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In 2023, Florida’s domestic insurers turned a net profit for the first time in seven years, a new report by marketing intelligence company S&P Global said.

The study of “around 50” Florida-based insurers credited the turnaround to investment income, a mild hurricane year, and tort reforms that took effect in March 2023.

The group reported $147.3 million in net income for 2023, according to the analysis by Jason Woleben of S&P Global Market Intelligence that was released on Wednesday. That compares to net losses of more than $1 billion in each of the previous two years.

The results are likely to renew hopes that insurers might soon begin to reduce property insurer rates for Florida’s homeowners.

The report quoted Universal Insurance Holdings CEO Stephen Donaghy as telling investors during the company’s third-quarter earnings report last year that future rate reductions in Florida might be possible.

Yet Universal Property & Casualty, the flagship company of Universal Insurance Holdings, was among just four of Florida’s top 22 private-market insurers, as ranked by direct premiums written, to post a net loss in 2023.

The company lost $99.6 million last year, compared to $141.2 million in 2022, the report said.

State-owned Citizens Property Insurance Corp. posted a $746.5 million net profit last year after reporting a $2.24 billion net loss the year before, Woleben wrote.

Citizens’ results were not counted among the totals in the report.

Other companies that made money last year were State Farm Florida ($52.2 million), First Protective ($16.2 million), Slide ($15.5 million), American Integrity ($16.6 million), American Coastal ($105.9 million), ASI Preferred ($13.5 million), Edison ($42.0 million), Security First ($13.6 million), Heritage Property & Casualty ($20.2 million), Homeowner’s Choice ($12.9 million), Florida Peninsula ($46.8 million) and Auto Club Insurance Co. of Florida ($40.9 million).

Companies that posted losses included Tower Hill Insurance Exchange (-$86.9 million), Kin Interinsurance Network (-$59.5 million), and Privilege Underwriters Reciprocal Exchange (-$29.7 million).

While the top 50 companies also posted an underwriting loss for the eighth straight year, the combined loss of $190.8 million was “considerably better” than losses of nearly $1.8 billion in 2022 and $1.52 billion in 2021, the report said.

The 2021 and 2022 loss totals included nine residential insurers that have since become insolvent or merged into other companies.

Rate reductions soon?

The improved income result fuels confidence “that you will either see rate reductions or stability of rates over the next six to 24 months,” said Stacey Giulianti, chief legal officer for Boca Raton-based Florida Peninsula. “My understanding is that the industry is beginning to see the positive effects of legislative action, and loss ratios (insurers’ expenses compared to revenue) are in sharp decline.”

Mark Friedlander, spokesman for the industry-funded Insurance Information Institute, was less optimistic, stating that the U.S. property insurance industry posted its worst underwriting result in a decade last year, with a $38 billion underwriting loss due to $100 billion in storm losses, replacement cost inflation, and reinsurance pricing.

“Net income improvements were driven by exceptional investment results in the financial markets, not because of rising premiums,” Friedlander wrote.

While forecasts for the upcoming hurricane season have not yet been released, Friedlander said “early indications are this is going to be a very active year with the potential of significant impacts on Florida.”

Some scientists have forecast a La Niña by summer. That’s a pattern of cooler waters along the equator in the Pacific Ocean that often leads to more active hurricane seasons in the Atlantic Ocean.

Projections of an active storm season would increase costs that Florida insurers would have to pay for reinsurance, and those increases would be recovered by raising prices for homeowners coverage in the state, Friedlander said.

Reduced litigation levels in Florida will hopefully keep rate increases “moderate” in Florida compared to recent years, he said. “However, declining rates are not a realistic scenario in 2024 based on the macro factors impacting the industry.”

Defense costs still high in Florida

S&P Global’s report states that property insurers in Florida are optimistic about the long-term benefits of tort reforms that were enacted in 2022 and 2023.

Effects of tort reforms could be seen in the firm’s tallies of Defense and Cost Containment Expenses — costs related to investigating or litigating specific claims.

DCCE costs can include legal fees, court costs, expert witnesses, investigation costs, costs of records duplications, expert witnesses, and trial preparations.

In Florida, DCCE costs among property insurers fell to $739.2 million after hitting $1.6 billion in 2022, thanks largely to Hurricane Ian. It’s the lowest total since 2019, a year no hurricane struck Florida, Woleben wrote.

A majority of the incurred defense costs came from the homeowners business line. They fell to $593.5 million in 2023, compared with $1.23 billion in 2022 and $571.1 million in 2021.

