Spiraling Out of Control—ROUND ONE!

Lawmakers just concluded round one of committee hearings examining Florida’s abysmal property insurance market. (See NOTE#1 below).

It’s the necessary predicate to relief for millions of premium payers coughing up chunks of hard earned dollars for their homeowners’ coverage–all while under the substantial thumb of a pandemic and partial or complete shutdowns of their businesses and livelihoods.

Other than the highest premiums in America, which are increasing by the highest percentages in America, our bitter market has many indicators, most you’ve read about here and elsewhere. (See NOTE #2 below).

Any dispute about how bad things are is easily settled with facts presented by Citizens President, Barry Gilway. Citizens is a private market indicator–a thermometer, if you will, that’s running red hot. Every week 3,000 new applications push in Citizens’ front door, forcing up potential deficits and assessments on all policyholders, including those who don’t even own property. (See NOTE #3 below)

There was a time (2011) when Citizens had 1.5 million policies, 22% of the market and half a trillion (with a T) in exposure–a time when a 1-in-100 year storm would’ve generated an assessment of $11 billion. “It’s a place” Gilway said, “where we don’t want to go.”   (See NOTE #4 below)

It isn’t helpful that, 91% of the time, Florida’s last resort insurer has the lowest price in town and a surplus greater than all domestic carriers combined– $6.4 billion versus $5.9 billion for 56 domestic insurers.  And a 10% cap on rate increases.

An unflattering picture. But it gets worse!

During their hearings lawmakers didn’t have the latest myth busting study –a definitive, scientific analysis of Florida’s “litigation economy” proving that lawsuits, not hurricanes, are the culprit—making the legislature, not the weather, the biggest culprit of all.

Authored by Guy Fraker, an adjunct scholar at the James Madison Institute, the reports’ title casts a dark future: “Florida’s P&C Insurance Market: Spiraling Towards Collapse.”  (See NOTE #5 below)

Central theme: sweeping changes are needed… “For those seeking a single reform to turn this market around, such an answer does not exist,” Fraker explains.

Here’s what we know:

• Litigation frequency and severity represents an additional expense load of 17% (and rising) on all earned premiums for insurers in Florida compared with other catastrophe-prone states.
• The fees paid to attorneys by Florida carriers far exceed the damages paid to the insureds.
• In 2019 alone, Florida insurers paid almost $3 billion in lawsuit costs that translated into higher premiums for insureds.
• Although the volume of claims after storms is a factor in costs, claims unrelated to catastrophes account for approximately 60% of all litigation.
• Florida consumers are paying a “hidden tax” to fund the litigation that averaged about $680 per family in 2020.

Here’s what needs to be done:

• A total reversal of the statute that currently applies to all claim disputes placing responsibility on insurers to pay 100% of litigation costs when a plaintiff prevails by $1.
• Reinstate the Supreme Court standard to fee multipliers allowing use only on a “rare and exceptional” basis and never for punitive measures.
• Change attorney fee arrangements so they are awarded based on policy limits and damages awarded to claimants; establish a range of limits to one-way property fee awards.
• Change the 3-year First Notice of Loss deadline to one year.
• Enact pre-suit mediation or alternative dispute resolution modeled after Citizens.
• Allow excluded or non-covered damages to remain non-covered.
• Consolidate litigated cases so multiple suits are not filed for the same property.
• Eliminate building tradesman (i.e., roofing contractors) from speaking on behalf of an insured without the insured’s involvement.

This report is important. Read it. At least review it.

Send it to those who question whether Florida’s problem is weather or litigation.  Time is, literally, short–Commissioner Altmaier told the Senate Banking & Insurance Committee that when the numbers arrive for last year, carriers are likely to have doubled their 2019 losses in 2020.

It takes around 18 months for any legislated reform to begin to be reflected in rates or in carrier bottom lines.

Lawmakers must definitively act during this session. NOW!  Or be held accountable for having brought down the entire property insurance system in America’s third largest state.

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NOTE #1: Senate Banking and Insurance, House Insurance and Banking, and the House Commerce Committees all heard presentations from members of the public, regulators such as David Altmaier, Barry Gilway with Citizens and industry experts on how bad things are and how bad they’re going to be if something isn’t done.

NOTE #2: Please listen to FAIA’s Friday Morning Live CE program in which I explain some of the more unsettling impacts of frivolous litigation on profitability and premiums.  Also, see Litigation Reality Check—“Stick & Carrot” and The Troubled Florida Market.

NOTE #3: For information to use in your next presentation on Florida’s property market see “Citizens” House B&I Subcommittee meeting packet under the “Library” tab,  here. For more information in presentations given to the Senate B&I committee from Commissioner David Altmaier and Citizens President, Barry Gilway see the Senate B&I Committee packet here.

NOTE #4: For a more street level analysis lawmakers, turned to an agent. A self-described insurance nerd, Mary Katharine Croley Waller with Doug Croley Insurance out of Tallahassee. Her anecdotal analysis of what’s happening was compelling and can be listened to at the 28:19 mark of the House Commerce Committee Meeting here.

NOTE #5: Amy O’Connor with the Insurance Journal wrote an article on the Fraker Study which you can read here.

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