It’s the start of another Florida Legislative Session with a familiar theme — insurers pushing for reforms they say are needed to help the state’s distressed insurance market. Only this year the need is more urgent than ever, according to industry experts and stakeholders, as consumers face unprecedent rate increases and constrictions in coverage availability.
“We’re advocating that the legislature take a good look at some of the issues that are plaguing the Florida property insurance market right now to see if we can make some reforms to stabilize not only the performance of the carriers, but also the impact that has on the consumers,” said Florida Insurance Commissioner David Altmaier in an interview with Insurance Journal. “One of the major — if not the major focal point for our office … is working on this very challenging time.”
Altmaier is one of many sounding the alarm about the Florida insurance market that has been described as in a state of crisis. Consumer advocates, insurance agents, insurers and realtor groups are all urging Florida lawmakers to enact reforms that stem excessive litigation and insurance costs now hitting the pockets of Florida consumers.
In January hearings before the start of the 2021 session, Altmaier told lawmakers that Florida’s domestic marketplace had lost $1 billion during the first three quarters of 2020, more than double its underwriting losses in 2019. That has translated into steep rate increases for policyholders and there appears to be no sign of relief. The Floirda Office of Insurance Regulation has approved 105 rate changes, 90 of which were for rate increases, over the last year, Altmaier said, with 55 of those for rate increases of more than 10%.
“Clearly, these losses have negative outcomes for our consumers,” he said.
The deteriorating financial condition of Florida’s domestic companies is blamed on several factors: excessive litigation, contractor schemes, several years in a row of major catastrophes and the increasing cost of reinsurance.
Barry Gilway, president and CEO of Citizens Property Insurance Corp., which is seeing an increase of about 3,000 new policies per week as private market conditions tighten, said litigated cases for insurance companies increased from 27,000 in 2013 to 85,000 in 2020. “That is the primary driver of unprofitability,” Gilway told lawmakers at a Florida House of Representatives committee hearing in January.
The industry is supporting several bills that they say will help stem the abuse, but these bills are competing for attention in an unusual legislative session thanks to a lingering pandemic.
Stakeholders also acknowledge that it will be tough to convince some lawmakers to enact legislation after insurers won a seven-year battle for assignment of benefits insurance reform in 2019. Those reforms were meant to help the insurance market decrease costs, and recent OIR data shows the law is having a positive impact on reducing litigation associated with AOBs. Gilway said Citizens’ AOB litigation has decreased by 48% since 2019 and overall litigation has decreased 20%. For all other carriers, AOB litigation has decreased 37% and overall litigation increased by a little less than 1%. Attorney and contractor workarounds to the AOB law has exacerbated other litigation.
“AOB reform helped significantly,” Gilway told lawmakers. “[But] the reality is, while AOB is going down, first party litigation is going up. The increase in first party litigation is really overshadowing any benefits we have got from AOB — it’s shifting from third party over to first party.”
Litigation costs have helped fuel adverse loss development for companies of $418 million in 2018 and $682 million in 2019, Altmaier told lawmakers.
While there is compelling evidence that shows the AOB law has been effective in curbing the use of AOBs, “we also think that there is compelling evidence that demonstrates first party litigation continues to increase, and we have equally compelling information that shows … the disparity in cost of claims between a litigated claim and a non-litigated claim, and so I think that it’s a critical conversation for us to be having,” Altmaier said.
A recent report, “Florida’s P&C Insurance Market: Spiraling Towards Collapse,” authored by Guy Fraker of Cre8tfutures Innovation System & Consultancy and the James Madison Institute was presented to the Florida Legislature this year as evidence of the need for property insurance reforms.
Among its findings:
- 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.
He added, “I can certainly understand how after working on AOB for several sessions in a row and finally getting some reform it can be frustrating when the very next session people come back and say, ‘litigation is still a problem.’ So that really underscores [OIR’s] role in being very data-driven.”
Stakeholders outside the industry are also coming out in support of reforms.
“Consumers are being faced with dire circumstances and options centered around homeowners insurance coverage,” said Insurance Consumer Advocate Tasha Carter, who noted she hears daily from policyholders receiving large rate increases or who are unable to find coverage at all.
Most consumers are not aware of why their rates are going up and are particularly frustrated because they have never filed a claim. Carter said she explains the issues in the market and “they have a better understanding of what’s happening, but ultimately they’re still looking at it from a personal and individual perspective and how these things will ultimately affect them,” she said.
Groups like Florida Realtors and the Florida Chamber of Commerce have urged the legislature to act this year as the insurance market’s problems trickle into other industries.
“Florida’s economy is the envy of the nation, but we must address persistent home and auto insurance fraud and abuse that hurts consumers and threatens our state’s overall competitiveness,” said Mark Wilson, president of the Florida Chamber.
Trey Goldman, legislative counsel for Florida Realtors, a real estate association in the state representing 200,000 realtors, said he’s heard many concerns from members about rates, availability and underwriting guidelines and how real estate transactions could be affected.