Even at $739.2 million, Florida insurers spend much more on defense costs than any other state in the nation, S&P Global said. States with the next highest defense spending totals were California ($401.6 million) and Texas ($284.7 million).

While plaintiffs’ attorneys would say the high number is caused by insurers failing to pay or underpaying, Giulianti blamed the “one-way attorneys fee statute” that encouraged plaintiffs lawyers to file suit over what he called relatively small fee disputes.

A state law in effect for more than a century required insurers to pay plaintiffs’ legal fees if litigation resulted in a judgment or settlement that exceeded an insurer’s original offer by any amount. But the tort reforms narrowed the types of cases that require insurers to pay plaintiffs’ legal fees, making attorneys less likely to file them, Giulianti said.

“With an attorney fee provision, you take any case at all, because all you have to do is get a settlement, and 99.9% of the cases settle, and you tack exorbitant fees onto it,” he said. “Now, if a lawyer is going to take a case, they have to believe in it strongly. It has to be extremely meritorious and serious.”

Giulianti added that claims have declined as well, because many were previously “either trumped up or manufactured by public adjusters and trial lawyers.”

The legislative reforms aimed at improving the property insurance market in Florida are increasingly seen as having a positive effect, with carriers increasing their appetite for writing in the state and analysts suggesting the benefits of the reforms could be significant over time.

As we reported earlier this year, data released on homeowners’ property insurance lawsuits had already showed a decline in litigation.

The CEO of insurer Universal had said last year that he felt the situation was improving thanks to the reforms, which he reiterated again in the firm’s latest earnings call saying that property insurance claims trends are definitely looking better in Florida.

At the same time, while the Florida property insurance market is seen as improving and recent legislative reforms are expected to ultimately drive more capital to support reinsurance for the Florida marketplace, some in the insurance-linked securities (ILS) industry have rightly highlighted that there is still likely to be a premium charged for capacity deployed to the state.

That’s a given, until we really see the full effects of the already enacted legislative reforms, as well as any additional property insurance or reinsurance measures taken in the still ongoing Florida session this year.

But, the underlying sentiment seems to be that Florida’s marketplace for insurance is getting healthier all the time and this is now even encouraging some carriers to write more business there again.

Case in point American Integrity, which we have learned is to begin offering more capacity by starting to write DP-1 Owner-Occupied policies, in all Florida counties the insurer is active in, again.

Yes, this will be restricted to policyholders with no lapse in coverage and no prior losses, but it is going to be available statewide, except in Broward, Miami-Dade, and Monroe counties we understand.

American Integrity has also expanded availability of HO-3, DP-3 and its Integrity Select policies in certain areas and zip codes in Florida, while also expanding short-term rental coverage statewide and making its flood endorsement more widely available.

But, most importantly, is how American Integrity explained its capacity updates, saying, “Recent legislative reforms aimed at both tackling abusive litigation practices in Florida’s property insurance market and increasing long-term certainty in Florida’s business climate have helped make this decision possible.”

Which is a glowing review for the lawmakers and will hopefully spur them on to make further improvements in the ongoing session.

We’ve heard similar stories of increased appetites at other primary carriers in Florida, although it seems the national companies are in the main still waiting for more evidence and perhaps to see what additional reforms the current legislative session may bring.

Another signal of improving conditions in comes out of insurer Progressive, which has also said that the Florida insurance reforms are benefiting the company.

The management of Progressive have said that recent reserve releases were specifically related to Florida and that the recent reforms are a positive for them and other insurance carriers operating in the state.

It’s worth noting that the equity analyst team at BMO Capital Markets estimates that the Florida insurance reforms could be worth at least a 5 point loss ratio improvement in 2024 for Florida portfolios of risk.

That’s a meaningful improvement and just the kind of buffer that might encourage more insurance and reinsurance capacity to the state of Florida this year.

The BMO Capital Markets analyst team said that some lawyers they have spoken with believe the benefit of the reforms could be even greater over time, as many of the reforms tackle litigation which has a long-tail.

But, for the benefits to already be so clearly showing that carriers are encouraged to deploy more of their capital into the state, shows that the Florida property market environment may have turned the corner and be on a steady path back towards becoming a much more functional marketplace.

Of course, no amount of legal reform can reduce the threat of loss, hurricane seasons and severe weather will continue to erode re/insurance capital in Florida over time.

But, there are some other signals of improvement, such as where it is being said that building codes in Florida are seen as a significant factor in reducing the potential insurance industry loss from hurricanes there.

