By William Rabb | December 6, 2021

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With good news comes bad, and vice-versa in Florida’s growing but rapidly deteriorating property insurance market, industry analysts said at a two-day Florida Chamber of Commerce Insurance Summit last week.

First, some of the good news: Florida is on track to add another 4 million people and 2 million more jobs by 2030, a stated goal of the Florida Chamber and a boon for most businesses in the state, said Mark Wilson, president of the chamber.

And the bad news: Most of that growth will be in the state’s metropolitan areas, which will greatly concentrate risk for property and casualty insurers. One or two major hurricanes could bring unprecedented losses.

John Seo (Linkedin)

“If you achieve your economic development goals, which I have no doubt you will, you will have a nearly $1 trillion insured loss exposure,” said John Seo, co-founder and managing director of Fermat Capital Management, an international firm that finances alternative investments, including reinsurance.

And if Florida’s current climate of storm losses, excessive litigation, fraud and limits on rate increases continues, insurers simply will not be able to cover those losses, industry veterans warned.

“Can the supply of insurance keep up with the growth? The answer is ‘no,’ currently, in the private market,” said Chris Dittman, senior managing director at Aon, the multinational insurance provider.

Without higher rates, more insurers are likely to stay out of the Florida market, he said. While Floridians have seen property insurance premiums climb steadily in recent years, those have not been enough to provide the returns wanted by investors in insurance and reinsurance companies, Dittman said. Four insurers have become insolvent in recent years and others have pulled out of the state or have stopped writing new policies, leaving a growing insurance gap.

“The premium levels still seem insufficient,” he said.

Florida is considered to be five times riskier than the rest of the country, but the average homeowner’s premium is just 1.6 times the nationwide average, Dittman said, pointing to data compiled by the National Association of Insurance Commissioners.

Suzanne Williams-Charles

“Although the rates have been increasing … they would still have to increase quite significantly for us to reach rate adequacy,” said Suzanne Williams-Charles, director of policy and regulation for the Association of Bermuda Insurers and Reinsurers.

President Biden’s proposed global corporate minimum tax, if finalized, will hit reinsurers who have enjoyed low offshore tax rates for decades. That cost will be passed on to insurers and ultimately to policyholders, particularly in the storm-prone coastal states of Florida and Texas, Williams-Charles said. Bermuda-based reinsurers now provide more than 60% of reinsurance and catastrophe insurance in Florida, she noted.

The good news on the reinsurance front is that plenty of global capital exists to fund catastrophe recovery through the bond market, and innovations are being developed, Williams-Charles and Seo said. Conventional reinsurance has a “table limit,” to use a casino analogy, of about $50 billion per geographic zone or region, Seo explained.

“If you look at what we’re doing on the cat fund side, we’re providing another $50 billion,” he added. “We’re basically doubling the size of the reinsurance market.”

Worldwide, with the rise of the cryptocurrency market and the “froth” from that, “there’s an extra $20 trillion in capital in the world now that has no useful place to go,” Seo said. The catastrophe fund market will benefit from that.

Another potential bright spot: Some top Florida lawmakers plan another round of bills that they hope will help reduce insurance litigation and loss adjustment expenses, at least on a limited basis. At a panel discussion Friday, state Sen. Jim Boyd, chairman of the Senate Banking and Insurance Committee made his strongest commitment yet to making changes to Senate Bill 76, which passed in the 2021 legislative session.

That bill made a number of reforms, which some reports suggest have already reduced claims litigation in the state. But a state court has temporarily struck down a key part – limits on roofing contractors’ ability to solicit homeowners who may not need a new roof.

Sen. Jim Boyd

“I believe SB 76 will have an impact, but there’s still work to do,” said Boyd, who also is the owner of an insurance agency in Bradenton. “It’s something that we can’t wait another year to tackle.”

Roofing vendors have doubled down on solicitations and “direction to pay” agreements as a way around 2019 legislative restrictions on assignments of benefits.

“We’ve got to do something,” Boyd said. “They’re putting their finger up to us now.”

On the other hand, Boyd and others on the panel said there appears to be little appetite in the upcoming session for lowering the threshold on the state’s $17 billion Hurricane Catastrophe Fund. Some insurance industry advocates have called for the cat fund to be available to insurers when industry losses in a single year reach about half of what the threshold is now.

Lawmakers, who will be busy during the 60-day session dealing with election redistricting and other issues, also will have little appetite to revisit automobile insurance laws. The Legislature last year repealed Florida’s personal injury protection requirement, but Gov. Ron DeSantis vetoed it. The 2022 session begins Jan. 11.

Addressing the issue of bad-faith claims also will have to wait until next year, lawmakers said. Insurance attorneys have said Florida law encourages plaintiffs’ lawyers to file bad-faith claims much too quickly, even when claims have been legitimately denied, costing insurers millions in litigation costs and attorneys’ fees.

And no one on the lawmaker panel brought up a change that the residential property insurance industry has called for in recent years: Allowing more policies to pay the actual cash value when roofs are damaged, instead of the full replacement cost that Florida law now requires in many cases. Insurers have charged that unscrupulous adjusters and contractors often talk homeowners into filing claims on older roofs, even when the roof damage is mostly from wear and tear.

“It’s incumbent upon us now to get some reform on the actual-cash-value problem,” Bob Ritchie, president of American Integrity Insurance Group, said during an earlier summit panel.

Laws and regulations in some 40 other states have made it clear that homeowner policies, unless specified, do not cover normal maintenance and wear and tear, he said, adding that the governor and Florida House and Senate leaders must address the ACV issue in the upcoming session. “We also need to be in a position of convincing (Insurance Commissioner David) Altmaier that we can get an appropriate actual-cash-value solution,” Ritchie said.

Sen. Jeff Brandes

Sen. Jeff Brandes, R-St. Petersburg, made it clear that the insurance industry has done a terrible job of explaining to consumers how dire the market is now and how out of control lawsuits are. And few members of the Legislature are knowledgeable enough or are willing to help.

“We have real problems and the leadership in the Legislature is not coming to the sound of your guns,” he said. “You’re on your own until things get radically worse.”