“We sell property, and we can’t sell property without property insurance,” he said. “Many members are reaching out … insurance is not important until it’s very, very important.”
The main bill supported by the insurance industry is Senate Bill 76, introduced by Senator Jim Boyd, chair of the Florida Senate Committee on Banking and Insurance and an insurance broker.
SB 76 seeks to tackle roofing claims abuse and attorney fee multipliers, and would shorten the current deadline for new, supplemental and reopened property claims from three years to two. The bill would allow property insurers to offer homeowners policies that adjust roof claims at actual cash value if the roof is older than 10 years old. Further, it requires a 60-day notice of a property insurance claim before a suit can be filed against an insurer and gives insurers 30 days to inspect the property.
The bill would mandate that attorney fees in property lawsuits be awarded based on how successful the insured was in recovering the amount demanded in the lawsuit rather than using the current fee multiplier. Boyd said the legislation would benefit both parties by encouraging insurers not to underpay valid claims while also encouraging claimants to make reasonable demands and would provide “fair access and reasonable guidelines” for both insurers and insureds during the claims process.
The changes to roofing policies would prevent the abuse of claims by predatory attorneys and contractors, he told the Senate Committee on Banking and Insurance at its Feb. 2 meeting.
“Property insurance rates are going up and this is driven in large part by an extraordinary number of roofing claims in Florida,” he said.
Florida is facing a litigation crisis, he said, noting that from October 2020 to December 2020 there were almost 21,000 lawsuits reported to the Department of Financial Services. Thirty-four attorneys filed more than 100 cases, with one attorney filing 1,234 cases in that 90-day period. “That’s 13.4 claims a day, including holidays and weekends,” he said.
Claims data shows that just 8% of damages are paid to insureds in property suits and 21% goes to defense costs, while plaintiff attorneys receive about 71% of the pot.
“We are not saying attorneys can’t be paid but they should be paid fairly, and the claimants should be the main ones that receive the compensation in the event of a claim,” Boyd said.
Attorney and adjuster groups disagree about the bill’s fairness, however, saying it would make it harder for policyholders to sue their insurer and gives more power to carriers.
“If this bill passes, this will substantially restrict policyholders’ and homeowners’ access to the courts,” Attorney Matthew Collett told lawmakers at the Feb. 2 Senate Committee on Banking and Insurance hearing.
Florida Association of Insurance Agents President Kyle Ulrich disagreed with that assessment.
“Nothing in this legislation would prohibit any homeowner from filing suit against their company in the event of a dispute,” he said.
Insurance Consumer Advocate Carter said she supports the reduction of the claims filing deadline in the bill but only as it relates to new claims, not the limitations on limiting supplemental and reopened claims. She is still reviewing data on the attorney fee provisions.
There is concern from the industry that reforms may be hard to accomplish during a session that is overshadowed by the pandemic and Florida’s budget, which the legislature is required to pass.
More than 2,500 bills have reportedly been filed so far and passing COVID-19 liability reforms for businesses and healthcare organizations is a clear priority by top lawmakers, including Governor Ron DeSantis.
But stakeholders say reform cannot wait another year.
“I think it’s beyond just urgent, it’s desperate, frankly,” said Florida Property Casualty Association President Roger Desjadon. “If you were to look at the rate increases that have been going in for the industry, there’s a reason for that. And that reason is because all of these cases, the lawsuits, the overinflation of claims have gotten totally out of hand. So, the rates have to reflect that, and the rates that you see are rates that are reflecting that.”
Without a change, Desjadon said rates will continue to escalate, reinsurers will become more reluctant to write Florida companies and provide aggregate coverages, which means companies are going to have to take more losses on their surplus.
“It’s a vicious cycle and I think it’s gotten to a point now where if something isn’t done, I think you’re going to see a contraction of the market. You’re going to see Citizens grow a lot, and you’re going to see rates going up dramatically,” he said.
“Time is of the essence,” Gilway agreed. “Because you can’t wait for another year or two years. You are going to have more and more companies that just decide that Florida is not an economic reality for them, and they can apply their capital elsewhere.”
Personal Insurance Federation of Florida President Michael Carlson said without law changes that will quickly impact the market, Citizens will continue to increase its policy count and some insurance companies will not survive. As of right now, “that’s where we’re headed,” he said.
Legislative reform is critical to helping consumers, ICA Carter said. She also supports legislation that would clarify and prohibit unlicensed adjusting, protects consumers when they sign a contract with a public adjuster, and would improve company communications with policyholders going through the claims process. She said targeted legislative changes could have a “significant and positive impact on the market.”
“I am very concerned about the affordability and availability as it relates to homeowners insurance in the state,” she said. “I anticipate that if legislation is not passed this session … we’re going to see the situation for policyholders continue to deteriorate and to become more dire, and that’s my biggest concern.”
Commissioner Altmaier said that though there are a variety of stakeholders with different viewpoints, OIR plans to tell the story of what is happening through data and that ensures the consumer is top of mind.
“I think if we can continue to do that, we can make some meaningful progress this session,” he said.