Florida property insurers may continue facing instability through 2021

Florida’s property insurance market was rattled this year as insurers faced financial pressure on a number of fronts.

Rates spiked by double digits to help pay for rising reinsurance costs. Storm claims lingering from two years-old hurricanes continue to put a drag on insurers’ finances. And that’s compounded by a continued high volume of litigation over claims that aren’t related to storms.

And while the tumultuous year is coming to a close, sustainable relief likely is far off.

“There’s no quick fix here,” said Mark Friedlander, Florida representative for the nonpartisan Insurance Information Institute. “The Florida property market will remain unstable throughout 2021.”

The year’s unusual string of strife comes from a confluence of long-term issues that have come to a head this year. Reinsurance, coverage that insurers purchase to help with claims paying, rose because of a market shift. Whereas insurers previously bought this coverage through insurance-linked securities, those funds are less common now, leaving private reinsurers with more market share. They took losses by keeping prices low for years to compete with the securities and are raising prices now to gain some of that back.

Insurers are also still paying for Hurricanes Michael and Irma. In Florida, policyholders have three years to file a claim related to a named storm. Many get filed just before the cutoff. While Hurricane Irma’s claim period is no longer open, insurers will need to continue accepting Hurricane Michael claims until late next year.

And then there are the lawsuits.

For nearly 10 years, insurers have complained that Florida law encourages fraudulent or excessive claims related to damage to homes not caused by storms. Legislation last year sought to curb that, but new iterations that work around the law are springing up, often around replacing aging roofs.

A portion of the issue comes from the fees that lawyers are paid in the process. Florida allows lawyers to request a “contingency fee multiplier,” which can increase the amount they are paid if their standard fee is lower than what would be reasonable for the case. This makes the outcomes more expensive for insurers, which translates to higher rates for ratepayers.

State Sen. Jeff Brandes, R-St. Petersburg, has re-introduced a bill for the upcoming session that would require judges to grant this “multiplier” only in rare circumstances.

The issues in the private market are also putting pressure on the state’s safety net “insurer of last resort,” state-run Citizens Property Insurance Co., which faces many of these same challenges.

Citizens in mid-December pushed its rate filing to January to give it time to talk with the Florida Office of Insurance Regulation about raising its rates. Its proposed average rate increase for homeowners insurance would be 3.71 percent. Citizens provides subsidized rates for many of its customers, which makes its rates significantly lower than those offered by the private market.

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This makes it difficult for the insurer to offload policies to private insurers. Currently, Citizens is adding about 3,000 policies per week, totaling about 537,000 policies as of December. Its highest policy count was in 2011 when it had 23 percent of the market with 1.4 million policies.

Last year, Brandes asked Citizens’ CEO Barry Gilway to find a way to make the insurer a residual carrier once again. A Florida State University study that Citizens commissioned concluded that the insurer will not be able to meaningfully send policies back to the private market unless that market is healthy.

Some solutions to this may come during the next legislative session. Brandes said he is planning a large insurance reform bill with Sens. Doug Broxson, R-Gulf Breeze, and Jim Boyd, R-Bradenton, intended to increase options for coverage for Floridians “in order to match their policies to their pocketbook.”

“What’s going on in the (Florida) insurance world is what I would liken to an uncontained nuclear disaster,” Brandes said. State legislators “are just letting the fallout grow and not acknowledging what’s truly going on.”