All of which adds up to some interesting inputs for reinsurance capital providers decision-making, as to how much exposure to take on in Florida this year.

Should the evidence of improving conditions persist through the coming months, or become increasingly apparent, it does have the potential to elevate the appetite of capital providers for Florida risk and perhaps elevate the levels of competition at the June reinsurance renewals.

One of the biggest sources of confusion for customers after Hurricane Ian was the difference between “wind-created openings” and “wind-driven rain.” This is an important distinction that often determines whether the damage is covered or not.

In general, if water enters through an area of the home in which the exterior materials are ripped, torn, broken or smashed as a result of the storm, allowing rain to enter the dwelling, the damage caused by that wind-created opening would generally be covered under the policy unless an exclusion applies.

However, if water seeps into a home during a storm through a window pane, flashing point, material transition, around sealants, through seams and natural openings like a door jamb, and the exterior materials were not ripped, torn, broken or smashed creating an opening, that would be considered wind-driven rain. That damage is typically not covered by a base policy (though American Integrity offers an endorsement that covers this damage).

Fast fact: many windows are designed with weep holes and other design elements to allow water to escape the tracts when heavy rain is pelting them. The windows will allow water through in some instances, but does not mean they are damaged. It is a safety and design feature, so customers should consider adding an endorsement to their policy to ensure this coverage.

Trouble in raising rates may be among the reasons for the retreat

Insurers are trapped in a riddle: In a world where the risk of costly disasters is rising but high premiums are squeezing policyholders and angering state regulators, how can they continue to make money?

That question was at the center of the decision by Farmers Insurance last week to stop renewing almost one-third of the policies it has written in Florida, becoming the latest insurer to pull business from a state as the industry grapples with the rising costs of covering damage tied to floods, hurricanes, wildfires and other climate-related disasters.

Farmers, one of America’s biggest home insurers, didn’t say what specifically led to its decision. Was the cost of payouts too high in recent years, which saw record-setting numbers of billion-dollar disasters, just as rates charged by reinsurers, which sell insurance to insurers, were rising? Was it too many lawsuits from policyholders? Or is Farmers playing a game of chicken with state regulators, hoping that walking away now will give it leverage to charge customers more in the future?

“A lot of insurers have been losing a lot of money in Florida and they’ve been threatening to leave for years,” said Daniel Schwarcz, a professor at the University of Minnesota Law School who specializes in insurance.

In most states, insurers have to behave like electrical utilities: If they want to increase the rates they’re charging their customers, they have to apply for regulatory approval from the state government to do so.

Insurers’ trouble in raising rates may be among the reasons they are retreating in places like Florida and California, where climate change is causing the costs of paying claims — which insurers refer to as “losses” — to soar. When it’s hard toraise rates as companies have done in certain places, the best business decision is to leave.

In May, State Farm, the country’s largest insurance company, said it would stop selling homeowners’ coverage in California. Last month, Allstate said it would stop selling new home and commercial policies in the state, citing the worsening climate and rising building costs. Farmers said this month that it would limit new homeowners insurance policies in California, citing rising inflation and risks from worsening climate disasters as among the reasons.

Florida law lets regulators deny rate increases or even force insurers to return money to customers if the rates they’re charging or hoping to charge are “excessive,” meaning they could generate a profit regulators consider “unreasonably high in relation to the risk involved.” Floridians already pay more than the national average for homeowners insurance. Insurance on a $250,000 home in Florida cost an average of $1,981 this year, while the national average was $1,428.

Some experts, like Schwarcz, say state regulators have too much control over how insurers set rates, keeping them artificially low even as the cost of paying out claims after devastating and more frequent storms continues to rise.

Other experts say it’s not less regulation that is needed, but more of it — specifically, better management of so-called reinsurance companies that operate out of the sight of consumers and sell insurance to home and auto insurers to help them manage their risk. These companies have raised their rates sharply in recent years. State regulators have less authority over reinsurers, allowing those companies more freedom to charge insurers rates as they see fit.

Industry lobbyists say that it’s neither of those things and that insurers are folding parts of their business to reduce the number of claims-related lawsuits from policyholders.

“This business decision was necessary to effectively manage risk exposure,” Trevor Chapman, a spokesperson for Farmers, said in an email.

Chapman added that Farmers was not totally pulling out of the state, just ending its home, auto and umbrella policies sold under the Farmers brand. Any damage that occurs to policyholders’ properties before their yearlong policies end will still be covered. The company sells policies under several other brands, which it plans to keep running.

A spokesperson from the Office of Insurance Regulation said the written notice the company sent to the regulatory agency Wednesday was marked as a “trade secret.”

