to return the property insurance marketplace to profitability, which will also allow insurers to reduce premiums to affordable levels despite the 1350 miles of coastline exposure to high winds and flooding. But the system is in dire need of change, and this change will require commitment and compromise from all stakeholders, including insurers, insureds, lawyers and lawmakers.
In December, we will all be witness to, yet, another attempt by the legislature to repair what many refer to, in part, as a man-made insurance crisis brought about by fraud, inflated claims, litigation abuse, misguided government policies and some insurer mismanagement on claims settlement matters. To this, we need to seriously consider the implications of a Hurricane Andrew type event making landfall on the southeast coast of Florida and the estimated $72 billion insured loss price tag that will come with such an event.
The insured loss numbers are staggering, so it is critical to address the waste within the system so that all possible dollars are deployed for recovery, efficiently and fairly, and domestic property insurers returned to profitability. And, whether one considers insurance companies friend or foe, 2022 claims litigation expenses are more than double that of 2016, with over $3 billion, annually, spent by insurers for defense costs and containment, as reported by the Office of Insurance Regulation (OIR). More sobering news from the OIR details that while Florida accounts for approximately 7% of all homeowners’ claims filed in the country, these claims account for nearly 80% of all countrywide litigation. Along with this data, it should be noted that business organizations across the state report that a majority of the excess costs built into the system never find their way to the rightful beneficiary — the insured.
Another important element to consider when looking at the property insurance crisis, is the dominance of Citizens, which has grown to insure over 1 million policies, largely in the southeast. It is the position of the business-leaning legislators that a state subsidized entity should not compete with private enterprise, and that Citizens needs to return to its original mission of being an insurer of ‘last resort.’ Citizens, with its actuarially unsound (suppressed) pricing, will shortly become the insurer of choice for many residents unless pricing more closely resembles the private marketplace. And, while many insureds may find that Citizens offers pricing at more affordable levels than the private marketplace, and would be reluctant to support legislation that requires Citizens to charge ‘sound’ rates, it should be noted that any financial deficits of Citizens following a storm will cause unheard of additional costs to insureds through a required assessment of up to 75%.
While a handful of legislators and insiders are in general agreement on how to address the waste and inefficiencies in the system, and are prepared to move forward with draft legislation, experts will tell you that the ultimate fix needs to include: laws that are fair and balanced; a robust consumer protection element for unjust claims settlements; temporary financial support from the state IF insurers are unable to secure affordable reinsurance at primary levels in 2023; and a fix to Citizens’ underwriting and pricing structure, so that the private marketplace can thrive. Most importantly, Florida needs to make changes to claims settlement matters that disincentivize wasteful litigation brought by plaintiff attorneys and keeps insurers accountable.
Without the inflationary claims defense costs baked into the system and the full burden of primary reinsurance costs that are expected to increase significantly, insurers will have a fighting chance to survive and offer Floridians property insurance at lower costs and with more favorable policy terms and conditions, eventually and hopefully.