4 October 2022Insurance

Florida regulatory reforms fall short: APCIA panel agrees

Florida’s recent regulatory reforms have likely fallen short of what is required to put a lid on the runaway litigation that has reinsurers fleeing the jurisdiction and insurers being downgraded and going insolvent, participants on a panel discussion during the APCIA convention underway in Dallas told delegates.

The session, called “Reinsurance panel: state of the market” featured Kerri Hamm, the head of business development for Munich Re in the US; Paul Anderson, Aon’s US property growth leader; and Will Garland, president, Centres of Excellence, Guy Carpenter. It was moderated by Dana Perino, the former White House Press Secretary and an anchor on Fox News.

“I don’t think the legislative changes went far enough in Florida,” Hamm said. With assignment of benefits still in place and longish claim periods still available, Hamm “would like to see Florida go further”.

Immediate progress could be tough in the jurisdiction, Hamm admitted. But participants in the panel did suggest that further changes could be in the pipeline as regulators and politicians acknowledge the scale of the problem.

“The Florida governor has made some comments that acknowledge he understands what the challenges are,” Anderson said.

But Florida is the poster child of the litigation craze spreading across other parts of the US. Tort reform would be a welcome relief to the uncertainties of social inflation across North America more broadly, the panel agreed.

“Companies need to be able to make money in quiet cat periods so that when catastrophes do happen, they are still there,” Anderson said. The past several years have taken the story the other way: Florida insurers have been losing money on continuing adjustments to age-old cat events thanks to the litigation system in the state.

“We will see first-hand with Hurricane Ian how some of these legislative changes play out,” Anderson said.

Balance needed

Garland held out hope that 2022 legislative changes could yet deliver some positive impact. “Over time, we have seen that tort reform does help to bring consistency and capacity to markets,” he said. It’s understandable that legislators find balancing customer and corporate interest “difficult” but “but balance has to be found,” he said.

Munich Re has wider concerns on the trend in nuclear verdicts, Hamm indicated. “Sympathetic juries are delivering verdicts far in excess of what the actual claim value should have been, a problem that has extended increasingly into traditionally conservative jurisdictions,” she said.

“It’s making insurance more and more expensive for everyone,” she lamented. Public sector businesses seem to have taken a disproportionate hit, ultimately passing the costs on to taxpayers.

Her solution: a closer look at the for-profit litigation funding machine, where transparency has been low despite a growing amount of assets under management being deployed by various investors and funds to put claimants in courtrooms.

Other challenges

The panel discussion moved on to some of the wider challenges reinsurers are facing—and were facing before Hurricane Ian.

Rising geopolitical risks and other challenges such as inflation were already big concerns for the industry and were driving rates up while tightening terms and conditions, well before the latest hurricane. Reinsurers must deal with geopolitical risks specifically by looking carefully and wordings and exclusions, some on the panel suggested.

“We have a tonne of issues on geopolitics,” Anderson replied to a question on what the lead drivers are in a market that, in the current circumstances, would normally be dominated by inflation, loss trends and Hurricane Ian.

“Russia-Ukraine so far has been a relatively muted global loss,” he said. “Our concern is that it has emboldened other nation states where we may have a higher number of tie-ins with the US and European economies.”

Hamm agreed, stating that the industry had become used to a more muted political risk landscape.

“The industry had become complacent as there hadn’t been many geopolitical risks,” she said. “Now there is risk out there, and it’s not just Russia-Ukraine with the potential for impact. Now is the time to tighten up those exclusions.”

Garland concurred, adding that Russia-Ukraine is by no means a minor event. “The impact at mid-year was notable and the conflict is escalating. For 1/1, it may be under a stronger microscope for specific covers,” he said. He added that it was “way too early to predict” a pricetag on the ongoing conflict.

“This will force us to take a closer look at war exclusions, and make us once again adapt as an industry,” Garland said.

That process can be little but painstaking, Anderson noted. Expect a half a dozen versions of new war exclusions early on before the industry starts to converge. “It might take a renewal or two, but the market does tend to look at what is good and adopt that.” Lloyd’s will play a key role given the global specialty line focus, he added.

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