Schwarcz said Florida’s politicians and regulators should have seen this coming.

The Florida insurance industry has also seen smaller insurers vanish. Over the past two years, eight small insurers have gone bankrupt in the state. The string of retreats and bankruptcies has left many homeowners with few options other than a nonprofit, state-backed carrier.

According to the Insurance Information Institute, an industry trade group, property and casualty insurers have not, as a whole, earned profits on underwriting — or as a result of their overall business activities — in Florida since 2016. The industry’s cumulative underwriting losses have topped $1 billion for the last three years. Last year, the institute said, insurers’ cumulative net income losses in the state totaled $900 million.

“While some states have very bad years financially, like Louisiana in 2020 and 2021 due to the record level of hurricanes, no other state has reported sustained losses for property insurers like Florida has since its last profitable year in 2016,” said Mark Friedlander, a spokesperson for the institute, which represents consumer insurance companies.

“The problem is that there’s denial among folks that live in Florida and folks that live in California — and, frankly, the American population — about the dangers that we’re facing,” Schwarcz said.

His proposed solution: Let insurers charge whatever they want to for policies in disaster-prone areas. Eventually, that would lead people to stop building homes and businesses that were very likely to be destroyed by natural disasters. “That would actually result in a more resilient infrastructure, more adaptive to climate change.”

Birny Birnbaum, an insurance expert who is the executive director of the Center for Economic Justice, a nonprofit working toward equal access to economic opportunity, said Schwarcz’s idea — letting market forces dictate how homeowners respond to climate change risks — would not fly.

“That’s like saying, ‘As long as I can keep paying more and more each year, I don’t care if my house burns down because there will always be more to pay for it,’” Birnbaum said. “That’s insane.”

Insurers in Florida and other states where the disaster threats are higher, like California, are struggling because the reinsurance companies they’re turning to for help managing their risks are charging too much, and no one is regulating them, Birnbaum said.

Reinsurers offer insurance companies a guarantee that if something huge goes wrong like a giant hurricane hitting southwest Florida, they’ll be able to find the cash to pay for it. The reinsurance market, although large, tends to be volatile, with prices spiking quickly just when insurers are least prepared to handle the increases.

Birnbaum, who sits on a committee that advises the Treasury Department on insurance matters, said reinsurers should have their rates regulated more like consumer insurance companies do. He also argued that the federal government should create a national reinsurance backstop similar to its terrorism insurance program, which guarantees that the government will step in and help cover catastrophic losses once they reach a certain dollar amount.

The Reinsurance Association of America, a leading traade group representing dozens of reinsurers doing business in the United States, did not respond to requests for comment about the role of the industry or debates about more stringent regulation.

The cost of reinsurance in Florida jumped 40% to 70% this year over last year, according to the Insurance Information Institute. But Friedlander said reinsurance rates were higher in Florida than in other storm-prone states because of insurer losses tied to lawsuits.

“Legal system abuse and claim fraud are the man-made factors that have generated Florida’s property insurance crisis, not catastrophe losses,” Friedlander said. In Florida, insurance companies feel it’s too easy for people to sue them, he said. More than 100,000 lawsuits have been filed each year against insurers in Florida for the past several years, he added.

With the June 1 reinsurance renewals a week away, the outlook for Florida-based property insurers may not be quite as dire as many had predicted earlier this year, at least according to a top official with one of the world’s largest reinsurance brokers.

“So far, what we’re seeing is a much more orderly renewal process than what we saw in 2022,” Rhandahl Fuller, managing director and Florida practice lead for Guy Carpenter & Co. He spoke this week at an online Florida market briefing hosted by the AM Best financial rating firm.

While some in the industry have warned that reinsurance renewal costs could rise another 40% next month, along with tightened availability, Fuller suggested the feeling now is more of “cautious optimism.”

“We saw a bit more overall appetite as some of the reinsurers that had stepped back last year either reentered or they increased their participations this year,” he said.

And one big reason for the measured sanguinity is that recent Florida legislative reforms, which have limited assignments of benefits and one-way attorney fees, already appear to be having an impact on many carriers’ long-suffering bottom lines.

Claims litigation and defense containment costs in Florida rose steadily from 2014 to 2018, dipped a bit in 2019, then rose again, explained Chris Draghi, AM Best’s associate director, who also spoke at the webinar. Since 2013, defense costs have increased more than six-fold and since 2018, Florida insurers have spent $2.6 billion in that category for homeowners, allied lines and fire insurance claims. Draghi called that “a material amount.”

