Florida capacity likely to increase after reforms

Insurers are likely to increase capacity in Florida in the next two years as legislative changes aimed at reducing litigation in the state take effect, according to  Fitch Ratings.

Primary insurers have been reducing their presence in the state due to a high level of catastrophes, rising reinsurance rates and high court awards over a number of years.

Christoper Grimes, senior director at Fitch Ratings, said: “Florida has been a very litigious environment that has produced outsized losses and outsized amounts of litigation relative to other states over the last several years.

“That’s ramped up a lot. In the previous decade, what the legislature attempted to do over the last several rounds of attempts to fix some of the issues in the state was to progressively get more favourable for insurance companies in terms of what is allowed.”

Grimes said Florida has experienced higher levels of litigation and court awards than other states, which had increased levels of insured losses.

“In December 2022, a very substantial round of changes was made and subsequently adopted in the first quarter of this year, which we think will have beneficial changes to loss costs,” he said.

“We hope the cost of insurance for homeowners in the state over the long term will be lower.”

The Florida legislature passed two laws in December 2022 which eliminated AOB—a homeowner’s ability to assign insurance benefits to a third party—and restricted fee multipliers.

At the same time, lawmakers approved a taxpayer-backed $2 billion reinsurance pool for private insurers.

According to news reports, the measures seem to be stabilising the home insurance market.

The Florida Bar news website quoted Florida banking and insurance committee chairman Jim Yaworsky saying early indications were positive.

Five new insurance companies filed to do business in Florida in recent months, he said.

“People had to be convinced this was a viable market to enter,” Yaworsky said. “We’re seeing positive results from the legislation.”

The cost of reinsurance rose 50 percent last year, but that has slowed to a 27 percent increase, he added.

Grimes said it was likely to take several quarters before insurance company results improved. “It’s not something we were expecting to see bleed into results in 2023,” he said.

“But in 2024 to 2025, I hope we will gradually see some of the issues that had plagued results in the state start to subside, and a stabilisation of results and capacity.”

The state of things

Grimes said some insurers had entered the market in Florida in the last year.

“A number of private insurers, Slide being one, are coming into the state and taking insurance policies out of state insurer Citizens,” he said. “Capacity has been increased by some players who feel that the business is well priced for them. That’s part of why they would choose to write business there.

“It’s also because some of the legislative fixes will have a favourable impact on results going forward.”

Grimes said similar capacity shortages had arisen in California, but the state was not yet at the same point as Florida.

Many national primary insurers have ceased writing new homeowner insurance policies in the state, citing high reinsurance costs and regulatory hurdles.

“The departure of very large insurers that have significant market share in the state has presented challenges for the insurance commissioner and the legislature in California, to the point where they’ve had to have special sessions to discuss the plan for making sure that the state has a viable homeowners’ market in the future,” Grimes explained.

“There will probably be some significant lobbying efforts to combat that, so it’s not as easy as the governor or the treasurer waving a finger and saying ‘this is how we’re going to do it going forward’.”

He said the most recent reforms by Florida that have been put into law followed other attempts at legislative reform, but California had seen few attempts at legal changes.

“This situation has been attacked multiple times in Florida. The biggest, most drastic step was taken in December, but it isn’t just commentary—it’s been actual laws,” Grimes said.

“In California, it’s mostly been rhetoric to this point. There hasn’t been a law put in place.”

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