Florida's property insurers are taking a cautious approach

Florida’s residential property insurers are taking a cautious approach when estimating how industry reforms passed in late 2022 will impact their premium rates (see Natural Catastrophes Drivers).

The state legislature held a special session in December 2022 to try to restore stability to the property and casualty market. It eventually passed a bill, which was signed by Gov. Ron DeSantis, that made sweeping changes to the claims process, reinsurance and regulations on insurance companies.

Florida’s insurance market has experienced difficulties in recent years, with some private insurers becoming insolvent, and others choosing to halt coverage there altogether because Florida insurers will have a challenging June reinsurance renewal, even with the implementation of the legislative reforms.

Seven insurers have been declared insolvent in Florida. Average annual property insurance premiums jumped 42% this year to $6,000 in Florida, compared to a national average of $1,700.

According to Stonybrook Capital, the 2022 year-end renewals experienced rate-adjusted rate increases for property reinsurance renewal averaging north of 35% as a cumulative result of losses caused by extreme weather events, economic/social inflation, and geopolitical uncertainty.

A new Florida insurance law and proposals have the potential to reduce the cost of homeowners insurance in the state, according to Beinsure Research.

“Reforms put in place in the closing weeks of 2022 and proposed in the first quarter of 2023 suggest Florida is now quite serious about fixing the fraud and legal system abuse that have contributed to the state’s insurance crisis,” stated Addressing Florida’s Property/Casualty Insurance Crisis, a Triple-I Issues Brief which built on one Triple-I released about Florida’s homeowners insurance market in August 2022.

Several of the law’s provisions eliminated assignment of benefits (AOB) and one-way attorney fees, which have contributed to the excessive litigation costs in the state.

“While those changes may impact future claims costs, we do not believe the impacts would be immediate,” State Farm Florida Insurance Co. said in a rate filing responding to questions raised by the state regulator about how the new reforms would affect its business.

State Farm in its filing said it will closely monitor loss trends and future costs and will make appropriate changes based on its experience.

Florida's property insurers are taking a cautious approach

The regulator approved State Farm’s homeowners rate filing on June 9, contingent upon its agreement to reflect the law’s impact in future filings. The overall rate increase of 9.7% is expected to apply to renewal business starting on Sept 15.

A filing approved on June 28 for several units of United Services Automobile Association shows the insurer did not adjust its indicated or filed rates in light of the reforms.

USAA does plan to “determine if it can adequately estimate what direct impacts the elimination” of AOB and one-way attorney fees will have on its future claims and expenses. It may also consider approved competitor filings when assessing the new law’s impact.

Monarch National Insurance Co. in a recent rate filing stated there is no data available to help estimate what the effect of eliminating one-way attorney fees will be on the number of litigated claims or awarded attorney fees. The insurer estimated that the absence of those fees would have reduced the number of ligated claims and incurred allocated loss adjustment expenses from those claims by 15%, though it plans to revisit its initial estimates as experience emerges.

The indicated or actuarially estimated adjustment factor for the fee removal on its homeowners policies is 0.975 on all other perils and 0.976 for non-hurricane wind.

The adjustment factor compares the estimated loss expenses with the fee removal to the estimated loss expenses prior to the changes.

An adjustment factor lower than 1.000 would signify a decrease in the insurer’s projected future claim loss expenses. A factor of 0.975 means that the insurer sees future loss expenses with the fee removal coming in at 97.5% of the projection prior to the reform laws going into effect.

Recent legislative actions have laid the groundwork for property market improvement. Those changes should benefit Florida insurers over the long term but may provide some short-term pain in the process.

by Jason Woleben – S&P Global analyst