Looked at another way, the direct defense and cost-containment expenses for Florida carriers were about 8% of direct premiums earned in 2022, compared to 2% for most other states. The next-closest state was Louisiana, with about a 4% cost number.

But since late 2022, those defense costs have started to drop in the Sunshine State, after May and December legislative changes, the AM Best-compiled data show.

“We really started to see the impact pretty quickly,” Fuller said. “We’re already starting to see companies observing pretty significant decreases in reported claims and frequency of AOB, and frequency of litigation. So a lot of that stuff is kind of happening behind the scenes and not all of it’s going to be reflected in operating results right away.”

Combined ratio for Florida carriers, excluding major national companies and Citizens Property Insurance Corp., also has dropped since 2020, after rising steadily for six years, Draghi pointed out. In 2014, those carriers enjoyed a luxurious combined ratio in the high 70s. But by 2020, that had almost doubled before sliding back slightly. For many insurers, though, the bellwether measure of profit is still well above 100, he noted.

Direct-loss ratios also are improving, Fuller said. For the first quarter of this year, the Florida domestic industry saw the ratio drop 5 points from the same time in 2022. The average ratio is now 15 points lower than the five-year average for Q1 – “pretty meaningful movement there,” Fuller said.

“We saw that more than 75% of the companies were reporting improvements year-on-year on that direct-loss ratio,” he noted. “So that’s really, really encouraging.”

But the Florida market is not out of the woods yet, Fuller and Draghi said. Capital contributions since 2018 for those Florida carriers, excluding Citizens and major nationals, have increased significantly, totaling $1.8 billion. But in that time, surplus amounts have risen just $158 million, or about 7.6%, Draghi’s data show.

“So what this indicates is that there has been a substantial amount of capital that has been flowed into these primary insurance carriers that is almost needed in order to keep them afloat,” he said. “And you have to wonder how long that can continue, if there’s any concerns in that kind of dynamic.”

Just as the plaintiffs’ law firm of Morgan & Morgan warned, the number of Florida lawsuits filed across the state has shattered previous records, topping 280,122 in April, the Florida Bar reported.

That’s more than double the previous record set in May 2021 and is largely due to anticipation of the Legislature’s passage of a far-reaching tort reform bill that Gov. Ron DeSantis signed into law March 24, the Bar noted.

As it became clear that House Bill 837 was about to pass in March, limiting one-way attorney fees and multipliers in almost all insurance and injury litigation, and slashing damages if the plaintiff is found to be 50% at fault, Morgan & Morgan and other claimants’ firms told insurance defense attorneys that they were getting ready to file tens of thousands of lawsuits in the days before the law took effect upon the governor’s signature.

The firms were not exaggerating. And insurers and county clerks of court are now dealing with the impact.

“Our primary concern is having adequate resources to process the high volume of cases and appropriately serve all parties and the judiciary,” Martin County Clerk of Courts Carolyn Timman told the Bar.

Sarasota County Clerk Karen Rushing said the flood of new cases began around March 17, Rushing told the Bar’s news site.

The total number of documents in the case filings was almost 3.6 million in March, a third more than the previous month. About 44% of the new cases were filed in Miami-Dade County and in Hillsborough County, home to Tampa.

Some clerks have said they already are facing budget shortfalls, spiraling costs and understaffed offices – even before the tort wave hit, the Bar noted.

The Florida Department of Financial Services, which must be included on notices of intent to litigate against insurers, also reported a spike in planned litigation. The agency in March recorded 8,637 notices of intent to initiate litigation, up from 7,634 in February. That’s double the number of notices filed in March 2022, the DFS web page shows.In previous eras, many of the insurance claims behind the lawsuits would have been dropped or settled without litigation, Florida Justice Association Secretary Todd Michaels told the Tallahassee Democrat news site. But with the law taking effect immediately in late March, firms felt compelled to file the suits to avoid the law’s fee limitations and protect their clients, Michaels said.

“At this moment we are doing what all lawyers should be doing – protecting the interests of our clients,” John Morgan, head of the Orlando-based plaintiffs firm, said in a statement in March.

The tort-reform law clamped the attorney fee and other restrictions on suits filed after March 24. It does not apply retroactively in most cases, although some insurer lawyers have indicated they may challenge that in some circumstances.

Even after lawmakers pulled the plug on litigation incentives that Florida property insurers have long blamed for rising homeowner rates, there’s more insurance sticker shock ahead, experts say.

We can thank the increased frequency of catastrophic hurricanes and other costly weather events over the past few years, along with concerns that climate change will continue to send disasters our way, according to a recently released report.

The report was prepared by ALIRT Insurance Research, a Connecticut-based firm that analyzes the financial strength of insurers on behalf of insurance distributors, insurers, institutional buyers and analysts. Released on May 2, the report paints a dire picture of Florida’s insurance market and warns of a “no-win situation” for Florida-focused homeowner insurers monitored by the firm.

Reinsurance costs — which is coverage that insurers must buy to ensure they can cover claims after hurricanes and other catastrophes — could increase by up to 50% for Florida-based insurers before the June 1 start of hurricane season, the report said.

Such a steep increase could force insurers to pay more for reinsurance than they collect in premiums, which is “an unsustainable business model over the long haul,” the report said. Meanwhile, companies that cannot secure or afford desired levels of reinsurance could be left vulnerable to storm claims that could drive them into insolvency, according to the firm.

The pressures are evident in the shrinking pool of small domestic insurance companies that have formed to serve homeowners in the state since 1992’s Hurricane Andrew. A pool of companies monitored by ALIRT has shrunk from 42 companies in 2021 to 33 currently. Eight Florida-based companies have gone insolvent since 2021, the report notes.

The 33 surviving companies exclude subsidiaries of large companies like Allstate, Farmers, Progressive, State Farm, Travelers and USAA that were created to insulate the parent companies by focusing solely on Florida risks.

Thirty of the 33 surviving Florida-focused companies have financial strength scores well below the national average of companies that ALIRT reviews and are “problematic,” the report says.

Nearly half of Florida-based homeowner insurers are on a “watch list” developed by the Florida Office of Insurance Regulation, said Mark Friedlander, communications director for the industry-funded Insurance Information Institute (III).

“There is growing concern that several Florida residential insurers will be unable to complete their reinsurance programs for the 2023 hurricane season,” Friedlander said. “This could result in numerous financial rating downgrades and potential insolvencies.”

The ALIRT report observed that by offering insurers less coverage at higher rates, “it appears that reinsurers, worn down by years of substandard earnings, have also finally cried, ‘Uncle.'”

What’s to blame for rising costs?

Of course, rising reinsurance costs will be passed directly to consumers. Friedlander says some companies could be forced to pay 70% more for their reinsurance this year.

ALIRT’s report stated that the looming reinsurance cost spikes are only partly attributable to litigation abuses that were addressed by the Legislature last year and earlier this spring, after being blamed for five years of rising premiums and collective industry losses.

While reducing lawsuits is “certainly a formidable step in the right direction, it occurs at a time when the Florida property insurance market faces another, perhaps equally existential challenge: obtaining the reinsurance protection so critical to the relatively small homeowners insurers that comprise the majority of this market,” it said.

A bigger reason for the upcoming price hikes is that reinsurers are waking up to Florida’s vulnerability to natural catastrophe after several years of costly hurricanes and other weather events “that many now attribute to climate change,” the report said.

Hurricane Ian, which caused an estimated $40 billion to $50 billion in damage after striking Southwest Florida last last September, is seen by the global reinsurance industry as the straw that broke the camel’s back after six years of global catastrophe losses, the report said.

The reinsurance industry, backed by global financiers looking for safe investments, has been reeling lately, averaging about $100 billion a year in from global catastrophes, according to financial analysis firm Moody’s.

Friedlander said III agrees that reinsurance rates for Florida-focused insurers are headed sharply higher but disagrees with ALIRT’s contention that litigation is a secondary factor this year. “Reinsurance renewals in other hurricane-prone states are expected to run much lower on average than Florida because those states don’t see the litigation abuse experienced here,” he said by email.

Despite restrictions enacted last year largely preventing third-party claims assignments and supplemental collection of legal fees in claims disputes, those enticements remain in place for policies active when the law took effect on Jan. 1. That means lawsuits over claims made before the reforms took effect can still be filed for years to come, delaying the reforms’ anticipated cost savings for insurers and any rate stabilization promised to homeowners.

Yet, Locke Burt, president and CEO of Security First Insurance Co., says the reforms have reduced the number of lawsuits filed against his company by 57% over the first four months of this year. He said, though, that the upcoming reinsurance cost increases will wipe out those savings.

For every $1 of insurance premiums that homeowners pay, about 20 cents goes to litigation claims, Burt said. “We think that’s going to be cut in half” in the near future, he said. Forty cents of the $1 goes to reinsurance and those costs are expected to increase for his company 30% to 40%, he said.

Reinsurance cost hikes passed to customers

According to ALIRT, Florida-focused companies paid reinsurers an average of 49 cents for every dollar of premium collected in 2022.

What does that mean for policyholders? Policyholders will generally see premium increases of roughly half of the percentage increases that insurers will see for reinsurance, says Paul Handerhan, president of Federal Association for Insurance Reform, a consumer watchdog organization based in Fort Lauderdale.

That means that if an insurer must pay 50% more for reinsurance this year, premium increases for policyholders will run about 25% on average, he said.

Handerhan expects all but a couple insurance companies will secure their needed reinsurance coverage for the upcoming hurricane season, but the increases will prove costly for policyholders.

He concurs that reinsurers are awakening to the increased costs of damaging storms. “There’s no doubt that climate change, including sea level rise, hurricanes and storms like the one that flooded much of Fort Lauderdale last month, are increasing in frequency and severity,” he said.

Were we paying too little?

ALIRT also suggests that Florida homeowners have been enjoying artificially low insurance rates — or in insurance-speak, “suppression of actuarily sound” rates — for the past three decades. The combination of suppressed rates and increasingly costly storms, the report said, “has proven a recipe for chronic (re)insurance losses.”

That’s because insurers rely on reinsurance coverage to pay claims after they spend a prescribed percentage of their surplus. Many companies, particularly startups, charged low premiums to compete for customers in the 10 hurricane-free years between 2006 and 2015, Handerhan said. As a result, many accumulated less surplus and are now weaker financially than if they had charged rates reflecting their actual cost of risk, Handerhan said.

If reinsurance costs rise year after year for a company that has seen its surplus erode for six or seven years, eventually that surplus is eroded to the point that the company can never catch up, he said.

Handerhan expects reinsurance rates to stabilize within two to three years, as last year’s legal reforms gradually reduce litigation costs, and as insurers are forced to cut costs by improving claims handling practices and shedding risky policies.

That means state-owned Citizens Property Insurance Corp. will still have to be the insurer of last resort for owners of older homes most vulnerable to damage from severe weather, he said. But eventually, premiums should stabilize for homeowners fortunate enough to be able to buy private-market insurance, he said.

ALIRT’s report warns that much depends on the weather.

About the only way out of trouble for Florida’s property insurance industry as it waits for the legal reforms to reduce losses is to “keep their fingers crossed on the catastrophe front,” the report said, adding that’s “never a great strategy.”

By the end of March 2023, National Flood Insurance Program (NFIP) claims paid after Hurricane Ian had surpassed $3.4 billion, with more than 46,000 NFIP flood insurance claims received.

As we wrote previously, by mid-January 2023, the NFIP had paid $2.2 billion in claims for Hurricane Ian, the powerful Category 5 Atlantic hurricane which battered Florida in September 2022, becoming one of the costliest re/insured loss events in history at an estimated $55 billion.

The January 17th figure reported by the US Federal Emergency Management Agency (FEMA) represented an almost 28% increase from the January 9th figure.

In early March, the total had risen by more than 45% to $3.2 billion, rising by a further 6% to the more $3.4 billion figure as of the end of that month.

By now, it’s likely that the total has risen even higher, but given that it’s now been seven months since the hurricane it’s likely that the pace of claims would have slowed somewhat.

Of course, FEMA had reinsurance protection in place for the NFIP in 2022 – securing $1.064 billion of flood protection for a total premium of $171.9 million at the January 1st, 2022, reinsurance renewals.

The 2022 program covered portions of NFIP losses above $4 billion arising from a single flood event, structured to cover 4.163% of losses between $4 billion and $6 billion; 26.565% of losses between $6 billion and $8 billion; and 22.453% of losses between $8 billion and $10 billion.

So, with NFIP claims paid now at more than $3.4 billion, the attachment point is approaching, although it’s still someway off and, as noted above, the pace of claims will have slowed given the time that has passed since Hurricane Ian’s impacts.

Back in December, FEMA’s updated estimate for NFIP claims arising from Hurricane Ian stood at between $3.7 billion and $5.2 billion.

FEMA also secures reinsurance protection for the NFIP from the capital markets in the form of catastrophe bonds via its FloodSmart Re program. Of these, the lowest down that are potentially exposed to Ian would only attach at $5.2 billion of losses, so at this stage it appears as though the cat bonds are reasonably safe from loss, barring a late and significant surge in claims, which seems unlikely now

The fact trial lawyers have dumped tens of thousands of lawsuits into the Florida courts in March, just before the state’s tort reform legislative overhaul kicked in, adds another threat to the already challenged Florida insurance market, the Insurance Information Institute (Triple-I) has said.

While this isn’t strictly property insurance related, for Florida’s legal system the fact trial lawyers have filed a record 280,122 lawsuits between March 1st and March 23rd, in order to beat the state’s tort overhaul, has the potential to be a concern.

That deluge of cases was 126.9% higher than the previous record in May of 2021, the Florida Bar said.

Triple-I explains, “These lawyers see the writing on the wall. The days of outsized legal fees from filing frivolous claims against insurance providers are over.”

But adds, “This last-ditch effort by trial lawyers will likely further delay consumers from benefiting from the new reforms as the load of cases slowly makes its way through Florida’s court system.”

In fact, the Triple-I predicts that this deluge of Florida lawsuits could “create a historic backlog” and as a result this could ensure that “insurers shell out billions of dollars in legal fees for the foreseeable future.”

This would “further threaten Florida’s weakened insurance market,” the Triple-I believes, a market that currently still sees as many as 24 insurers facing the risk of insolvency.

“This will make it even harder for Florida’s insurance market to stabilize, which was the intent of the reforms in the first place,” the organisation explains.

A destabilised Florida insurance market can pressure already-weakened insurers, drive additional costs through the system, while also resulting in further reinsurance pressures as the perception of the health of Florida’s primary insurers may take longer to improve.

It’s expected that many of these legal cases would normally have been denied, or settled pre lawsuit, but given the tort reform deadline lawyers have sought to file cases to protect their clients.

One of the Senate sponsor of the tort reform law, Palm Coast Republican Travis Hutson, commented, “I think it proves to us that the system is kind of broken and we need to reform it. You’re seeing all these lawsuits being filed now and it’s going to shock the system for a little bit, but eventually it will work itself out and we’ll be able to move forward under the new provisions.”

There’s no visibility of how many cases were filed that are relevant to Florida’s property insurance marketplace. But we’re told that the industry should expect that cases related to property carriers will be among them and there may have been a flurry of lawsuits filed in relation to last year’s hurricane Ian as well.

Time will tell how those work through the system and whether this legal backlog creates any challenges through the rest of 2023.

The fact trial lawyers have dumped tens of thousands of lawsuits into the Florida courts in March, just before the state’s tort reform legislative overhaul kicked in, adds another threat to the already challenged Florida insurance market, the Insurance Information Institute (Triple-I) has said.

While this isn’t strictly property insurance related, for Florida’s legal system the fact trial lawyers have filed a record 280,122 lawsuits between March 1st and March 23rd, in order to beat the state’s tort overhaul, has the potential to be a concern.

That deluge of cases was 126.9% higher than the previous record in May of 2021, the Florida Bar said.

Triple-I explains, “These lawyers see the writing on the wall. The days of outsized legal fees from filing frivolous claims against insurance providers are over.”

But adds, “This last-ditch effort by trial lawyers will likely further delay consumers from benefiting from the new reforms as the load of cases slowly makes its way through Florida’s court system.”

In fact, the Triple-I predicts that this deluge of Florida lawsuits could “create a historic backlog” and as a result this could ensure that “insurers shell out billions of dollars in legal fees for the foreseeable future.”

This would “further threaten Florida’s weakened insurance market,” the Triple-I believes, a market that currently still sees as many as 24 insurers facing the risk of insolvency.

“This will make it even harder for Florida’s insurance market to stabilize, which was the intent of the reforms in the first place,” the organisation explains.

A destabilised Florida insurance market can pressure already-weakened insurers, drive additional costs through the system, while also resulting in further reinsurance pressures as the perception of the health of Florida’s primary insurers may take longer to improve.

It’s expected that many of these legal cases would normally have been denied, or settled pre lawsuit, but given the tort reform deadline lawyers have sought to file cases to protect their clients.

One of the Senate sponsor of the tort reform law, Palm Coast Republican Travis Hutson, commented, “I think it proves to us that the system is kind of broken and we need to reform it. You’re seeing all these lawsuits being filed now and it’s going to shock the system for a little bit, but eventually it will work itself out and we’ll be able to move forward under the new provisions.”

There’s no visibility of how many cases were filed that are relevant to Florida’s property insurance marketplace. But we’re told that the industry should expect that cases related to property carriers will be among them and there may have been a flurry of lawsuits filed in relation to last year’s hurricane Ian as well.

Time will tell how those work through the system and whether this legal backlog creates any challenges through the rest of 2023.